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we plan to redirect approximately 40 % of this benefit into increased job creation initiatives in research and development and manufacturing in 2016. on march 11 , 2015 , we acquired branch medical group ( โ bmg โ ) , a related-party manufacturer of high precision medical devices located in audubon , pennsylvania , for $ 57.0 million in cash , $ 5.3 million in deferred consideration , and $ 0.9 million of closing working capital adjustments . we believe the vertical integration opportunity afforded by bmg will strengthen globus , both operationally and financially . we expect this acquisition , together with other investments in our in-house manufacturing capabilities , to enable us to achieve our goal of in-house production of approximately one-half of our spinal implant product purchases by 2018. components of our results of operations we manage our business globally within one reportable segment , which is consistent with how our management reviews our business , makes investment and resource allocation decisions and assesses operating performance . sales we sell implants and related disposables , primarily to hospitals , for use by spine surgeons to treat spine disorders . we generally consign our surgical sets , which contain our implants , disposables , surgical instruments and cases to our sales representatives , and the sets are maintained with the sales representatives 51 or at our hospital customers that purchase the implants and related disposables used in the surgeries . we recognize revenue when we are notified that consigned implants and related disposables have been implanted or used , or for sets that are sold directly and not consigned , when title to the goods and risk of loss are transferred to customers with no remaining performance obligations which affect the customer 's final acceptance of the sale . we expect to expand our u.s. and international sales forces , which will provide us with significant opportunity to continue to increase our penetration in existing markets and to enter new international markets . we also expect to increase sales by commercializing new products , but expect the increase of sales from new products to be partially offset by decreased sales of earlier-generation products . all of our current products fall into one of two categories : innovative fusion or disruptive technologies . our innovative fusion products comprise fusion products to treat a wide variety of spinal disorders for the entire spine and can be used in a variety of surgical approaches . we believe our innovative fusion products have features and characteristics that may provide advantages for surgeons and potentially contribute to better outcomes for patients as compared to competing traditional fusion products . we define disruptive technologies as those that represent a significant shift in the treatment of spinal disorders by allowing for novel surgical procedures , improvements to existing surgical procedures and the treatment of spinal disorders earlier in the continuum of care . we believe the use of disruptive technologies may improve patient outcomes and reduce costs given the expected lower morbidity rates , shorter patient recovery times and shorter hospital stays associated with these procedures . additionally , disruptive technologies may help a patient avoid progression of spinal disc disease sometimes caused by traditional surgical options such as spinal fusion . our current portfolio of approved and pipeline disruptive technology products includes products that allow for minimally invasive surgical ( โ mis โ ) techniques , as well as new treatment alternatives , including motion preservation technologies , such as dynamic stabilization , total disc replacement and interspinous process spacer products , and regenerative biologics technologies , as well as interventional pain management solutions , including treatments for vertebral compression fractures . as a result , we anticipate disruptive technology products to continue to drive our sales growth in the future . cost of goods sold while we have increased our in-house spinal implant product manufacturing capacity , we also have products manufactured by third-party suppliers . substantially all of our suppliers manufacture our products in the united states . our cost of goods sold consists primarily of costs of products purchased from our third-party suppliers , excess and obsolete inventory charges , depreciation of surgical instruments and cases , royalties , shipping , inspection and related costs incurred in making our products available for sale or use . beginning in january 2013 , our cost of goods sold increased as a result of a medical device excise tax ( โ mdet โ ) of up to 2.3 % on the sale of certain medical devices in the united states . on december 18 , 2015 , the mdet was suspended for two years effective january 1 , 2016. research and development expenses our research and development expenses primarily consist of engineering , product development , clinical and regulatory expenses , consulting services , outside prototyping services , internal and external research activities , materials , depreciation , and other costs associated with development of our products . research and development expenses also include related personnel and consultants ' compensation and stock-based compensation expense . we expense research and development costs as they are incurred . we expect to incur additional research and development costs as we continue to develop new products . these costs will increase in absolute terms as we continue to expand our product pipeline and add personnel . 52 selling , general and administrative expenses selling , general and administrative expenses primarily consist of salaries , benefits and other related costs , including stock-based compensation for personnel employed in sales , marketing , finance , legal , compliance , administrative , information technology , medical education and training , quality and human resource departments . our selling , general and administrative expenses also include commissions , generally based on a percentage of sales , to direct sales representatives and distributors . we expect our selling , general and administrative expenses will increase in absolute terms with the continued expansion of our sales force and commercialization of our current and pipeline products . story_separator_special_tag we plan to hire more personnel to support the growth of our business . provision for litigation we record a provision for litigation settlements when a loss is known or considered probable and the amount can be reasonably estimated and in the case of a favorable settlement , income when realized . income tax provision we are taxed at the rates applicable within each jurisdiction . the composite income tax rate , tax provisions , deferred tax assets and deferred tax liabilities will vary according to the jurisdiction in which profits arise . tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities , and require us to exercise judgment in determining our income tax provision , our deferred tax assets and liabilities , and the valuation allowance recorded against our net deferred tax assets . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . a valuation allowance is established when it is more likely than not that the future realization of all or some of the deferred tax assets will not be achieved . critical accounting policies and estimates the preparation of the consolidated financial statements requires us to make assumptions , estimates and judgments that affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements , and the reported amounts of sales and expenses during the reporting periods . certain of our more critical 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 . on an ongoing basis , we evaluate our judgments , including but not limited to those related to inventories , recoverability of long-lived assets and the fair value of our common stock . we use historical experience and other assumptions as the basis for our judgments and making these estimates . because future events and their effects can not be determined with precision , actual results could differ significantly from these estimates . any changes in those estimates will be reflected in our consolidated financial statements as they occur . while our significant accounting policies are more fully described in โ item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 1. background and summary of significant accounting policies โ below in this annual report , we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results . the critical accounting policies addressed below reflect our most significant judgments and estimates used in the preparation of our consolidated financial statements . we have reviewed these critical accounting policies with the audit committee of our board . 53 revenue recognition . we recognize revenue when persuasive evidence of an arrangement exists , product delivery has occurred , pricing is fixed or determinable , and collection is reasonably assured . we generate a significant portion of our revenue from consigned inventory maintained at hospitals or with sales representatives . for these products , we recognize revenue at the time we are notified the product has been used or implanted . for all other transactions , we recognize revenue when title to the goods and risk of loss transfer to customers , provided there are no remaining performance obligations that will affect the customer 's final acceptance of the sale . our policy is to classify shipping and handling costs billed to customers as sales and the related expenses as cost of goods sold . in general , our customers do not have any rights of return or exchange . accounts receivable and allowance for doubtful accounts . the majority of our accounts receivable is composed of amounts due from hospitals . accounts receivable is carried at cost less an allowance for doubtful accounts . on a regular basis , we evaluate accounts receivable and estimate an allowance for doubtful accounts , as needed , based on various factors such as customers ' current credit conditions , length of time past due , and the general economy as a whole . receivables are written off against the allowance when they are deemed uncollectible . excess and obsolete inventory . we state inventories at the lower of cost or market . we determine cost on a first-in , first-out basis . the majority of our inventory is finished goods , because we primarily utilize third-party suppliers to source our products . we periodically evaluate the carrying value of our inventories in relation to the estimated forecast of product demand , which takes into consideration the estimated life cycle of product releases . when quantities on hand exceed estimated sales forecasts , we record a reserve for excess inventories , which results in a corresponding charge to cost of goods sold . charges incurred for excess and obsolete inventory were $ 9.9 million , $ 7.0 million and $ 8.2 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . the need to maintain substantial levels of inventory impacts the risk of carrying excess inventory . many of our products come in sets which feature components in a variety of sizes so that the implant or device may be customized to the patient 's needs . in order to market our products effectively , we must often maintain and provide surgeons and hospitals with consignment implant sets , back-up products and products of different sizes . for each surgery , fewer than all of the components of the set are used , and therefore certain portions of the set may be considered excess inventory since they are not likely to be used . one of our primary business goals is to focus on continual product innovation .
| cost of goods sold replace_table_token_7_th the increase in cost of goods sold was due primarily to an increase of $ 20.1 million from increased sales volume , including impacts from pricing pressure , ttot and foreign currency , an increase of $ 1.4 million for inventory reserves and write-offs , and an increase of $ 0.4 million from product mix and other costs . 57 research and development expenses replace_table_token_8_th the increase in research and development expenses was due primarily to an increase of $ 3.7 million in employee compensation from additional headcount for furthering research activities and developing new innovative products , an increase of $ 1.6 million in supplies and other costs , and an increase of $ 1.3 million related to our robotics initiative , offset by a decrease of $ 1.3 million of clinical trial and other consulting costs . selling , general and administrative expenses replace_table_token_9_th the increase in selling , general and administrative expenses was due primarily to an increase of $ 19.3 million of costs to support sales volume and company growth , including ttot and bmg , an increase of $ 4.8 million in acquisition-related expenses , and an increase of $ 2.1 million in legal expenses , bad debt expense and other selling , general and administrative costs . provision for litigation replace_table_token_10_th the current year provision for litigation , which includes settlement and verdict costs , was due primarily to the recognition of the depuy synthes settlement agreement . in the prior year period , we recognized provisions for the bianco verdict and other litigation matters . for additional information regarding litigation , please refer to โ item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 14. commitments and contingencies and note 19. subsequent events โ below . other income , net replace_table_token_11_th 58 the increase in other income , net is due primarily to increases in interest income from increased average investment balances , partially offset by increases in foreign exchange transaction losses . income tax provision replace_table_token_12_th our tax provision and effective tax rate for the year ended december 31 , 2015 was higher than the prior year due primarily to the 2014 reduction
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c technologies ' flowvpe ยฎ device , an extension of the solovpe technology , was designed to allow end users to make in-line protein concentration measurements in filtration , chromatography and fill-finish applications , designed to allow for real-time process monitoring . the c technologies acquisition was accounted for as a purchase of a business under accounting standard codification no . ( โ asc โ ) 805 , โ business combinations. โ the cash paid for the c technologies acquisition was $ 195.0 million , $ 186.0 million of which will be consideration transferred pursuant to asc 805 , and $ 9.0 million of which will be compensation expense for future employment , and 779,221 of unregistered common shares totaling $ 53.9 million ( based on a per share price of $ 69.22 ) , for a total purchase price of $ 239.9 million . critical accounting policies and estimates while our significant accounting policies are more fully described in the notes to our consolidated financial statements , we have identified the policies and estimates below as being critical to our business operations and the understanding of our results of operations . these policies require management 's most difficult , subjective or complex judgements , often as a result of the need to make estimates about the effect of matters that are inherently uncertain . the impact of and any associated risks related to these policies on our business operations are discussed throughout โ management 's discussion and analysis of financial condition , โ including in the โ results of operations โ section , where such policies affect our reported and expected financial results . although we believe that our estimates , assumptions , and judgements are reasonable , they are based upon information presently available . actual results may differ significantly from these estimates under different assumptions , judgments , or conditions . revenue recognition we generate revenue from the sale of bioprocessing products , equipment devices , and related consumables used with these equipment devices to customers in the life science and biopharmaceutical industries . under asc 606 , โ revenue from contracts with customers , โ revenue is recognized when , or as , obligations under the terms of a contract are satisfied , which occurs when control of the promised products or services is transferred to customers . revenue is measured as the amount of consideration the company expects to receive in exchange for transferring products or services to a customer ( โ transaction price โ ) . to the extent the transaction price includes variable consideration , the company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount method , depending on the facts and circumstances relative to the contract . variable consideration is included in the transaction price if , in the company 's judgment , it is probable that a significant future reversal of cumulative revenue under the contract 36 will not occur . estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the company 's anticipated performance and all information ( historical , current and forecasted ) that is reasonably available . sales , value add , and other taxes collected on behalf of third parties are excluded from revenue . when determining the transaction price of a contract , an adjustment is made if payment from a customer occurs either significantly before or significantly after performance , resulting in a significant financing component . applying the practical expedient in paragraph 606-10-32-18 , the company does not assess whether a significant financing component exists if the period between when the company performs its obligations under the contract and when the customer pays is one year or less . none of the company 's contracts contained a significant financing component as of december 31 , 2019. contracts with customers may contain multiple performance obligations . for such arrangements , the transaction price is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation . the company determines standalone selling prices based on the price at which the performance obligation is sold separately . if the standalone selling price is not observable through past transactions , the company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations . the company recognizes product revenue under the terms of each customer agreement upon transfer of control to the customer , which occurs at a point in time . inventories we value inventory at cost or , if lower , net realizable value , using the first-in , first-out method . we review our inventory at least quarterly and record a provision for excess and obsolete inventory based on our estimates of expected sales volume , production capacity and expiration dates of raw materials , work-in-process and finished products . expected sales volumes are determined based on supply forecasts provided by key customers for the next three to 12 months . we write down inventory that has become obsolete , inventory that has a cost basis in excess of its expected net realizable value , and inventory in excess of expected requirements to cost of product revenue . manufacturing of bioprocessing finished goods is done to order and tested for quality specifications prior to shipment . a change in the estimated timing or amount of demand for our products could result in additional provisions for excess inventory quantities on hand . any significant unanticipated changes in demand or unexpected quality failures could have a significant impact on the value of inventory and reported operating results . during all periods presented in the accompanying consolidated financial statements , there have been no material adjustments related to a revised estimate of inventory valuations . story_separator_special_tag business combinations amounts paid for acquisitions are allocated to the tangible and intangible assets acquired and liabilities assumed , if any , based on their fair values at the dates of acquisition . this purchase price allocation process requires management to make significant estimates and assumptions with respect to intangible assets and deferred revenue obligations . the fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions determined by management . any excess of purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill . while we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration , where applicable , our estimates are inherently uncertain and subject to refinement . as a result , during the measurement period , which may be up to one year from the acquisition date , we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill . upon 37 conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed , whichever comes first , any subsequent adjustments are recorded to our consolidated statements of comprehensive income . the fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made , the extent of royalties to be earned in excess of the defined minimum royalties , etc . management updates these estimates and the related fair value of contingent consideration at each reporting period based on the estimated probability of achieving the earnout targets and applying a discount rate that captures the risk associated with the expected contingent payments . to the extent our estimates change in the future regarding the likelihood of achieving these targets we may need to record material adjustments to our accrued contingent consideration . changes in the fair value of contingent consideration are recorded in our consolidated statements of comprehensive income . we use the income approach to determine the fair value of certain identifiable intangible assets including customer relationships and developed technology . this approach determines fair value by estimating after-tax cash flows attributable to these assets over their respective useful lives and then discounting these after-tax cash flows back to a present value . we base our assumptions on estimates of future cash flows , expected growth rates , expected trends in technology , etc . we base the discount rates used to arrive at a present value as of the date of acquisition on the time value of money and certain industry-specific risk factors . we believe the estimated purchased customer relationships , developed technologies , trademark / tradename , patents , and in process research and development amounts so determined represent the fair value at the date of acquisition and do not exceed the amount a third party would pay for the assets . intangible assets and goodwill intangible assets intangible assets with a definite life are amortized over their useful lives using the straight-line method and the amortization expense is recorded within cost of product revenue and selling , general and administrative expense in the consolidated statements of comprehensive income . intangible assets and their related useful lives are reviewed at least annually to determine if any adverse conditions exist that would indicate the carrying value of these assets may not be recoverable . more frequent impairment assessments are conducted if certain conditions exist , including a change in the competitive landscape , any internal decisions to pursue new or different technology strategies , a loss of a significant customer , or a significant change in the marketplace , including changes in the prices paid for the company 's products or changes in the size of the market for the company 's products . if impairment indicators are present , the company determines whether the underlying intangible asset is recoverable through estimated future undiscounted cash flows . if the asset is not found to be recoverable , it is written down to the estimated fair value of the asset based on the sum of the future discounted cash flows expected to result from the use and disposition of the asset . if the estimate of an intangible asset 's remaining useful life is changed , the remaining carrying amount of the intangible asset is amortized prospectively over the revised remaining useful life . the company continues to believe that its definite-lived intangible assets are recoverable at december 31 , 2019. indefinite-lived intangible assets are tested for impairment at least annually . there has been no impairment of our intangible assets for the periods presented . goodwill we test goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value . events that would indicate impairment and trigger an interim impairment assessment include , but are not limited to , current economic and market conditions , including a decline in market capitalization , a significant adverse change in legal factors , business climate or operational performance of the business , and an adverse action or assessment by a regulator . goodwill is tested for impairment as of december 31 st of each year , or more frequently as warranted 38 by events or changes in circumstances mentioned above . accounting guidance also permits an optional qualitative assessment for goodwill to determine whether it is more likely than not that the carrying value of a reporting unit exceeds its fair value . if , after this qualitative assessment , we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , then no further quantitative testing would be necessary . a quantitative assessment is performed if the qualitative assessment results in a more likely than not determination or if a qualitative assessment is not performed .
| for 2019 , product revenue increased by $ 76.2 million , or 39 % , as compared to 2018. the increase is due to the continued adoption of our products by our key bioprocessing customers , particularly our chromatography and filtration products . sales of our bioprocessing products are impacted by the timing of orders , development efforts at our customers or end-users and regulatory approvals for biologics that incorporate our products , which may result in significant quarterly fluctuations . such quarterly fluctuations are expected , but they may not be predictive of future revenue or otherwise indicate a trend . additionally , there was a $ 16.4 million increase in the 2019 revenue compared to the 2018 revenue due to revenues generated by c technologies . for 2018 , product revenue increased by $ 52.8 million , or 37 % , as compared to 2017. the increase is due to the continued adoption of our products by our key bioprocessing customers and a full year of revenues derived from our acquisition of spectrum in august 2017. royalty revenues royalty revenues in 2019 and 2018 relate to royalties received from a third-party systems manufacturer associated with our opus chromatography columns . royalty revenues are variable and are dependent on sales generated by our partner . 42 costs and operating expenses total costs and operating expenses for years ended december 31 , 2019 , 2018 and 2017 were comprised of the following : replace_table_token_6_th cost of product revenue for 2019 and 2018 , cost of product revenue increased $ 32.6 million , or 38 % , and $ 19.5 million , or 29 % , respectively , as compared to 2018 and 2017 , due primarily to the increase in revenue mentioned above . gross margins may fluctuate in future quarters based on expected production volume and product mix . gross margins were 56 % , 55 % , and 53 % for 2019 , 2018 and 2017 , respectively . the gross margin in 2019 includes $ 1.5 million of amortization on an inventory step-up recorded
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unless extended or terminated by the board , the company 10b5-1 plan will be in effect through the earlier of august 31 , 2018 or such time as the current approved repurchase amount of up to $ 50 million has been fully utilized , subject to certain conditions . our investment framework we are a specialty finance company focused on lending to middle-market companies . since we began our investment activities in july 2011 , through december 31 , 2017 , we have originated more than $ 7.3 billion aggregate principal amount of investments and retained approximately $ 4.4 billion aggregate principal amount of these investments on our balance sheet prior to any subsequent exits and repayments . we seek to generate current income primarily in u.s.-domiciled middle-market companies through direct originations of senior secured loans and , to a lesser extent , originations of mezzanine and unsecured loans and investments in corporate bonds and equity securities . 57 by โ middle-market companies , โ we mean companies that have annual ebitda , which we believe is a useful proxy for cash flow , of $ 10 million to $ 250 million , although we may invest in larger or smaller companies on occasion . as of december 31 , 2017 , our core portfolio companies , which excludes certain investments that fall outside of our typical borrower profile and represent 83.2 % of our total investments based on fair value , had weighted average annual revenue of $ 130.3 million and weighted average annual ebitda of $ 25.1 million . we invest in first-lien debt , second-lien debt , mezzanine and unsecured debt and equity and other investments . our first-lien debt may include stand-alone first-lien loans ; โ last out โ first-lien loans , which are loans that have a secondary priority behind super-senior โ first out โ first-lien loans ; โ unitranche โ loans , which are loans that combine features of first-lien , second-lien and mezzanine debt , generally in a first-lien position ; and secured corporate bonds with similar features to these categories of first-lien loans . our second-lien debt may include secured loans , and , to a lesser extent , secured corporate bonds , with a secondary priority behind first-lien debt . the debt in which we invest typically is not rated by any rating agency , but if these instruments were rated , they would likely receive a rating of below investment grade ( that is , below bbb- or baa3 ) , which is often referred to as โ junk. โ the companies in which we invest use our capital to support organic growth , acquisitions , market or product expansion and recapitalizations ( including restructurings ) . as of december 31 , 2017 , the largest single investment based on fair value represented 6.7 % of our total investment portfolio . as of december 31 , 2017 , the average investment size in each of our portfolio companies was approximately $ 37.6 million based on fair value . through our adviser , we consider potential investments utilizing a four-tiered investment framework and against our existing portfolio as a whole : business and sector selection . we focus on companies with enterprise value between $ 50 million and $ 1 billion . when reviewing potential investments , we seek to invest in businesses with high marginal cash flow , recurring revenue streams and where we believe credit quality will improve over time . we look for portfolio companies that we think have a sustainable competitive advantage in growing industries or distressed situations . we also seek companies where our investment will have a low loan-to-value ratio . we currently do not limit our focus to any specific industry and we may invest in larger or smaller companies on occasion . we classify the industries of our portfolio companies by end-market ( such as healthcare , and business services ) and not by the products or services ( such as software ) directed to those end-markets . as of december 31 , 2017 , the largest industry represented 14.0 % of our total investment portfolio based on fair value . investment structuring . we focus on investing at the top of the capital structure and protecting that position . as of december 31 , 2017 , approximately 97.0 % of our portfolio was invested in secured debt , including 93.4 % in first-lien debt investments . we carefully perform diligence and structure investments to include strong investor covenants . as a result , we structure investments with a view to creating opportunities for early intervention in the event of non-performance or stress . in addition , we seek to retain effective voting control in investments over the loans or particular class of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position . we also aim for our loans to mature on a medium term , between two to six years after origination . for the year ended december 31 , 2017 , the weighted average term on new investment commitments in new portfolio companies was 4.2 years . deal dynamics . we focus on , among other deal dynamics , direct origination of investments , where we identify and lead the investment transaction . a substantial majority of our portfolio investments are sourced through our direct or proprietary relationships . risk mitigation . we seek to mitigate non-credit-related risk on our returns in several ways , including call protection provisions to protect future interest income . as of december 31 , 2017 , we had call protection on 91.2 % of our debt investments based on fair value , with weighted average call prices of 106.2 % for the first year , 103.2 % for the second year and 101.4 % for the third year , in each case from the date of the initial investment . story_separator_special_tag as of december 31 , 2017 , 100.0 % of our debt investments based on fair value bore interest at floating rates ( when including investment specific hedges ) , with 93.3 % of these subject to interest rate floors , which we believe helps act as a portfolio-wide hedge against inflation . relationship with our adviser , tssp and tpg our adviser is a delaware limited liability company . our adviser acts as our investment adviser and administrator and is a registered investment adviser with the sec under the advisers act . our adviser sources and manages our portfolio through a dedicated team of investment professionals predominately focused on us . our investment team is led by our chairman and chief 58 executive officer and our adviser 's co-chief investment officer joshua easterly and our adviser 's co-chief investment officer alan waxman , both of whom have substantial experience in credit origination , underwriting and asset management . our investment decisions are made by our investment review committee , which includes senior personnel of our adviser and tpg sixth street partners , or tssp . tssp , with approximately $ 20 billion of assets under management as of september 30 , 2017 , is tpg 's special situations and credit platform and encompasses tpg specialty lending , tpg opportunities partners and tssp adjacent opportunities partners , which invest in special situations and distressed investments across the credit cycle , tsl europe , which is aimed at european middle-market loan originations , and tpg institutional credit partners , which is a โ public-side โ credit investment platform focused on investment opportunities in broadly syndicated leveraged loan markets . tssp has extensive experience with highly complex , global public and private investments executed through primary originations , secondary market purchases and restructurings , and has a team of over 180 investment and operating professionals . as of december 31 , 2017 , thirty one ( 31 ) of these personnel are dedicated to our business , including twenty four ( 24 ) investment professionals . our adviser consults with tssp and tpg in connection with a substantial number of our investments . the tssp and tpg platforms provide us with a breadth of large and scalable investment resources . we believe we benefit from their market expertise , insights into sector and macroeconomic trends and intensive due diligence capabilities , which help us discern market conditions that vary across industries and credit cycles , identify favorable investment opportunities and manage our portfolio of investments . tssp and tpg will refer all middle-market loan origination activities for companies domiciled in the united states to us and conduct those activities through us . the adviser will determine whether it would be permissible , advisable or otherwise appropriate for us to pursue a particular investment opportunity allocated to us by tssp and tpg . on december 16 , 2014 , we were granted an exemptive order from the sec that allows us to co-invest , subject to certain conditions and to the extent the size of an investment opportunity exceeds the amount our adviser has independently determined is appropriate to invest , with affiliates of tssp and tpg in middle-market loan origination activities for companies domiciled in the united states and certain โ follow-on โ investments in companies in which we have already co-invested pursuant to the order and remain invested . we believe our ability to co-invest with tssp and tpg affiliates is particularly useful where we identify larger capital commitments than otherwise would be appropriate for us . we expect that with the ability to co-invest with tssp and tpg affiliates we will continue to be able to provide โ one-stop โ financing to a potential portfolio company in these circumstances , which may allow us to capture opportunities where we alone could not commit the full amount of required capital or would have to spend additional time to locate unaffiliated co-investors . under the terms of the investment advisory agreement and administration agreement , the adviser 's services are not exclusive , and the adviser is free to furnish similar or other services to others , so long as its services to us are not impaired . under the terms of the investment advisory agreement , we will pay the adviser the base management fee , or the management fee , and may also pay certain incentive fees , or the incentive fees . under the terms of the administration agreement , the adviser also provides administrative services to us . these services include providing office space , equipment and office services , maintaining financial records , preparing reports to stockholders and reports filed with the sec , and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others . certain of these services are reimbursable to the adviser under the terms of the administration agreement . key components of our results of operations investments we focus primarily on the direct origination of loans to middle-market companies domiciled in the united states . our level of investment activity ( both the number of investments and the size of each investment ) can and does vary substantially from period to period depending on many factors , including the amount of debt and equity capital generally available to middle-market companies , the level of merger and acquisition activity for such companies , the general economic environment and the competitive environment for the types of investments we make . in addition , as part of our risk strategy on investments , we may reduce certain levels of investments through partial sales or syndication to additional investors . 59 revenues we generate revenues primarily in the form of interest income from the investments we hold . in addition , we may generate income from dividends on direct equity investments , capital gains on the sale of investments and various loan origination and other fees .
| million for the year ended december 31 , 2016 , primarily due to the increase in the size of our investment portfolio . the average size of our investment portfolio increased from $ 1.4 billion during the year ended december 31 , 2015 to $ 1.6 billion during the year ended december 31 , 2016. accelerated amortization of upfront fees , primarily from unscheduled paydowns , decreased from $ 6.9 million for the year ended december 31 , 2015 to $ 5.4 million for the year ended december 31 , 2016 , and prepayment fees decreased from $ 15.4 million for the year ended december 31 , 2015 to $ 2.6 million for the year ended december 31 , 2016. the accelerated amortization and prepayment fees primarily resulted from full paydowns on 11 portfolio investments , a partial paydown on one portfolio investment and prepayment fees on 13 portfolio investments during the year ended december 31 , 2015 , and full paydowns on seven portfolio investments , a partial paydown on one portfolio investment and prepayment fees on four portfolio investments during the year ended december 31 , 2016. dividend income increased from $ 0.9 million for the year ended december 31 , 2015 to $ 1.7 million for the year ended december 31 , 2016 due to owning our dividend yielding investments for a full calendar year . other income increased from $ 7.9 million for the year ended december 31 , 2015 to $ 12.9 million for the year ended december 31 , 2016 , primarily due to higher syndication , amendment and agency fees earned during 2016. expenses operating expenses for the years ended december 31 , 2017 , 2016 and 2015 were as follows : replace_table_token_24_th 66 interest interest expense , including other debt financing expenses , increased from $ 23.1 million for the year ended december 31 , 2016 to $ 27.4 million for the year ended december 31 , 2017. this increase was primarily due to
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unapproved change orders involve the use of estimates , and it is reasonably possible that revisions to the estimated costs and recoverable amounts may be required in future reporting periods to reflect changes in estimates or final agreements with customers . change orders that are unapproved as to both price and scope are evaluated as claims . the company considers claims to be amounts in excess of agreed contract prices that we seek to collect from our customers or others for customer-caused delays , errors in specifications and designs , contract terminations , change orders that are either in dispute or are unapproved as to both scope and price , or other causes of unanticipated additional contract costs . claims are included in the calculation of revenue when realization is probable and amounts can be reliably determined to the extent costs are incurred . to support these requirements , the existence of the following items must be satisfied : ( i ) the contract or other evidence provides a legal basis for the claim ; or a legal opinion has been obtained , stating that under the circumstances there is a reasonable basis to support the claim ; ( ii ) additional costs are caused by circumstances that were unforeseen at the contract date and are not the result of deficiencies in the contractor 's performance ; ( iii ) costs associated with the claim are identifiable or otherwise determinable and are reasonable in view of the work performed ; and ( iv ) the evidence supporting the claim is objective and verifiable , not based on management 's feel for the situation or on unsupported representations . revenue in excess of contract costs incurred on claims is recognized when an agreement is reached with customers as to the value of the claims , which in some instances may not occur until after completion of work under the contract . costs associated with claims are included in the estimated costs to complete the contracts and are treated as project costs when incurred . the company has projects where we are in the process of negotiating , or awaiting final approval of , unapproved change orders and claims with our customers . the company is proceeding with its contractual rights to recoup additional costs incurred from its customers based on completing work associated with change orders , including change orders with pending change order pricing , or claims related to significant changes in scope which resulted in substantial delays and additional costs in completing the work . unapproved change order and claim information has been provided to our customers and negotiations with the customers are ongoing . if additional progress with an acceptable resolution is not reached , legal action will be taken . the accuracy of our revenue and profit recognition in a given period is dependent on the accuracy of our estimates of the revenues and costs to finish uncompleted contracts . our estimates for all of our significant contracts use a highly detailed โ bottom up โ approach . however , our projects can be highly complex , and in almost every case , the profit margin estimates for a contract will either increase or decrease to some extent from the amount that was originally estimated at the time of bid . because we have a large number of projects of varying levels of size and complexity in process at any given time , these changes in estimates can sometimes offset each other without materially impacting our overall profitability . however , large changes in revenue or cost estimates can have a significant effect on profitability . there are a number of factors that can contribute to changes in estimates of contract cost and profitability . the most significant of these include the completeness and accuracy of the original bid , recognition of costs associated with scope changes , extended overhead due to customer-related and weather-related delays , subcontractor and supplier performance issues , site conditions that differ from those assumed in the original bid ( to the extent contract remedies are unavailable ) , the availability and skill level of workers in the geographic location of the project and changes in the availability and proximity of materials . the foregoing factors , as well as the stage of completion of contracts in process and the mix of contracts at different margins , may cause fluctuations in gross profit between periods , and these fluctuations may be significant . see โ recent developments โ above and โ results of operations - fiscal year ended december 31 , 2017 compared with fiscal year ended december 31 , 2016 โ for further discussion of the impact on our financial results . residential construction residential construction revenue and related profit are recognized when construction on the concrete foundation unit is completed . residential construction employs an assembly line construction process to perform the majority of this concrete construction services . we assign to our subcontractors different , but sequential tasks at a particular job site . this assembly line 30 process minimizes potential bottlenecks and increases productivity . residential construction agreements are negotiated up front with the customer . the time from starting construction to finishing is typically less than one month . heavy civil construction contracts receivable , including retainage contracts receivable are generally based on amounts billed to the customer and currently due in accordance with our contracts . many of the contracts under which the company performs heavy civil construction work contain retainage provisions . retainage refers to that portion of billings made by the company , but held for payment by the customer pending satisfactory completion of the project . retainage is classified as a current asset regardless of the term of the contract and is generally collected within one year of the completion of a contract . at december 31 , 2017 and 2016 , contracts receivable included $ 43.5 million and $ 23.4 million of retainage , respectively , which is being contractually withheld by customers until milestones specified in the contract are complete . story_separator_special_tag there are certain contracts that are completed in advance of full payment . when the receivable will not be collected within our normal operating cycle , we consider it a long-term contract receivable and it is recorded in โ other assets , net โ in our balance sheet . we consider the credit quality of the borrower to assess the appropriate discount rate to apply and continuously monitor the borrower 's credit quality . at december 31 , 2017 and 2016 , there were no such long-term contract receivables recorded in our consolidated balance sheets . as the majority of our heavy civil construction contracts are entered into with federal , state or municipal government customers , credit risk is minimal . the company ascertains that funds have been appropriated by the governmental project owner prior to commencing work on such projects . while most public contracts are subject to termination at the election of the government entity , in the event of termination the company is entitled to receive the contract price for completed work and reimbursement of termination-related costs . credit risk with private owners is minimized because of statutory mechanics liens , which give the company high priority in the event of lien foreclosures following financial difficulties of private owners . contracts receivable are written off based on individual credit evaluation and specific circumstances of the customer , when such treatment is warranted . there was a minimal amount of bad debt expense recorded in 2017 , 2016 and 2015 . based upon a review of outstanding contracts receivable , historical collection information and existing economic conditions , management has determined that all of contracts receivable at december 31 , 2017 are fully collectible and accordingly , no allowance for doubtful accounts against contracts receivable was recorded . valuation of long-lived assets and goodwill long-lived assets , which include property , equipment and acquired intangible assets , including goodwill , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . impairment evaluations involve fair values and management estimates of useful asset lives and future cash flows . actual useful lives and cash flows could be different from those estimated by management , and this could have a material effect on operating results and financial position . for the years ended december 31 , 2017 and 2016 , there were no events or changes in circumstances that would indicate a material impairment of our long-lived assets . goodwill must be tested for impairment at least annually and we performed our most recent annual impairment test of historical goodwill as of october 1 , 2017 . our test indicated there was no impairment of goodwill for our heavy civil construction or residential construction units . see โ segment reporting โ below for further information regarding the determination of our reporting units . note 8 -- goodwill and other intangibles discusses the valuation approach used by the company to determine the fair value of the company 's equity for purposes of evaluating whether there is an indication of goodwill impairment . during the 2017 annual test , we used a qualitative assessment to determine if it is more likely than not that an impairment exists . factors considered include macroeconomic , industry and competitive conditions , financial performance and reporting unit specific events . the valuation approach utilized for the 2016 annual assessment is impacted by a number of factors , but the key factors are the company 's stock price , the estimated control premium and our estimated forecast of future cash flows . the valuation approach contains uncertainty regarding the estimates used . one of the largest uncertainties relates to local , state and government spending which management expects to increase in the upcoming years . there are a number of other uncertainties with respect to our future financial performance that could impact estimated future cash flows . these are discussed in a number of places including โ item 1a . risk factors. โ no impairments were recorded to our goodwill during the years ended december 31 , 2017 , 2016 and 2015. at december 31 , 2017 and 2016 , we had goodwill with a carrying amount of $ 85.2 million and $ 54.8 million , respectively . income taxes on december 22 , 2017 , the u.s. government enacted comprehensive tax legislation commonly referred to as the tax cuts and jobs act ( the `` tax act '' ) . the tax act makes broad and complex changes to the u.s. tax code , including , but not limited to , ( 1 ) reducing the u.s. federal corporate tax rate from 35 percent to 21 percent ; ( 2 ) eliminating the corporate alternative minimum tax ( amt ) and changing how existing amt credits can be realized ; ( 3 ) creating a new limitation on deductible interest expense ; 31 and ( 4 ) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after december 31 , 2017 ; ( 5 ) expanding the limitation for executive compensation deductions ; and ( 6 ) implementing 100 % immediate expensing of qualified property . as a result of the reduced federal corporate tax rate under the tax act , the company has reduced the value of its net deferred tax assets $ 19.5 million to reflect the enacted rate . this reduction was entirely offset with a corresponding reduction of our valuation allowance , which resulted in no charge to the tax provision for the year . the tax act also provides that existing amt credit carryforwards are refundable beginning in 2018. the company has approximately $ 146 thousand of amt credit carryforwards that are expected to be fully refunded by 2022. therefore , we have recorded a tax benefit and receivable for these credits in our december 31 , 2017 financial statements .
| finally , other operating expenses increased by $ 3.6 million primarily as a result of an additional $ 2.6 million of member 's interest expense driven by the higher 2017 earnings from our consolidated 50 % owned subsidiaries and a loss of $ 1.1 million from the sale of an excess facility . residential construction revenues our residential construction segment was a component of the tealstone acquisition acquired on april 3 , 2017. it 's principal market is texas , specifically the dallas-fort worth area and the surrounding communities . the core customer base for residential construction segment is primarily made up of leading national home builders as well as regional and custom home builders . our residential construction segment contributed $ 108.0 million of revenue attributable to the inclusion of nine months of revenue from the acquisition date . on a comparable unaudited pro forma revenue basis , for the nine months ended december 31 , 2016 , revenue was $ 86.9 million providing a pro forma period over period revenue growth of 24 % . this pro forma revenue growth rate reflects the strength of the segment 's primary market , the dallas-fort worth area , in texas . operating income the residential construction segment operating income totaled $ 14.9 million in 2017 reflecting the nine months of operating performance since the tealstone acquisition on april 3 , 2017. for the twelve months ended december 31 , 2017. on a comparable unaudited pro forma basis , for the nine months ended december 31 , 2016 , operating income was $ 11.8 million providing a pro forma period over period growth of 26 % . 36 fiscal year ended december 31 , 2016 compared with fiscal year ended december 31 , 2015 replace_table_token_7_th nm โ not meaningful . revenues revenues for 2016 increased $ 66.5 million , or 10.7 % , compared with the prior year . as our markets continue to improve , so has the trend of increasing backlog which increased $ 62 million from december 31 , 2015 to december 31 , 2016. this trend has contributed to the increased execution of projects and has favorably affected
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the life of the loan excludes expected extensions , renewals and modifications , unless 1 ) the extension or renewal options are included in the original or modified contract terms and not unconditionally cancellable by the corporation , or 2 ) management reasonably expects at the reporting date that a tdr will be executed with an individual borrower . the methodology incorporates the probability of default and loss given default , which are identified by default triggers such as past due by 90 or more days , whether a charge-off has occurred , the loan has been placed on nonaccrual status , the loan has been modified in a tdr or the loan is risk-rated as special mention or classified . the probability of default for the life of the loan is determined by the use of an econometric factor . management utilizes the national unemployment rate as an econometric factor with a one-year forecast period and one-year straight-line reversion period to the historical mean of its macroeconomic assumption in order to estimate the probability of default for each loan portfolio segment . utilizing a third party regression model , the forecasted national unemployment rate is correlated with the probability of default for each loan portfolio segment . the dcf methodology combines the probability of default , the loss given default , maturity date and prepayment speeds to estimate a reserve for each loan . the sum of all the loan level reserves are aggregated for each portfolio segment and a loss rate factor is derived . quantitative loss factors are also supplemented by certain qualitative risk factors reflecting management 's view of how losses may vary from those represented by quantitative loss rates . these qualitative risk factors include : 1 ) changes in lending policies and procedures , including changes in underwriting standards and collection , charge-off , and recovery practices not considered elsewhere in estimating credit losses ; 2 ) changes in international , national , regional , and local economic and business conditions and developments that affect the collectability of the portfolio , including the condition of various market segments ; 3 ) changes in the nature and volume of the portfolio and in the terms of loans ; 4 ) changes in the experience , ability , and depth of lending management and other relevant staff ; 5 ) changes in the volume and severity of past due loans , the volume of nonaccrual loans , and the volume and severity of adversely classified or rated loans ; 6 ) changes in the quality of the institution 's credit review system ; 7 ) changes in the value of underlying collateral for collateral dependent loans ; 8 ) the existence and effect of any concentrations of credit , and changes in the level of such concentrations ; and 9 ) the effect of other external factors such as legal and regulatory requirements on the level of estimated credit losses in the institution 's existing portfolio . qualitative loss factors are applied to each portfolio segment with the amounts determined by historical loan charge-offs of a peer group of similar-sized regional banks . because the methodology is based upon historical experience and trends , current economic data , reasonable and supportable forecasts , as well as management 's judgment , factors may arise that result in different estimations . while significant deterioration in the economic forecast due to the covid-19 pandemic was estimated in the acl on loans , continued uncertainty regarding the severity and duration of the pandemic and related economic effects will continue to affect the acl . deteriorating conditions or assumptions could lead to further increases in the acl on loans . in addition , various regulatory agencies periodically review the acl on loans . such agencies may require additions to the allowance based on their judgments about information available to them at the time of their examination . the acl on loans is an estimate , and ultimate losses may vary from management 's estimate . valuation of goodwill and identifiable intangible assets goodwill represents the excess of the purchase price over the net fair value of the acquired businesses . goodwill is not amortized , but is tested for impairment at the reporting unit level , defined as the segment level , at least annually in the fourth quarter or more frequently whenever events or circumstances occur that indicate that it is more-likely-than-not that an impairment loss has occurred . in 2020 , due to the changes in the macroeconomic environment resulting from the covid-19 pandemic , management performed an interim impairment assessment on goodwill as of march 31 , 2020 in addition to its annual assessment . in assessing impairment , the corporation has the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount . if , after assessing the totality of such events or circumstances , we -35- management 's discussion and analysis determine it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount , then we would not be required to perform an impairment test . the quantitative impairment analysis requires a comparison of each reporting unit 's fair value to its carrying value to identify potential impairment . goodwill impairment exists when a reporting unit 's carrying value of goodwill exceeds its implied fair value . significant judgment is applied when goodwill is assessed for impairment . this judgment includes , but may not be limited to , the selection of appropriate discount rates , the identification of relevant market comparables and the development of cash flow projections . the selection and weighting of the various fair value techniques may result in a higher or lower fair value . judgment is applied in determining the weightings that are most representative of fair value . story_separator_special_tag the annual and interim quantitative assessments of goodwill for the two reporting units ( commercial banking and wealth management services ) were performed utilizing a dcf analysis ( โ income approach โ ) and estimates of selected market information ( โ market approach โ ) . the income approach measures the fair value of an interest in a business by discounting expected future cash flows to present value . the market approach takes into consideration fair values of comparable companies operating in similar lines of business that are potentially subject to similar economic and environmental factors and could be considered reasonable investment alternatives . the results of the income approach and the market approach were weighted equally . the results of both the march 31 , 2020 and december 31 , 2020 quantitative impairment analyses indicated that the remaining fair value significantly exceeded the carrying value for both reporting units . intangible assets identified in acquisitions consist of wealth management advisory contracts . the fair value of intangible assets was estimated using valuation techniques , based on a dcf analysis . the value attributed to other intangible assets was based on the time period over which they are expected to generate economic benefits . intangible assets are amortized over their estimated lives using a method that approximates the amount of economic benefits that are realized by the corporation . intangible assets with definite lives are tested for impairment whenever events or circumstances occur that indicate that the carrying amount may not be recoverable . if applicable , the corporation tests each of the intangibles by comparing the carrying value of the intangible asset to the sum of undiscounted cash flows expected to be generated by the asset . if the carrying amount of the asset exceeds its undiscounted cash flows , then an impairment loss would be recognized for the amount by which the carrying amount exceeds its fair value . impairment would result in a write-down to the estimated fair value based on the anticipated discounted future cash flows . the remaining useful life of the intangible assets that are being amortized is also evaluated to determine whether events and circumstances warrant a revision to the remaining period of amortization . the corporation makes certain estimates and assumptions that affect the determination of the expected future cash flows from the intangible assets . for intangible assets such as wealth management advisory contracts , these estimates and assumptions include account attrition , market appreciation for wealth management aua and anticipated fee rates , estimated revenue growth , projected costs and other factors . significant changes in these estimates and assumptions could cause a different valuation for these intangible assets . changes in the original assumptions could change the amount of the intangible assets recognized and the resulting amortization . subsequent changes in assumptions could result in recognition of impairment of these intangible assets . when there are events or circumstances that occur indicating that the carrying amount of the corporation 's intangible assets may not be recoverable , the corporation tests each of the intangibles by comparing the carrying value of the intangible asset to the sum of undiscounted cash flows expected to be generated by the asset . as of december 31 , 2020 , the carrying value of intangible assets was deemed to be recoverable . these assumptions used in the impairment tests of goodwill and intangible assets are susceptible to change based on changes in economic conditions and other factors . any change in the estimates which the corporation uses to determine the carrying value of the corporation 's goodwill and identifiable intangible assets , or which otherwise adversely affects their value or estimated lives could adversely affect the corporation 's results of operations . see note 9 to the consolidated financial statements for additional information . -36- management 's discussion and analysis defined benefit pension plans the determination of the defined benefit obligation and net periodic benefit cost related to our defined benefit pension plans requires estimates and assumptions such as discount rates , mortality , rates of return on plan assets and compensation increases . management evaluates the assumptions annually and uses an actuarial firm to assist in making these estimates . changes in assumptions due to market conditions , governing laws and regulations , or circumstances specific to the corporation could result in material changes to defined benefit pension obligation and net periodic benefit cost . see note 17 to the consolidated financial statements for additional information . overview the corporation offers a comprehensive product line of banking and financial services to individuals and businesses , including commercial , residential and consumer lending , retail and commercial deposit products , and wealth management services through its offices in rhode island , eastern massachusetts and connecticut ; its atms ; telephone banking ; mobile banking and its internet website ( www.washtrust.com ) . our largest source of operating income is net interest income , which is the difference between interest earned on loans and securities and interest paid on deposits and borrowings . in addition , we generate noninterest income from a number of sources , including wealth management services , mortgage banking activities and deposit services . our principal noninterest expenses include salaries and employee benefit costs , outsourced services provided by third party vendors , occupancy and facility-related costs and other administrative expenses . we continue to leverage our strong regional brand to build market share and remain steadfast in our commitment to provide superior service . in 2021 , we plan to open a new full-service branch in east greenwich , rhode island . the covid-19 pandemic has caused an unprecedented disruption to the economy and the communities we serve . washington trust took action to support our customers experiencing financial difficulty due to the covid-19 pandemic , including loan payment deferment modifications and participation in the sba 's ppp .
| reports on the activities conducted by investment committee and the alco are presented to the board of directors on a regular basis . the corporation 's securities portfolio is managed to generate interest income , to implement interest rate risk management strategies , and to provide a readily available source of liquidity for balance sheet management . securities are designated as either available for sale , held to maturity or trading at the time of purchase . the corporation does does not maintain a portfolio of trading securities . as of december 31 , 2020 and december 31 , 2019 , the corporation did not have securities designated as held to maturity . securities available for sale may be sold in response to changes in market conditions , prepayment risk , rate fluctuations , liquidity , or capital requirements . debt securities available for sale are reported at fair value , with any unrealized gains and losses excluded from earnings and reported as a separate component of shareholders ' equity , net of tax , until realized . -49- management 's discussion and analysis determination of fair value the corporation uses an independent pricing service to obtain quoted prices . the prices provided by the independent pricing service are generally based on observable market data in active markets . the determination of whether markets are active or inactive is based upon the level of trading activity for a particular security class . management reviews the independent pricing service 's documentation to gain an understanding of the appropriateness of the pricing methodologies . management also reviews the prices provided by the independent pricing service for reasonableness based upon current trading levels for similar securities . if the prices appear unusual , they are re-examined and the value is either confirmed or revised . in addition , management periodically performs independent price tests of securities to ensure proper valuation and to verify our understanding of how securities are priced . as of december 31 , 2020 and 2019 , management did not make
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the alll consists of specific and general components . the specific component relates to loans that are classified as impaired . for such loans an allowance is established when the discounted cash flows , collateral value or observable market price of the impaired loan is lower than the carrying value of that loan . the general component covers all other loans and is based on historical loss experience adjusted by qualitative factors . the general reserve component of the alll is based on pools of unimpaired loans segregated generally by loan segment and risk rating categories of ยpassย , ยspecial mentionย or ยsubstandard and accruing , ย and historical loss factors and varied qualitative factor basis point allocations are applied based on the risk profile in each risk rating category to determine the appropriate reserve related to those loans . substandard loans on nonaccrual status are included in impaired loans . see note 2-ยsummary of significant accounting policiesย and note 5-ยloansย of the consolidated financial statements included in item 8-ยfinancial statements and supplementary dataย for additional information about the alll . securities valuation management utilizes various inputs to determine the fair value of its investment portfolio . to the extent they exist , unadjusted quoted market prices in active markets ( level 1 ) or quoted prices on similar assets or models using inputs that are observable , either directly or indirectly ( level 2 ) are utilized to determine the fair value of each investment in the portfolio . in the absence of observable inputs or if markets are illiquid , valuation techniques are used to determine fair value of any investments that require inputs that are both unobservable and significant to the fair value measurement ( level 3 ) . for level 3 inputs , valuation techniques are based on various assumptions , including , but not limited to , cash flows , discount rates , adjustments for nonperformance and liquidity , and liquidation values . a significant degree of judgment is involved in valuing investments using level 3 inputs . the use of different assumptions could have a positive or negative effect on the consolidated financial condition or results of operations . see note 4-ยsecuritiesย and note 18-ยfair value measurementsย of the consolidated financial statements included in item 8 hereof for more information about the company 's securities valuation techniques . on a quarterly basis , management evaluates individual investment securities classified as held-to-maturity or available-for-sale having unrealized losses to determine whether or not the security is other-than-temporarily-impaired ( ยottiย ) . the analysis of otti requires the use of various assumptions , including but not limited to , the length of time an investment 's fair value is less than book value , the severity of the investment 's decline , any credit deterioration of the issuer , whether management intends to sell the security , and whether it is more-likely-than-not that the company will be required to sell the security prior to recovery of its amortized cost basis . debt investment securities deemed to be otti are written down by the impairment related to the estimated credit loss and the non-credit related impairment loss is recognized in other comprehensive income . the company recognized otti charges on investment securities of $ 96 thousand , $ 798 thousand , and $ 4.3 million in 2012 , 2011 , and 2010 , respectively , within the consolidated statements of operations . for 2012 , the otti charges relate to estimated credit losses on pooled trust preferred securities . see note 4-ยsecuritiesย included in item 8-ยfinancial statements and supplementary dataย to the consolidated financial statements for additional information about our otti charges . other real estate owned other real estate owned ( ยoreoย ) consists of property acquired by foreclosure , abandonment or conveyance of deed in-lieu of foreclosure . it is held for sale and is initially recorded at fair value less cost to sell at the date of acquisition , which establishes a new cost basis . upon acquisition of the property , any write-down to fair value less estimated selling costs is charged to the alll . this determination is made on an individual asset basis . subsequent to acquisition , valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell . fair value is determined through external 31 appraisals , current letters of intent , broker price opinions or executed agreements of sale . costs relating to the development and improvement of the oreo properties may be capitalized ; holding period costs and subsequent changes to the valuation allowance are charged to expense as incurred . income taxes the objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity 's financial statements or tax returns . judgment is required in assessing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns . fluctuations in the actual outcome of these future tax consequences could impact our consolidated financial condition or results of operations . the company records an income tax provision or benefit based on the amount of tax currently payable or receivable and the change in deferred tax assets and liabilities . deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes . management conducts quarterly assessments of all available evidence to determine the amount of deferred tax assets that will more-likely-than-not be realized . the available evidence used in connection with these assessments includes taxable income in current and prior periods , cumulative losses in prior periods , projected future taxable income , potential tax-planning strategies , and projected future reversals of deferred tax items . story_separator_special_tag management 's assumptions and estimates take into consideration its interpretation of tax laws and possible outcomes of current and future audits conducted by tax authorities . these assessments involve a certain degree of subjectivity which may change significantly depending on the related circumstances . in connection with determining the income tax provision or benefit , the company considers maintaining liabilities for uncertain tax positions and tax strategies that management believes contain an element of uncertainty . periodically , the company evaluates each of its tax positions and strategies to determine whether a liability for uncertain tax benefits is required . as of december 31 , 2012 and 2011 , the company determined that it did not have any uncertain tax positions or tax strategies and that no liability was required to be recorded . note 2-ยsummary of significant accounting policiesย and note 13 - ยincome taxesย to the consolidated financial statements include additional discussion on the accounting for income taxes . new authoritative accounting pronouncements accounting standards update ( ยasuย ) no . 2011-04 , ยamendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrsย , an update to asc topic 820 - fair value measurement , results in common fair value measurement and disclosure requirements in u.s. gaap and ifrs . the amendments in asu no . 2011-04 include clarifications about the application of existing fair value measurement requirements and changes to principles for measuring fair value . asu no . 2011-04 also requires additional disclosures about fair value measurements . asu no . 2011-04 is required to be applied prospectively and is effective for interim and annual periods beginning after december 15 , 2011. the company adopted this new guidance for the quarter ended march 31 , 2012. the adoption of this guidance did not have a material impact on the company 's consolidated financial statements ; however , the adoption did have an impact on the company 's fair value disclosures . asu no . 2011-05 , ยpresentation of comprehensive income , an update to asc topic 220 - comprehensive income , ย was issued to improve the comparability , consistency and transparency of financial reporting . the amendment provides the entity an option to present the total of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements . the amendments do not change the items that must be reported in other comprehensive income . asu no . 2011-05 is required to be applied retrospectively and is effective for interim and annual periods beginning after december 15 , 2011. the company adopted this new guidance for the quarter ended march 31 , 2012. accordingly , the company presents comprehensive income in a separate statement of comprehensive income . asu no . 2011-11 , balance sheet ( topic 210 ) - ยdisclosures about offsetting assets and liabilitiesย was issued in december 2011. the objective of this update is to provide enhanced disclosures that will enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on an entity 's financial position . this includes the effect or potential effect of rights of setoff associated with an entity 's recognized assets and recognized liabilities within the scope of this update . the amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either ( 1 ) offset in accordance with either asc 210-20-45 or asc 815-10-45 or ( 2 ) subject to an enforceable master netting arrangement or similar agreement , irrespective of whether they are offset in accordance with either asc 210-20-45 or asc 815-10-45. an entity is required to apply the amendments for annual reporting periods beginning on or after january 1 , 2013 , and interim periods within those annual periods . an entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented . the adoption of asu 2011-11 on january 1 , 2013 will not have an effect on the operating results or financial position of the company . 32 asu no . 2012-02 ยintangibles-goodwill and other ( topic 350 ) : testing indefinite-lived intangible assets for impairmentย was issued in july 2012. this update simplifies the guidance for testing the decline in realizable value ( impairment ) of indefinite-lived intangible assets other than goodwill . the amendment allows an entity the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test . an organization electing to perform a qualitative assessment is no longer required to calculate the fair value of an indefinite-lived intangible asset unless the organization determines , based on a qualitative assessment , that it is ยmore likely than notย that the asset is impaired . this amendment is effective for annual and interim impairment tests performed for fiscal years beginning after september 15 , 2012. early adoption is permitted . the adoption of asu 2012-02 on january 1 , 2013 will not have an effect on the operating results or financial position of the company . asu no . 2013-01 ยbalance sheet ( topic 210 ) : clarifying the scope of disclosures about offsetting assets and liabilitiesย was issued in january 2013. this update clarifies the scope of transactions that are subject to the disclosures about offsetting , specifically that ordinary trade receivables and receivables are not in the scope of asu no . 2011-11. asu no . 2011-11 applies only to derivatives , repurchase agreements and reverse purchase agreements , and securities borrowing and securities lending transactions that are offset in accordance with specific criteria contained in fasb accounting standards codification or subject to a master netting arrangement or similar agreement . asu no . 2013-01 is effective for fiscal years beginning on or after january 1 , 2013 , and interim periods within those annual periods . the adoption of asu 2013-01 on january 1 , 2013 will not have an effect on the operating results or financial position of the company . asu no .
| % , to $ 968.3 million , at december 31 , 2012 , as compared to $ 1.10 billion at december 31 , 2011. the reduction in the balance sheet was driven by a $ 102.5 million , or 10.7 % , decrease in total deposits . in addition , the company repaid fhlb advances totaling $ 29.7 million . net loans decreased $ 79.6 million or 12.1 % , while investment securities were unchanged . these changes caused a $ 53.4 million or 31.7 % reduction in cash and cash equivalents . total shareholders ' equity decreased $ 3.0 million to $ 36.9 million at december 31 , 2012 from $ 39.9 million at the end of 2011. the $ 13.7 million net loss was partially offset by a $ 10.7 million positive change in other comprehensive income . the total risk-based capital ratios for the company and the bank were 10.20 % and 11.79 % , respectively at december 31 , 2012 , compared to 11.35 % and 11.73 % , respectively at december 31 , 2011 . 33 net interest income 2012 compared to 2011 net interest income is the difference between interest revenue , interest and fees on interest-earning assets and interest expense , interest paid to the company 's depositors and interest paid on external borrowings . net interest income represents the largest component of the company 's operating income and , as such , is the primary determinant of profitability . net interest income is impacted by variations in the volume , rate and composition of earning assets and interest-bearing liabilities , changes in general market rates and the level of nonperforming assets . the tax-equivalent net interest margin is calculated by dividing tax-equivalent net interest income by average interest-earning assets and is a key measurement used in the banking industry to measure income from earning assets . the company 's tax-equivalent net interest margin improved 18 basis points to 3.28 % in 2012 from 3.10 % in 2011. rate spread , the difference between the average yield on interest-earning assets and the average
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the increase was due to a decision by the company to invest additional excess cash into higher yielding investment securities . during the year ended march 31 , 2018 , the company purchased $ 47.5 million of investment securities . the company primarily purchases a combination of securities backed by government agencies ( fhlmc , fnma , sba or gnma ) . at march 31 , 2018 , the company determined that none of its investment securities required an otti charge . for additional information on the company 's investment securities , see note 4 of the notes to the consolidated financial statements contained in item 8 of this form 10-k. loans receivable , net , totaled $ 800.6 million at march 31 , 2018 , compared to $ 768.9 million at march 31 , 2017 , an increase of $ 31.7 million . the company has had steady loan demand in its market areas and anticipates continuing organic loan growth . a substantial portion of the loan portfolio is secured by real estate , either as primary or secondary collateral , located in the company 's primary market areas . risks associated with loans secured by real estate include decreases in land and property values , increases in interest rates , deterioration in local economic conditions , tightening credit or refinancing markets , and a geographic concentration of loans . the company has no option adjustable-rate mortgage ( arm ) or teaser residential real estate loans in its loan portfolio . beginning in march 2017 , the company periodically began purchasing the guaranteed portion of sba loans as a way to supplement loan originations , further diversify its loan portfolio and earn a higher yield than earned on its cash or short-term investments . these sba loans are originated through another financial institution located outside the company 's primary market area . these loans are purchased with servicing retained by the seller . at march 31 , 2018 , the company 's purchased sba loan portfolio was $ 47.0 million compared to $ 5.6 million at march 31 , 2017. during the year ended march 31 , 2018 , the bank purchased $ 42.8 million of sba loans , including premiums . goodwill was $ 27.1 million at march 31 , 2018 and 2017. for the year ended march 31 , 2018 , the company performed its annual goodwill impairment test during the third quarter ended december 31 , 2017 and determined that no impairment of goodwill existed . for additional information on our goodwill impairment testing , see `` goodwill valuation '' included in this item 7. deposits increased $ 15.6 million to $ 995.7 million at march 31 , 2018 compared to $ 980.1 million at march 31 , 2017. the increase is the result of continued organic deposit growth . the company had no wholesale-brokered deposits at march 31 , 2018 and 2017. core branch deposits accounted for 98.3 % of total deposits at march 31 , 2018 compared to 97.6 % at march 31 , 2017. the company plans to continue its focus on core deposits and on building customer relationships as opposed to obtaining deposits through the wholesale markets . shareholders ' equity increased $ 5.6 million to $ 116.9 million at march 31 , 2018 from $ 111.3 million at march 31 , 2017. the increase was mainly attributable to net income of $ 10.2 million . the increase was partially offset by cash dividends declared of $ 2.4 million and an increase in other comprehensive loss related to unrealized holding loss on securities available for sale , of $ 3.1 million for the year ended march 31 , 2018. goodwill valuation goodwill is initially recorded when the purchase price paid for an acquisition exceeds the estimated fair value of the net identified tangible and intangible assets acquired . goodwill is presumed to have an indefinite useful life and is tested , at least annually , for impairment at the reporting unit level . the company has two reporting units , the bank and the trust company , for purposes of evaluating goodwill for impairment . all of the company 's goodwill has been allocated to the bank reporting unit . the company performs an annual review in the third quarter of each fiscal year , or more frequently if indications of potential impairment exist , to determine if the recorded goodwill is impaired . if the fair value exceeds the carrying value , goodwill at the reporting unit level is not considered impaired and no additional analysis is necessary . if the 53 carrying value of the reporting unit is greater than its fair value , there is an indication that impairment may exist and additional analysis must be performed to measure the amount of impairment loss , if any . the amount of impairment is determined by comparing the implied fair value of the reporting unit 's goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination . specifically , the company would allocate the fair value to all of the assets and liabilities of the reporting unit , including unrecognized intangible assets , in a hypothetical analysis that would calculate the implied fair value of goodwill . if the implied fair value of goodwill is less than the recorded goodwill , the company would record an impairment charge for the difference . a significant amount of judgment is involved in determining if an indicator of impairment has occurred . such indicators may include , among others : a significant decline in our expected future cash flows ; a sustained , significant decline in our stock price and market capitalization ; a significant adverse change in legal factors or in the business climate ; adverse action or assessment by a regulator ; and unanticipated competition . any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on the company 's consolidated financial statements . story_separator_special_tag the company performed its annual goodwill impairment test as of october 31 , 2017. the goodwill impairment test involves a two-step process . step one of the goodwill impairment test estimates the fair value of the reporting unit utilizing the allocation of corporate value approach , the income approach and the market approach in order to derive an enterprise value of the company . the allocation of corporate value approach applies the aggregate market value of the company and divides it among the reporting units . a key assumption in this approach is the control premium applied to the aggregate market value . a control premium is utilized as the value of a company from the perspective of a controlling interest is generally higher than the widely quoted market price per share . the company used an expected control premium of 30 % , which was based on comparable transactional history . the income approach uses a reporting unit 's projection of estimated operating results and cash flows that are discounted using a rate that reflects current market conditions . the projection uses management 's best estimates of economic and market conditions over the projected period including growth rates in loans and deposits , estimates of future expected changes in net interest margins and cash expenditures . assumptions used by the company in its discounted cash flow model ( income approach ) included an annual revenue growth rate that approximated 6.9 % , a net interest margin that approximated 4.3 % and a return on assets that ranged from 1.17 % to 1.38 % ( average of 1.27 % ) . in addition to utilizing the above projections of estimated operating results , key assumptions used to determine the fair value estimate under the income approach were the discount rate of 14.26 % utilized for our cash flow estimates and a terminal value estimated at 1.8 times the ending book value of the reporting unit . the company used a build-up approach in developing the discount rate that included : an assessment of the risk free interest rate , the rate of return expected from publicly traded stocks , the industry the company operates in and the size of the company . the market approach estimates fair value by applying tangible book value multiples to the reporting unit 's operating performance . the multiples are derived from comparable publicly traded companies with similar operating and investment characteristics of the reporting unit . in applying the market approach method , the company selected four publicly traded comparable institutions . after selecting comparable institutions , the company derived the fair value of the reporting unit by completing a comparative analysis of the relationship between their financial metrics listed above and their market values utilizing a market multiple of 1.5 times tangible book value . the company calculated a fair value of its reporting unit of $ 265.0 million using the corporate value approach , $ 196.5 million using the income approach and $ 275.0 million using the market approach , with a final concluded value of $ 250.0 million , with primary weight given to the market approach . the results of the company 's step one test indicated that the reporting unit 's fair value was greater than its carrying value and therefore no impairment of goodwill exists . even though the company determined that there was no goodwill impairment , a decline in the value of its stock price as well as values of other financial institutions , declines in revenue for the company beyond our current forecasts , significant adverse changes in the operating environment for the financial industry or an increase in the value of our assets without an increase in the value of the reporting unit may result in a future impairment charge . it is possible that changes in circumstances existing at the measurement date or at other times in the future , or in the numerous estimates associated with management 's judgments , assumptions and estimates made in assessing the fair value of our goodwill , could result in an impairment charge of a portion or all of our goodwill . if the company recorded an impairment charge , its financial position and results of operations would be adversely affected ; however , such an impairment charge would have no impact on our liquidity , operations or regulatory capital . 54 estimated fair value of level 3 assets the company determines the estimated fair value of certain assets that are classified as level 3 under the fair value hierarchy established under gaap . these level 3 assets are valued using significant unobservable inputs that are supported by little or no market activity and that are significant to the estimated fair value of the assets . these level 3 assets include certain loans measured for impairment and reo for which there is neither an active market for identical assets from which to determine fair value , nor is there sufficient , current market information about similar assets to use as observable , corroborated data for all significant inputs in a valuation model . under these circumstances , the estimated fair values of these assets are determined using pricing models , discounted cash flow methodologies , appraisals , and other valuation methods in accordance with accounting standards , for which the determination of fair value requires significant management judgment or estimation . valuations using models or other techniques are dependent upon assumptions used for the significant inputs . where market data is available , the inputs used for valuation reflect that information as of the valuation date . in periods of extreme volatility , lessened liquidity or in illiquid markets , there may be more variability in market pricing or a lack of market data to use in the valuation process . judgment is then applied in formulating those inputs .
| the company has identified policies that due to judgments , estimates and assumptions inherent in those policies are critical to an understanding of the company 's consolidated financial statements . these policies relate to the methodology for the determination of the allowance for loan losses , the valuation of investment securities , the valuation of reo and foreclosed assets , goodwill valuation and the calculation of income taxes . these policies and the judgments , estimates and assumptions are described in greater detail in the notes to the consolidated financial statements contained in item 8 of this form 10-k. in particular , note 1 of the notes to consolidated financial statements , `` summary of significant accounting policies , '' describes generally the company 's accounting policies . management believes that the judgments , estimates and assumptions used in the preparation of the company 's consolidated financial statements are appropriate given the factual circumstances at the time . however , given the sensitivity of the company 's consolidated financial statements to these critical accounting policies , the use of other judgments , estimates and assumptions could result in material differences in the company 's results of operations or financial condition . operating strategy fiscal year 2018 marked the 95 th anniversary since the bank began operations in 1923. the primary business strategy of the company is to provide comprehensive banking and related financial services within its primary market area . the historical emphasis had previously been on residential real estate lending . since 1998 , however , the company has been diversifying its loan portfolio through the expansion of its commercial and construction loan portfolios . at march 31 , 2018 , commercial and construction loans represented 87.1 % of total loans . commercial lending , including commercial real estate loans , typically has higher credit risk , greater interest margins and shorter terms than residential lending which can increase the loan portfolio 's profitability . the company 's goal is to deliver returns to shareholders by increasing higher-yielding assets ( in particular , commercial real estate and commercial business loans ) , increasing core deposit balances ,
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we have filed a supplemental nda in the united states to cover the use of ambrisentan in combination with tadalafil . outlook 2015 in 2015 , we will continue to focus on our key operating objectives which include the progression of our product pipeline and continued uptake of our commercial products . from a research and development ( r & d ) perspective , we will continue to invest in conducting new and ongoing clinical studies , which support both our existing products and our product candidates . we expect to move forward on a number of late-stage clinical studies for new product candidates and plan to file marketing applications for product candidates in various therapeutic areas . from a commercial perspective , we will continue to focus on supporting the uptake of our single tablet regimens for the treatment of hiv , prepare for the launch of our new single tablet regimen containing taf in the united states and continue to promote the use of sovaldi , harvoni and zydelig in the united states and europe . we plan to further build-out and expand our international commercial infrastructure in asia , in particular japan , and other international markets to support the anticipated launch of sovaldi and harvoni in those regions . as a result of the launch of sovaldi and harvoni in the united states and sovaldi in parts of europe , our business more than doubled in 2014. while we do not expect this level of growth in 2015 , we do anticipate overall net product sales growth as we expect expanded access to sovaldi and harvoni in the united states and the launch of harvoni in additional european union countries and other international markets . however , this growth is subject to a number of uncertainties . these uncertainties include the continuation of a challenging macroeconomic environment in europe inclusive of the potential adoption of additional pricing measures to reduce healthcare spending , particularly in hcv , the potential for continued volatility in foreign currency exchange rates , the number of hcv patients treated , an increase in discounts , chargebacks and rebates due to ongoing private and public payer negotiations , a larger than anticipated shift in payer mix to more highly discounted payer segments and the regulatory approval and commercial launches of sovaldi and harvoni in japan . we expect that our product pipeline investments and expanding commercial infrastructure will enable us to execute on our 2015 operating objectives . 57 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > and $ 1.3 billion of our atripla sales in 2014 , 2013 and 2012 , respectively . a generic version of bristol-myers squibb company 's sustiva ( efavirenz ) , a component of atripla , was made available in canada and europe in 2013 and will be made available in the united states in 2017. while we have observed some pricing pressure related to the efavirenz component of our atripla sales , we have not yet observed any meaningful splitting of the atripla single tablet regimen . truvada in 2014 , truvada sales increased by 7 % compared to 2013 due primarily to an increase in the average net selling price and sales volume growth in the united states . in 2013 , decreases in truvada sales were due to lower sales volume , partially offset by an increase in average net selling price . truvada sales accounted for 15 % , 34 % and 39 % of our total antiviral product sales for 2014 , 2013 and 2012 , respectively . complera/eviplera in 2014 , sales of complera/eviplera were $ 1.2 billion an increase of 52 % compared to 2013. increases in sales of complera/eviplera in both 2014 and 2013 were driven primarily by sales volume growth in europe and the united states . in 2012 , complera/eviplera sales increased due primarily to sales volume growth in the united states . 59 stribild in 2014 , sales of stribild were $ 1.2 billion , an increase of 122 % compared to 2013 , due primarily to increased sales volume in the united states and europe . in 2013 and 2012 , increases in sales of stribild were driven primarily by sales volume growth in the united states . other products other products which include letairis , ranexa , ambisome and zydelig , our first oncology product which launched in 2014 , were $ 1.7 billion in 2014 compared to $ 1.5 billion in 2013. the increase in other product sales is due primarily to increased sales volume . royalty , contract and other revenues the following table summarizes the period over period changes in our royalty , contract and other revenues : replace_table_token_5_th royalty , contract and other revenues includes royalty revenues from f. hoffman-la roche ltd ( roche ) for sales of tamiflu . the majority of our royalties are recognized in the quarter following the quarter in which the corresponding product sales occur . cost of goods sold and product gross margin the following table summarizes the period over period changes in our product sales , cost of goods sold and product gross margin : replace_table_token_6_th our product gross margin for 2014 increased compared to 2013 primarily due to changes in product mix , resulting from the launches of sovaldi and harvoni . our product gross margin for 2013 was consistent with our product gross margin for 2012. research and development expenses the following table summarizes the period over period changes in r & d expenses : replace_table_token_7_th r & d expenses summarized above consist primarily of clinical studies performed by contract research organizations , materials and supplies , licenses and fees , milestone payments under collaboration arrangements , personnel costs , including salaries , benefits and stock-based compensation and overhead allocations consisting of various support and facilities-related costs . we do not track total r & d expenses by product candidate , therapeutic area or development phase . story_separator_special_tag however , we manage our r & d expenses by identifying the r & d activities we anticipate will be performed during a given period and then prioritizing efforts based on scientific data , probability of successful development , market potential , available human and capital resources and other considerations . we continually review our r & d pipeline and the status of development and , as necessary , reallocate resources among the r & d portfolio that we believe will best support the future growth of our business . the following table provides a breakout of r & d expenses by major cost type : replace_table_token_8_th 60 in 2014 , r & d expenses increased $ 734 million or 35 % compared to 2013 , due primarily to an increase in clinical studies and outside services . the increase in clinical studies and outside services includes one-time items of $ 350 million for collaboration and acquisition related expenses and the purchase of a fda priority review voucher and $ 191 million for expenses related to the progression of clinical study activity , primarily in the oncology and hiv areas . personnel and infrastructure expenses increased $ 186 million to support our ongoing clinical study activity , geographic expansion and marketed product support . in 2013 , r & d expenses increased $ 360 million or 20 % compared to 2012 , due primarily to a $ 319 million increase in clinical studies and a $ 28 million increase in personnel and infrastructure expenses to support the continued progression of our clinical studies , particularly phase 3 studies in oncology , liver diseases and hiv . these increases were partially offset by a $ 100 million decrease in stock-based compensation expense due to the acceleration of vested stock options related to our acquisition of pharmasset , inc. ( pharmasset ) in january 2012. in 2012 , clinical studies and outside services increased $ 258 million compared to 2011 due to progression and expansion of our phase 3 studies , particularly in liver diseases and oncology . additionally , personnel expenses increased $ 274 million due to higher headcount to support our product pipeline and study progression . in 2015 , we expect r & d expenses to increase over 2014 to support the expansion of our clinical studies in various therapeutic areas including liver disease , hiv and oncology . selling , general and administrative expenses the following table summarizes the period over period changes in sg & a expenses : replace_table_token_9_th sg & a expenses relate to sales and marketing , finance , human resources , legal and other administrative activities . expenses are primarily comprised of facilities and overhead costs , outside marketing , advertising and legal expenses and other general and administrative costs . in 2014 , sg & a expenses increased $ 1.3 billion or 76 % compared to 2013 due primarily to an increase in headcount-related and other expenses of $ 542 million to support the ongoing growth and expansion of our business , including commercial expansion related to the launches of sovaldi and harvoni and an increase in the bpd fee . during the third quarter of 2014 , the internal revenues service ( irs ) issued final regulations which indicated that a manufacturer 's obligation to pay its portion of the bpd fee in any given calendar year is triggered by the qualifying sales in the previous year , instead of the first qualifying sale in the current calendar year . as a result of the final irs regulations , we were required to recognize our 2014 fee of $ 460 million and 2013 fee of $ 142 million in our 2014 consolidated statement of income . our bpd fees were approximately $ 590 million , $ 110 million and $ 85 million in 2014 , 2013 and 2012 , respectively . the bpd fee is not tax deductible . in 2013 , sg & a expenses increased $ 238 million or 16 % compared to 2012 . the increase was due primarily to a $ 308 million increase in headcount-related and other expenses to support the ongoing growth of our business , legal expenses and the bpd fee . this increase was partially offset by a $ 98 million decrease in stock-based compensation due to the acceleration of vested stock options related to our acquisition of pharmasset in january 2012. in 2015 we expect sg & a expenses to increase compared to 2014 to support our continued build-out and expansion of our commercial infrastructure in europe and asia to support our products . interest expense in 2014 , interest expense increased to $ 412 million compared to $ 307 million in 2013 . the increase was primarily a result of the issuance of our senior unsecured notes in registered offerings in march 2014 and november 2014 , offset by repayment of our senior unsecured notes due in december 2014 ( the december 2014 notes ) , conversion and maturity of our convertible senior notes due in may 2014 ( the may 2014 notes ) and partial conversion of our convertible senior notes due in may 2016 ( the may 2016 notes ) . in 2013 , interest expense decreased to $ 307 million compared to $ 361 million in 2012 . the decrease was due primarily to the repayment of our convertible senior notes due in may 2013 ( the may 2013 notes ) , conversion of the may 2014 notes , partial conversion of the may 2016 notes and the repayment of revolving credit facilities . other income ( expense ) , net other income ( expense ) , net was not significant for 2014. during 2013 as compared to 2012 , the changes in other income ( expense ) , net were due primarily to a $ 40 million loss on greek bonds related to greece 's restructuring of its sovereign debt in the first quarter of 2012 .
| total revenues were $ 24.9 billion in 2014 , compared to $ 11.2 billion in 2013 and $ 9.7 billion in 2012 . product sales represented 98 % , 96 % and 97 % of total revenues in 2014 , 2013 and 2012 , respectively . product sales total product sales were $ 24.5 billion in 2014 , compared to $ 10.8 billion in 2013 and $ 9.4 billion in 2012 , driven primarily by an increase in antiviral product sales . antiviral product sales were $ 22.8 billion in 2014 , $ 9.3 billion in 2013 and $ 8.1 billion in 2012. the increase in antiviral product sales in 2014 was driven primarily by sales of sovaldi and harvoni and in 2013 was driven primarily by the continued uptake of our hiv single tablet regimen products , primarily stribild and complera/eviplera . other product sales which include letairis , ranexa , ambisome and zydelig , our first oncology product which launched in 2014 , were $ 1.7 billion in 2014 , an increase of 15 % compared to $ 1.5 billion in 2013 , an increase of 16 % over other product sales of $ 1.3 billion in 2012. in 2014 approximately 26 % of our product sales were generated outside the united states . we face exposure to adverse movements in foreign currency exchange rates , primarily in the euro . we used foreign currency exchange contracts to hedge a percentage of our foreign currency exposure . foreign currency exchange , net of hedges , had a favorable impact of $ 39 million on our 2014 revenues compared to 2013 and an unfavorable impact of $ 65 million on our 2013 revenues compared to 2012 . we record product sales net of estimated mandatory and supplemental discounts to government payers , in addition to discounts to private payers , and other related costs . these deductions are generally referred to as gross-to-net deductions and totaled $ 7.3 billion in 2014 , $ 3.9 billion in 2013 , and $ 3.1 billion in 2012. as a percentage of gross product
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notes to the consolidated financial statements ( item 8 ) in this annual report on form 10-k or described in any of the company 's annual , quarterly or current reports . any forward-looking statement made by the company or on its behalf speaks only as of the date that it was made . the company does not undertake to update any forward-looking statement to reflect the impact of events , circumstances , or results that arise after the date that the statement was made , except as required by applicable securities laws . you , however , should consult further disclosures ( including disclosures of a forward-looking nature ) that the company may make in any subsequent annual report on form 10-k , quarterly report on form 10-q , or current report on form 8-k. results of operations overview the company focuses on the following four core strategic objectives . management believes these strategic objectives will guide its efforts to achieve its vision , to deliver the unparalleled customer experience , all while seeking to improve net income and strengthen the balance sheet while undertaking prudent risk management . the first strategic objective is to continuously improve operating efficiencies . the company has focused on identifying efficiencies that simplify our organizational and reporting structures , streamline back office functions and take advantage of synergies and newer technologies among various platforms and distribution networks . the company has identified and expects to continue identifying ongoing efficiencies through the normal course of business that , when combined with increased revenue , will contribute to improved operating leverage . for 2018 , total revenue increased 3.0 percent , while noninterest expense increased 1.8 percent , as compared to the previous year . as part of this initiative , the company continues to invest in technological advances that it believes will help management drive operating leverage in the future through improved data analysis and automation . the company 22 also continues to evaluate core systems and will invest in enhancements that it believes will yield operating efficiencies . the second strategic objective is to increase net interest income through profitable loan and deposit growth and the optimization of the balance sheet . for 2018 , we made progress on this strategy , as illustrated by an increase in net interest income of $ 51.5 million , or 9.2 percent , as compared to the previous year . the company has shown increased net interest income through the effects of increased interest rates and volumes , and the mix of average earning assets and a low cost of funds in its consolidated balance sheets . average loan balances increased $ 762.9 million , or 7.0 percent , from december 31 , 2017. the funding for these assets was driven primarily by a 5.1 percent increase in average interest-bearing liabilities . net interest margin , on a tax-equivalent basis , increased six basis points compared to the same period in 2017. the third strategic objective is to grow the company 's revenue from noninterest sources . the company has continued to emphasize its diverse operations throughout all economic cycles . this strategy has provided revenue diversity , helping to reduce the impact of sustained low interest rates , and positioned the company to benefit in periods of growth . noninterest income decreased $ 21.9 million , or 5.2 percent , to $ 401.7 million for the year ended december 31 , 2018 , compared to the same period in 2017. this decline was driven by a combination of lower market-driven revenues in bond trading income , customer and contract re-pricings in our institutional and asset servicing businesses , as well as an increase in card-based rewards and rebates expense recorded as contra-revenues in bankcard fees . this change is discussed in greater detail below under noninterest income . the company continues to emphasize its asset management , brokerage , bankcard services , healthcare services , institutional banking , and treasury management businesses . at december 31 , 2018 , noninterest income represented 39.7 percent of total revenues , as compared to 43.1 percent at december 31 , 2017. the fourth strategic objective is effective capital management . the company places a significant emphasis on maintaining a strong capital position , which management believes promotes investor confidence , provides access to funding sources under favorable terms , and enhances the company 's ability to capitalize on business growth and acquisition opportunities . the company continues to maximize shareholder value through a mix of reinvesting in organic growth , evaluating acquisition opportunities that complement the company 's strategies , increasing dividends over time , and appropriately utilizing a share repurchase program . at december 31 , 2018 , the company had a total risk-based capital ratio of 13.95 percent and $ 2.2 billion in total shareholders ' equity , an increase of $ 46.9 million , or 2.2 percent , compared to total shareholders ' equity at december 31 , 2017. the company repurchased 1.1 million shares of common stock at an average price of $ 64.84 per share during 2018 and paid $ 58.3 million in dividends , which represents a 12.3 percent increase compared to dividends paid during 2017. earnings summary the company recorded consolidated income from continuing operations of $ 196.3 million for the year-ended december 31 , 2018. this represents a 7.3 percent increase over 2017. income from continuing operations for 2017 was $ 183.0 million , or an increase of 19.1 percent compared to 2016. basic earnings per share from continuing operations for the year ended december 31 , 2018 , were $ 3.98 per share compared to $ 3.72 per share in 2017 , an increase of 7.0 percent . story_separator_special_tag basic earnings per share from continuing operations were $ 3.15 per share in 2016 , or an increase of 18.1 percent from 2016 to 2017. fully diluted earnings per share from continuing operations increased 7.4 percent from 2017 to 2018 , and increased 17.6 percent from 2016 to 2017. the company 's net interest income increased to $ 610.4 million in 2018 compared to $ 558.9 million in 2017 and $ 495.3 million in 2016. in total , a favorable volume variance coupled with a favorable rate variance , resulted in a $ 51.5 million increase in net interest income in 2018 , compared to 2017. see table 2 on page 27. the favorable volume variance on earning assets was predominantly driven by the increase in average loan balances of $ 762.9 million , or 7.0 percent , for 2018 compared to the same period in 2017. net interest margin , on a tax-equivalent basis , increased to 3.21 percent for 2018 , compared to 3.15 percent for the same period in 2017. the company has seen an increase in the benefit from interest-free funds compared to 2017. the impact of this benefit increased 15 basis points compared to 2017 and is illustrated on table 3 on page 28. the magnitude and duration of this impact will be largely dependent upon the frb 's policy decisions and market movements . see table 20 in item 7a on page 50 for an illustration of the impact of an interest rate increase or decrease on net interest income as of december 31 , 2018. the provision for loan loss totaled $ 70.8 million for the year-ended december 31 , 2018 , which is an increase of $ 29.8 million , or 72.6 percent , compared to the same period in 2017. this increase was driven primarily by 23 higher provision to cover the loss related to a single factoring credit relationship . see further discussion in โ provision and allowance for loan losses โ on page 2 8 . the company had a decrease of $ 21.9 million , or 5.2 percent , in noninterest income in 2018 , as compared to 2017 , and an increase of $ 21.1 million , or 5.2 percent , in 2017 , compared to 2016. the decrease in 2018 is primarily attributable to trading and investment banking , trust and securities processing , bankcard income , gains on sales of available-for-sale securities , and service charges on deposit accounts . the change in noninterest income in 2018 from 2017 , and 2017 from 2016 is illustrated on table 6 on page 31. noninterest expense increased in 2018 by $ 12.7 million , or 1.8 percent , compared to 2017 and increased by $ 38.4 million , or 5.8 percent , in 2017 compared to 2016. the increase in 2018 is primarily driven by increases in legal and consulting expense , salary and employee benefit expense , and processing fees , offset by a decrease in other expense . the increase in noninterest expense in 2018 from 2017 , and 2017 from 2016 is illustrated on table 7 on page 32. net interest income net interest income is a significant source of the company 's earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on liabilities . the volume of interest earning assets and the related funding sources , the overall mix of these assets and liabilities , and the interest rates paid on each affect net interest income . table 2 summarizes the change in net interest income resulting from changes in volume and rates for 2018 , 2017 and 2016. net interest margin , presented in table 1 on page 25 , is calculated as net interest income on a fully tax equivalent basis ( fte ) as a percentage of average earning assets . net interest income is presented on a tax-equivalent basis to adjust for the tax-exempt status of earnings from certain loans and investments , which are primarily obligations of state and local governments . a critical component of net interest income and related net interest margin is the percentage of earning assets funded by interest-free sources . table 3 analyzes net interest margin for the three years ended december 31 , 2018 , 2017 and 2016. net interest income , average balance sheet amounts and the corresponding yields earned and rates paid for the years 2016 through 2018 are presented in table 1 below . 24 the following table presents , for the periods indicated , the average earning assets and resulting yields , as well as the average interest-bearing liabilities and resulting yields , expressed in both dollars and rates . table 1 three year average balance sheets/yields and rates ( tax-equivalent basis ) ( in millions ) replace_table_token_5_th ( 1 ) interest income and yields are stated on a fully tax-equivalent ( fte ) basis , using a marginal tax rate of 21 % for 2018 , while a rate of 35 % was used for 2017 and 2016. the tax-equivalent interest income and yields give effect to tax-exempt interest income net of the disallowance of interest expense , for federal income tax purposes related to certain tax-free assets . rates earned/paid may not compute to the rates shown due to presentation in millions . the tax-equivalent interest income totaled $ 20.0 million , $ 39.5 million , and $ 31.0 million in 2018 , 2017 , and 2016 , respectively . ( 2 ) loan fees are included in interest income . such fees totaled $ 17.0 million , $ 15.4 million , and $ 13.3 million in 2018 , 2017 , and 2016 , respectively . ( 3 ) loans on non-accrual are included in the computation of average balances . interest income on these loans is also included in loan income .
| the impact of higher interest rates , increased competitive pressures from traditional and non-traditional participants , and industry consolidation will likely impact the future levels of net interest income in this segment . noninterest income declined $ 0.6 million , or 1.7 percent , compared to the same period last year , in part driven by increased revenue share with our larger healthcare partners . this decrease is primarily driven by decreased bankcard fee income of $ 1.5 million due to lower interchange and decreased income from company-owned life insurance of $ 0.4 million , partially offset by increased service charges on deposit accounts of $ 1.7 million . noninterest expense increased $ 5.4 million , or 12.3 percent , primarily due to increased technology , service , and overhead expenses of $ 4.3 million and increased salary and employee benefits expense of $ 0.6 million , and increased processing fees of $ 0.4 million . 35 balance sheet analysis loans and loans held for sale loans represent the company 's largest source of interest income . loan balances held for investment increased by $ 897.6 million , or 8.0 percent , in 2018. this increase was primarily driven by an increase of $ 675.4 million , or 14.8 percent , in commercial loans , $ 150.7 million , or 4.2 percent , in commercial real estate loans , and $ 74.7 million , or 10.4 percent in construction real estate loans . table 12 analysis of loans by type ( in thousands ) replace_table_token_18_th 36 included in table 12 is a five-year breakdown of loans by type . business-related loans continue to represent the largest segment of the company 's loan portfolio , comprising approximately 8 6.6 percent and 8 5 . 0 percent of total loans and loans held for sale at the end of 201 8 and 201 7 , respectively . commercial loans represent the largest percent of total loans . commercial loans at december 31 , 2018 have increased $ 675.4 million , or 14.8 percent , as compared to december 31 , 2017 , to 42.9 percent of total loans . commercial loans represented 40.4 percent of total loans at december 31 , 2017. as a
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co-investments communities , developments under construction and eight preferred equity interest co-investment communities are not included in the table presented above for both periods . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > 2014 compared to 2013 , due to the acquisition of bre and six other communities . the increase is due to the capitalization of approximately $ 313.1 million in additions to rental properties through 2014 , including $ 152.8 million spent on acquisition of and additions to real estate under development , $ 81.4 million spent on redevelopment , and $ 78.9 million spent on capital expenditures on rental properties . approximately $ 122.0 million in additions to rental properties were capitalized for 2013 , including $ 17.8 million spent on acquisition of and additions to real estate under development , $ 47.3 million spent on redevelopment , and $ 56.9 million spent on capital expenditures on rental properties . general and administrative expense increased $ 14.2 million or 53.2 % in 2014 compared to 2013 primarily due to additional corporate employees from the bre merger and $ 2.8 million in expenses related to the cyber-intrusion . merger and integration expenses include , but are not limited to , advisor fees , legal fees , and accounting fees related to the bre merger . the company completed the merger with bre on april 1 , 2014. merger and integration expenses were $ 53.5 million for 2014 and $ 4.3 million for 2013 . interest expense increased $ 48.0 million or 41.2 % in 2014 , primarily due to additional debt assumed as part of the bre merger , offset by an increase in capitalized interest from development and redevelopment projects . equity income from co-investments decreased by $ 16.0 million to $ 39.9 million in 2014 compared to $ 55.9 million in 2013 . the decrease was primarily due to the company 's share of the gain on the sale of two fund ii communities of $ 6.6 million , promote income of $ 10.6 million , and income from early redemption of preferred equity investments of $ 5.3 million in 2014 , compared to the company 's share of gain on the sale of five fund ii communities of $ 38.8 million , net of internal dispositions costs in 2013. comparison of year ended december 31 , 2013 to the year ended december 31 , 2012 the company 's average financial occupancies for the company 's stabilized apartment communities for โ 2013 / 2012 same-properties โ ( stabilized properties consolidated by the company for the years ended december 31 , 2013 and 2012 ) decreased 10 basis points to 96.2 % in 2013 from 96.3 % in 2012 . the regional breakdown of the company 's stabilized 2013 / 2012 same-property portfolio for financial occupancy for the years ended december 31 , 2013 and 2012 is as follows : replace_table_token_23_th 39 the following table provides a breakdown of revenue amounts , including the revenues attributable to 2013 / 2012 same-properties . replace_table_token_24_th ( 1 ) includes fifteen communities acquired after january 1 , 2012 , two redevelopment communities , and three commercial buildings . 2013 / 2012 same-property revenues increased by $ 30.5 million or 6.3 % to $ 513.0 million for 2013 compared to $ 482.5 million in 2012. the increase was primarily attributable to an increase in scheduled rents of $ 29.6 million as reflected in an increase of 6.3 % in average rental rates from $ 1,502 per unit for 2012 to $ 1,597 per unit for 2013. scheduled rents increased in all regions by 4.1 % , 8.4 % , and 7.7 % in southern california , northern california , and seattle metro , respectively . income from utility billings and other income increased by $ 1.0 million and $ 1.2 million , respectively in 2013 compared to 2012. occupancy decreased 10 basis points in 2013 to 96.2 % compared to 96.3 % in 2012 . 2013 / 2012 non-same property revenues increased by $ 44.9 million or 102 % to $ 89.1 million in 2013 compared to $ 44.2 million to 2012. the increase was primarily due to revenue generated from fifteen communities acquired or consolidated since january 1 , 2012 ( annaliese , ascent , bennett lofts , domain , domaine , essex skyline at macarthur place , fox plaza , montebello , park catalina , park west , reed square , slater 116 , the huntington , vox and willow lake ) . management and other fees from affiliates decreased $ 1.2 million or 14.1 % to $ 7.3 million in 2013 compared to $ 8.5 million in 2012. the decrease is primarily due to a reduction of $ 2.3 million in asset and property management fees from the sale of eight fund ii communities since the fourth quarter of 2012. an additional four communities owned by fund ii were sold in 2013. property operating expenses , excluding real estate taxes increased $ 14.9 million or 12.1 % in 2013 compared to 2012 , primarily due to the acquisition of fifteen communities . 2013/2012 same-property operating expenses excluding real estate taxes , increased by $ 3.6 million or 3.2 % in 2013 compared to 2012 , due mainly to a $ 1.4 million increase in repairs and maintenance , a $ 1.2 million increase in utilities expense , and a $ 0.9 million increase in administration costs . real estate taxes increased $ 8.9 million or 18.5 % in 2013 compared to 2012 , due primarily to the acquisition of fifteen communities . 2013/2012 same-property real estate taxes increased by $ 2.6 million or 6.0 % for the 2013 compared to 2012 due to $ 1.3 million or 17.5 % increase in property taxes for seattle metro due to higher assessed values for 2013 , and an increase of 3.7 % in property taxes for the properties located in california . depreciation and amortization expense increased by $ 23.2 million or 13.7 % in 2013 compared to 2012 , due to the acquisition of fifteen communities . story_separator_special_tag the increase is due to the capitalization of approximately $ 122.0 million in additions to rental properties through 2013 , including $ 17.8 million spent on acquisition of and additions to real estate under development , $ 47.3 million spent on redevelopment , and $ 56.9 million spent on capital expenditures on rental properties . approximately $ 121.2 million in additions to rental properties were capitalized for 2012 , including $ 29.2 million spent on acquisitions of and additions to real estate under development , $ 46.6 million spent on redevelopment , and $ 45.4 million spent on capital expenditures on rental properties . general and administrative expense increased $ 2.1 million or 8.6 % in 2013 compared to 2012 offset by annual compensation increases for merit , investments in technology , and the addition of staff . 40 merger and integration expenses include , but are not limited to , advisor fees , legal fees , and accounting fees related to the merger with bre . the company entered into a definitive agreement to combine with bre in december 2013. merger expenses were $ 4.3 million for 2013 and zero for 2012. interest expense increased $ 4.6 million or 4.1 % in 2013 , primarily due to an increase in average outstanding debt for the funding of 2012 and 2013 acquisitions and costs incurred on the development pipeline . interest and other income decreased by $ 2.2 million in 2013 primarily due to $ 2.3 million of promote income earned from achieving certain performance hurdles related to the essex skyline co-investment in 2012. equity income from co-investments increased by $ 14.2 million to $ 55.9 million in 2013 compared to $ 41.7 million in 2012. the increase was primarily due to the company 's share of the gain on the sale of five fund ii communities of $ 38.8 million , net of internal disposition costs , and $ 1.4 million income earned from the early prepayment of a preferred equity investment in 2013. additionally , equity income increased with income earned from four communities acquired by the wesco joint ventures in the second half of 2012 and two communities in the second quarter of 2013. the increase in equity income in 2013 by the wesco joint venture was offset by a decrease in income related to the sale of eight fund ii communities since the fourth quarter of 2012 including four communities sold in the third quarter of 2013. loss on early retirement of debt , net was $ 0.3 million for 2013 compared to $ 5.0 million in 2012. the $ 0.3 million loss in 2013 reflects a gain of $ 1.5 million earned from the redemption of bonds in the second quarter of 2013 offset by losses incurred from the write-off of deferred financing costs and prepayment penalties related to the prepayment of secured debt loans in 2013. the 2012 loss was due to the write-off of deferred financing costs and prepayment penalties related to the early termination of secured debt related to six communities . the loss for 2012 also included the company 's pro-rata share of the write-off of deferred financing costs and prepayment penalties incurred for the prepayment of the secured debt for the essex skyline joint venture and seven fund ii communities sold in 2012. income from discontinued operations for 2013 was $ 31.2 million and included gains of $ 29.2 million from the sales of linden square , brentwood and cambridge . for 2012 , income from discontinued operations was $ 11.9 million and included a gain of $ 9.8 million from the sale of tierra del sol/norte and alpine country , net of internal disposition costs . discontinued operations for 2013 and 2012 reflect the operating results of the three communities sold in 2013 and the two communities sold in 2012. liquidity and capital resources the following table sets forth the company 's cash flows for 2014 , 2013 and 2012 ( $ in thousands ) : replace_table_token_25_th ess 's business is operated primarily through the operating partnership . ess issues public equity from time to time , but does not otherwise generate any capital itself or conduct any business itself , other than incurring certain expenses in operating as a public company which are fully reimbursed by the operating partnership . ess itself does not hold any indebtedness , and its only material asset is its ownership of partnership interests of the operating partnership . ess 's principal funding requirement is the payment of dividends on its common stock and preferred stock . ess 's principal source of funding for its dividend payments is distributions it receives from the operating partnership . as of december 31 , 2014 , ess owned a 96.7 % general partner interest and the limited partners owned the remaining 3.3 % interest in the operating partnership . the liquidity of ess is dependent on the operating partnership 's ability to make sufficient distributions to ess . the primary cash requirement of ess is its payment of dividends to its stockholders . ess also guarantees some of the operating partnership 's debt , as discussed further in notes 7 and 8 of the notes to consolidated financial statements included elsewhere 41 herein . if the operating partnership fails to fulfill certain of its debt requirements , which trigger the ess 's guarantee obligations , then ess will be required to fulfill its cash payment commitments under such guarantees . however , ess 's only significant asset is its investment in the operating partnership . for ess to maintain its qualification as a reit , it must pay dividends to its stockholders aggregating annually at least 90 % of its reit taxable income , excluding net capital gains . while historically ess has satisfied this distribution requirement by making cash distributions to its stockholders , it may choose to satisfy this requirement by making distributions of cash or other property , including , in limited circumstances , ess 's own stock .
| the calculation of financial occupancy compares contractual rates for occupied units to estimated market rents for unoccupied units , thus the calculation compares the gross value of all apartment units excluding delinquency and concessions . for apartment communities that are development properties in lease-up without stabilized occupancy figures , the company believes the physical occupancy rate is the appropriate performance metric . while an apartment community is in the lease-up phase , the company 's primary motivation is to stabilize the property which may entail the use of rent concessions and other incentives , and thus financial occupancy which is based on contractual revenue is not considered the best metric to quantify occupancy . the regional breakdown of the company 's 2014 / 2013 same-property portfolio for financial occupancy for the years ended december 31 , 2014 and 2013 is as follows : replace_table_token_21_th the following table provides a breakdown of revenue amounts , including the revenues attributable to 2014 / 2013 same-properties . replace_table_token_22_th ( 1 ) includes eleven communities acquired after january 1 , 2013 , three sold communities and one redevelopment community . ( 2 ) includes 55 stabilized properties acquired in connection with the bre merger on april 1 , 2014 , and two development communities in lease-up . 2014 / 2013 same-property revenues increased by $ 41.1 million or 7.3 % to $ 599.9 million for 2014 compared to $ 558.8 million in 2013 . the increase was primarily attributable to an increase in scheduled rents of $ 39.1 million as reflected in an increase of 7.1 % in average rental rates from $ 1,619 per unit for 2013 to $ 1,734 per unit for 2014 . scheduled rents increased in all regions by 5.2 % , 9.5 % , and 7.4 % in southern california , northern california , and seattle metro , respectively . income from utility billings and other income increased by $ 2.2 million and $ 1.1 million , respectively in 2014 compared to 2013 . financial occupancy increased 10 basis points in 2014 to
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fiscal year 2017 benefitted from the impact of tax reform legislation as we remeasured our deferred tax liabilities at a significantly lower tax rate . gross profit in fiscal year 2018 was significantly lower compared to fiscal year 2017 , primarily a result of lower ethanol crush spreads and the impact of our refined coal facility which generated a gross loss for a full year of operations in fiscal year 2018 compared to a partial year of operations in fiscal year 2017. due to the inherent volatility of commodity prices within the ethanol industry , the uncertainty regarding future refined coal production and associated financial results , we can not predict the likelihood of future operating results being similar to the fiscal year 2018 results . we plan to seek and evaluate various investment opportunities including energy related , agricultural or other ventures we believe fit our investment criteria . we can make no assurances that we will be successful in our efforts to find such opportunities . through a wholly owned subsidiary rex i.p. , llc , we entered , during fiscal year 2013 , into a joint venture to file and defend patents for technology relating to heavy oil and oil sands production methods , and to attempt to commercially exploit the technology to generate license fees , royalty income and development opportunities . the patented technology is an enhanced method of heavy oil recovery involving zero emissions downhole steam generation . we own 60 % and hytken owns 40 % of the entity named future energy , llc , an ohio limited liability company . future energy is managed by a board of three managers , two appointed by us and one by hytken . we agreed to fund direct patent expenses relating to patent applications and defense , annual annuity fees and maintenance on a country by country basis , with the right to terminate funding and transfer related patent rights to hytken . we may also fund , through loans , all costs relating to new intellectual property , consultants , and future research and development , pilot field tests and equipment purchases for commercialization stage of the patents . to date , we have paid approximately $ 2.0 million to purchase our ownership interest and fund patent and other expenses . we have not tested or proven the commercial feasibility of the technology . 26 ethanol investments in fiscal year 2006 , we entered the ethanol industry by investing in several entities organized to construct and , subsequently operate , ethanol producing plants . we are invested in three entities as of january 31 , 2019 , utilizing equity investments . the following table is a summary of our ethanol investments at january 31 , 2019 ( gallons in millions ) : replace_table_token_4_th story_separator_special_tag net income attributable to rex common shareholders โ as a result of the foregoing , net income attributable to rex common shareholders was approximately $ 31.6 million for fiscal year 2018 compared to $ 39.7 million for fiscal year 2017. business segment results we have two reportable segments , i ) ethanol and by-products and ii ) refined coal . in fiscal year 2017 , we began reporting the results of our refined coal operation as a new segment as a result of the august 10 , 2017 acquisition of an entity that operates a refined coal facility . prior to the acquisition , we had one reportable segment , ethanol . the following sections discuss the results of operations for each of our business segments and corporate and other . as discussed in note 16 , our chief operating decision maker ( as defined by accounting standards codification ( โ asc โ ) 280 , โ segment reporting โ ( โ asc 280 โ ) evaluates the operating performance of our business segments using net income attributable to rex common shareholders . the following tables summarize segment and other results and assets ( amounts in thousands ) : replace_table_token_5_th 29 replace_table_token_6_th 1 we record sales in the refined coal segment net of the cost of coal as we purchase the coal feedstock from the customer to which refined coal is sold . ethanol and by-products segment the ethanol and by-products segment includes the consolidated financial results of one earth and nugen , our equity investment in big river and certain administrative expenses . the following table summarizes selected data from one earth and nugen : replace_table_token_7_th the following table summarizes sales from one earth and nugen , by product group ( amounts in thousands ) : replace_table_token_8_th ethanol sales increased from approximately $ 359.2 million in the prior year to approximately $ 368.3 million in the current year , primarily a result of an increase of 29.8 million gallons ( 11.6 % ) sold during fiscal year 30 2018. the increase in gallons sold is attributable to the capacity expansion projects we have invested in over the last several years . the volume increase was offset by a $ 0.11 decline in the price per gallon sold . dried distillers grains sales increased from approximately $ 63.1 million in the prior year to approximately $ 85.4 million in the current year , primarily a result of a $ 36.31 increase in the price per ton sold . management believes the price increase is primarily related to stronger export markets in fiscal year 2018 compared to fiscal year 2017. non-food grade corn oil sales decreased from approximately $ 21.2 million in the prior year to approximately $ 20.1 million in the current year , primarily a result of a decrease of $ 0.04 in the price per pound sold during fiscal year 2018. the price decrease was partially offset by a 10.8 % increase in pounds sold during fiscal year 2018. similar to the ethanol increase , capacity expansion projects undertaken over the last several years are the primary reason for the increase in pounds sold and is consistent with the increased ethanol production . story_separator_special_tag modified distillers grains sales increased from approximately $ 8.5 million in the prior year to approximately $ 12.0 million in the current year , primarily a result of an increase of $ 13.55 in the price per ton sold during fiscal year 2018. in addition tons of modified distillers grains sold increased 8.2 % in fiscal year 2018 compared to fiscal year 2017. we expect that sales of one earth and nugen in future periods will be based upon the following : product annual sales quantity ethanol 275 million to 300 million gallons dried distillers grains 580,000 to 650,000 tons non-food grade corn oil 70 million to 100 million pounds modified distillers grains 170,000 to 225,000 tons this expectation assumes that one earth and nugen will operate at slightly above historical production levels , based upon recent plant expansion projects , which is dependent upon market conditions , plant profitability and efficient plant operations . we expect production rates at the nugen ethanol facility to be below historical levels during the first quarter of fiscal year 2019 as weather-related logistical delays have negatively impacted operations . we may vary the amounts of ethanol , dried and modified distillers grains and corn oil produced , and thus , the resulting sales , based upon market conditions . nugen and one earth have received the epa pathway approval and have permits to increase each of their production levels to 150 million gallons annually . gross profit was approximately $ 43.9 million in fiscal year 2018 , or 9.0 % of net sales and revenue which was approximately $ 7.7 million lower compared to approximately $ 51.5 million of gross profit in fiscal year 2017 or 11.4 % of net sales and revenue . the crush spread for fiscal year 2018 was approximately $ 0.09 per gallon of ethanol sold compared to approximately $ 0.23 per gallon of ethanol sold during fiscal year 2017. the increase of approximately $ 22.3 million in sales of dried distillers grains compared to the prior year positively affected gross profit . grain accounted for approximately 77 % ( $ 341.1 million ) of our cost of sales during fiscal year 2018 compared to approximately 75 % ( $ 302.1 million ) during fiscal year 2017. natural gas accounted for approximately 6 % ( $ 24.7 million ) of our cost of sales during fiscal year 2018 consistent with approximately 6 % ( $ 25.2 million ) during fiscal year 2017. the increase of approximately $ 3.4 million in sales of modified distillers grains compared to the prior year positively affected gross profit . in addition , corn oil sales negatively impacted gross profit in fiscal year 2018 by approximately $ 1.1 million compared to fiscal year 2017. real estate taxes were approximately $ 4.7 million lower in fiscal year 2018 compared to fiscal year 2017 as a result of disputed assessments being settled , and related taxes refunded to the company . given the inherent volatility in ethanol , distillers grains , non-food grade corn oil , grain and natural gas prices , we can not predict the likelihood that the spread between ethanol , distillers grains , non-food grade corn oil and grain prices in future periods will be consistent with prices in historical periods . we attempt to match quantities of ethanol , distillers grains and non-food grade corn oil sale contracts with an appropriate quantity of grain purchase contracts over a given period of time when we can obtain an adequate margin resulting from the crush spread inherent in the contracts we have executed . however , the market for future ethanol sales contracts generally lags the spot market with respect to ethanol price . consequently , we 31 generally execute fixed price contracts for no more than four months into the future at any given time and we may lock in our corn or ethanol price without having a corresponding locked in ethanol or corn price for short durations of time . as a result of the relatively short period of time our fixed price contracts cover , we generally can not predict the future movements in the crush spread for more than four months . we utilize derivative financial instruments , primarily exchange traded commodity future contracts , in conjunction with certain of our grain procurement activities . none of our forecasted ethanol , approximately 11 % of our forecasted distillers grains and approximately 23 % of our forecasted non-food grade corn oil production during the next 12 months have been sold under fixed-price contracts . the effect of a 10 % adverse change in the price of ethanol , distillers grains and non-food grade corn oil from the current pricing would result in a decrease in annual revenues in fiscal year 2019 of approximately $ 45.3 million . similarly , approximately 2 % of our estimated corn usage for the next 12 months was subject to fixed-price contracts . the effect of a 10 % adverse change in the price of corn from current pricing would result in an increase in annual cost of goods sold in fiscal year 2019 of approximately $ 36.9 million . approximately 29 % of our estimated natural gas usage for the next 12 months was subject to fixed-price contracts . the effect of a 10 % adverse change in the price of natural gas from current pricing would result in an increase in annual cost of goods sold in fiscal year 2019 of approximately $ 1.7 million .
| affiliates โ during fiscal years 2018 and 2017 , we recognized income of approximately $ 1.5 million and $ 3.2 million , respectively , from our equity investment in big river , which is included in our ethanol and by-products segment results . income recognized in fiscal year 2017 was 27 reduced by approximately $ 0.8 million as a result of an impairment charge big river incurred . our investment in big river , which has interests in four ethanol production plants , has an effective ownership of ethanol gallons shipped in the trailing twelve months ended january 31 , 2019 of approximately 370 million gallons . the decline in income from fiscal year 2017 is reflective of industry conditions . we expect the operating experience of big river to be generally consistent with the trends in crush spread margins described in the โ overview โ section as big river 's results are dependent on the same key drivers as our other ethanol investments ( ethanol , corn , dried distillers grains and natural gas pricing ) . due to the inherent volatility of commodity prices within the ethanol industry , we can not predict the likelihood of future operating results from big river being similar to the fiscal year 2018 results . interest and other income โ interest and other income for fiscal year 2018 was approximately $ 3.4 million compared to approximately $ 2.1 million for fiscal year 2017. interest income has increased as yields on our excess cash have improved compared to fiscal year 2017. fiscal year 2017 income includes federal grants of approximately $ 0.7 million . income before income taxes โ as a result of the foregoing , income before income taxes was approximately $ 14.6 million for fiscal year 2018 versus approximately $ 25.4 million for fiscal year 2017. provision for income taxes โ our effective tax rate was a benefit of 157.1 % and 76.9 % for fiscal
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segments we have three reportable business segments : ( 1 ) corporate ; ( 2 ) usa , which manufactures and distributes srb in various granulations along with other products derived from rice bran via proprietary and patented enzyme treatment processes ; and ( 3 ) brazil , which extracts crude rbo and drb from rice bran , which are then further processed into a number of valuable human food and animal nutrition products . the corporate segment includes selling , general and administrative expenses including public company expenses , litigation , and other expenses not directly attributable to other segments . no corporate allocations are made to the other segments . general corporate interest is not allocated . the usa segment consists of two locations in california and two locations in louisiana all of which can produce srb . one of the two louisiana srb facilities , located in lake charles , has been idle since may 2009 ( see note 9 to the consolidated financial statements included herein ) . the usa segment also includes our dillon , montana stage ii facility which produces risolubles ( a highly nutritious , carbohydrate and lipid rich fraction of srb ) , rifiber ( a fiber rich derivative of srb ) and ribalance ( a complete rice bran nutritional package derived from further processing srb ) . the manufacturing facilities included in our usa segment have proprietary and patented processing equipment and technology for the stabilization and further processing of rice bran into finished products . in 2011 , 45.7 % of usa segment revenue was from sales of human food products and 54.3 % was from sales of animal nutrition products . 26 index the brazil segment consists of our irgovel operations located in pelotas , brazil . irgovel manufactures rbo and drb products for both the human and animal food markets in brazil and internationally . irgovel owns the largest rice bran processing facility in south america and is the only company in latin america to produce edible rbo for human consumption . in refining rbo to an edible grade , several co-products are obtained . one such product is distilled fatty acids , a valuable raw material for the detergent industry . drb is sold in bulk as animal feed and compounded with a number of other ingredients to produce complex animal nutrition products which are packaged and sold under irgovel brands in the brazilian market . for 2011 , brazil segment revenue was derived 20.1 % from sales of human food products , 50.5 % from sales of industrial oils and 29.4 % from animal feed and nutrition products . story_separator_special_tag underline '' > operating expenses ( in thousands ) : replace_table_token_6_th replace_table_token_7_th replace_table_token_8_th consolidated operating expenses were $ 17.2 million for 2011 compared to $ 20.9 million for 2010 , a decrease of $ 3.7 million . the $ 3.7 million improvement included $ 3.1 million in decreased charges relative to impairments , recoveries and losses on disposal , as follows : ยท a $ 0.3 million decrease in impairment charges between 2011 and 2010 , ยท a total of $ 1.8 million in recoveries from former customers in 2011 ( see note 15 to the consolidated financial statements ) , and ยท a $ 0.9 million 2010 loss related primarily to the disposal of the phoenix facility and the infant cereal manufacturing equipment located at that facility . the $ 1.5 million improvement in corporate segment sg & a included : ยท a decline of $ 0.4 million as a result of an expense recovery recognized for the 2011 settlement with mr. edson , a former officer , ยท a $ 0.4 million decline in labor , personnel related and interim management fees , ยท a $ 0.8 million decline in share-based employee , officer and director compensation expenses , offset by ยท a $ 0.1 million increase in other expenses . 28 index the $ 0.7 million improvement in usa segment sg & a included : ยท a $ 0.3 million decline in labor and personnel related costs , and ยท a $ 0.4 million decline in other costs due to cost containment efforts . brazil segment sg & a increased $ 0.6 million . payroll expenses increased as a result of government mandated annual cost of living adjustments that were effective beginning june 2010 , general merit raises and expenses associated with a newly implemented management bonus program . customs and handling charges also increased with the rise in export revenues . brazil segment professional fees were $ 1.1 million for 2011 compared to $ 0.5 million for 2010. professional fees are primarily expenses associated with consultants , accounting , auditing , tax compliance , sox 404 compliance , and outside legal counsel . the increase in professional fees is partly due to management and meeting attendance fees payable to the investors , who own a noncontrolling interest in nutra sa beginning in january 2011 ( see note 5 to the consolidated financial statements ) . there was no comparable expense in the prior year period . intersegment fees relate to brazil segment represent fees payable to the corporate segment beginning in january 2011 under the agreements with the investors . the charges are intended to compensate the corporate segment for management time spent on irgovel operations . other income ( expense ) ( in thousands ) : replace_table_token_9_th replace_table_token_10_th replace_table_token_11_th consolidated other expense was $ 1.6 million for 2011 , compared to $ 1.7 million for 2010 . 29 index our warrant liability as of december 31 , 2011 , declined $ 0.3 million from the warrant liability as of december 31 , 2010 , resulting in a favorable $ 0.7 million decrease in other income ( expense ) between 2010 and 2011. we have certain outstanding warrant agreements in effect that contain antidilution clauses . under the antidilution clauses , in the event of equity issuances , we may be required to lower the exercise price on liability warrants and increase the number of shares underlying liability warrants . story_separator_special_tag warrant liability is carried at fair value which is determined at the end of each reporting period . the change in fair value is recorded as warrant liability income or expense . the valuation method used to calculate fair value requires us to assess the probability of future issuance of equity instruments at a price lower than the current exercise price of the warrants that contain antidilution clauses . we must also make other assumptions related to our projected cash needs and our likelihood of successfully concluding an equity fund raising transaction . warrant liability decreased during 2011 , in part , because our stock price has declined during 2011 and the decrease in the average remaining life of the warrants . the following factors contributed to the offsetting $ 0.7 million increase in other expense : ยท an increase in interest expense of $ 0.2 million in the corporate segment because the financing in place during the bankruptcy proceedings in 2010 was at a lower interest rate than the factoring agreement put in place in 2011 and the average interest expense rate on the convertible notes outstanding during 2011 , ยท an increase of $ 0.2 million in brazil segment interest expense , as a result of increases in the average debt outstanding , ยท a corporate segment loss in 2011 of $ 0.1 million from the acquisition of additional interests in rrx as a result of a settlement with hs , our former joint venture partner ( see note 13 to the consolidated financial statements ) , and ยท a corporate segment expense of $ 0.2 million in 2011 for transaction costs incurred in the settlement with hs . liquidity and capital resources with respect to liquidity and capital resources , we manage the brazil segment , consisting currently of our irgovel operations , separately from our u.s. based corporate and usa segments . as of january 2011 , cash provided by operations in our brazil segment is generally unavailable for distribution to our corporate and usa segments pursuant to the terms of the limited liability company agreement for nutra sa , llc . cash used in operating activities for 2011 is presented below by segment ( in thousands ) . replace_table_token_12_th 30 index corporate and usa segments on a combined basis , the corporate and usa segments used $ 8.8 million of cash in operating activities in 2011. in 2011 , we continued to take steps to improve profitability and liquidity by reducing our u.s. based employee headcount at both the corporate and plant operations level . in order to conserve cash , in july 2011 , members of the board of directors agreed to accept stock for retainer fees for the last three quarters of 2011 , instead of $ 0.2 million in cash . the four executive officers also agreed in july 2011 to accept stock options in lieu of $ 0.1 million in cash compensation for the second half of 2011. additional steps taken in 2011 include issuing shares of common stock and warrants to satisfy certain obligations ( see note 11 to the consolidated financial statements ) . in the ongoing effort to improve profitability , significant emphasis will be placed on growing revenues . the growth of revenues is expected to include the following : ยท growth in existing markets for srb , drb and rbo , ยท aligning with strategic partners who can provide channels for additional sales of our products ; and ยท implementing price increases . in 2011 , we also obtained funds from the issuances of convertible notes and related warrants ( see note 11 to the consolidated financial statements ) . the equity markets , however , have not been a significant source of funds during 2011 and 2010 due to our financial position , the state of the equity markets and our november 2010 emergence from bankruptcy . improving financial performance and equity market conditions may allow us to raise equity funds in the near future . we intend to provide the necessary cash to continue operations through the monetization of certain assets , improved profitability and equity and or debt financing transactions . some of the monetizations could result in additional impairment of asset values . asset monetization may include some or all of the following : ยท sale of certain facilities ; ยท sale of a noncontrolling interest in one or more subsidiaries ; or ยท sale of surplus equipment . in 2011 , we made distributions to unsecured creditors which reduced prepetition liabilities by $ 4.8 million . these distributions are included in cash used in operations . as of december 31 , 2011 , we had $ 0.2 million in restricted cash set aside for distribution to the class 6 general unsecured creditors . in january 2012 , we made our final distribution to these creditors in full satisfaction of our obligation . the source of funds for the distributions to general unsecured creditors were derived from ( i ) the january 2011 sale of nutra sa units discussed below ( ii ) proceeds from the september 2010 sale of the phoenix , arizona facility , ( iii ) receipts on notes receivable , and ( iv ) proceeds from issuances of convertible debt and related warrants . included in cash flows from investing activities for 2011 is $ 1.1 million of cash received on the ceautamed note receivable . between april 2011 and january 2012 , when final distributions were made to the class 6 creditors all amounts received on the note receivable were set aside in restricted cash for distribution to the class 6 creditors in accordance with our amended plan . beginning in february 2012 , receipts on the note are no longer restricted as to use . cash used in investing activities in 2011 included $ 0.1 million in usa segment capital expenditures . cash provided by investing activities in 2010 included $ 8.9 million of proceeds primarily from the sale of the phoenix , arizona facility and cereal equipment at that facility .
| animal feed revenues benefited from higher prices in other commodity products like soy and corn , which are traditional animal feed sources . rice bran based products provide an alternative source of animal feed . oil revenues continue to benefit from current higher pricing trend in vegetable oil markets that began in the last quarter of 2010 and continued throughout 2011 before moderating slightly near the end of 2011. gross profit ( in thousands ) : replace_table_token_5_th consolidated gross profit for 2011 , was $ 7.6 million , compared to $ 7.0 million in 2010 , an increase of $ 0.6 million . 27 index the 2011 usa segment gross profit percentage was negatively impacted by higher 2011 raw bran prices and the impact of recording depreciation on the dillon , montana facility in 2011. average raw bran prices have continued to rise throughout 2011 and as of december 31 , 2011 , were approximately 52 % higher , on average , than prices as of the end of 2010. these higher bran prices resulted in approximately a 7 percentage point decline in our usa segment gross profit . to offset the higher raw bran cost , we implemented a price increase in the first quarter of 2011 for certain customers and additional sales price increases in the fourth quarter of 2011 to offset higher bran costs . we also experienced usa segment margin erosion of 4 percentage points from the $ 0.5 million increase in depreciation expense recognized in cost of goods sold on the dillon , montana facility in 2011. no depreciation was recognized on the facility in 2010 while the facility was an asset held for sale . brazil segment gross profit percentage improved from 12.2 % to 16.9 % . the improvement in margin from the 24.2 % increase in revenues and resulting improvement in plant efficiency was partially offset by the impact of lower margin shipping and handling revenue . revenue related to shipping and handling increased 77.6 % between 2011 and 2010 as international customer sales
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this performance data indicated likely failures of components associated with the float braking system which would be activated during severe storm periods in order to prevent damage to the float . as a result , we retrieved the pb40 to avoid potential physical damage to the buoy structure in the event of a severe storm . during the limited deployment period , we were able to obtain performance data , which we will use to further understand the pb40 's system performance and power generation in varying wave states . in addition , we were also able to use the deployment and retrieval of the pb40 , 30 miles off of the coast of new jersey , to validate our logistical processes associated with permitting , staging , towing and installation of the pb40 at its moored location . because the pb40 is a legacy utility prototype device , we do not consider it to be a critical part of our current business plan focusing on the autonomous applications market . based on our review to date , we currently believe that the failed components are unique to the pb40 , and therefore , we do not believe that these component failures will materially impact the functionality of any of our other autonomous powerbuoys . costs associated with the retrieval of the pb40 buoy were reflected in our product development expenses . the pb40 was subsequently dismantled and disposed of . costs related to the retrieval of anchors and mooring line will be expensed as incurred . we retained sections of the pb40 and plan to investigate , analyze and asses the component failures of the pb40 . we also deployed our pb3-a1 powerbuoy off the coast of new jersey in august 2015. the pb3-a1 contains an improved pto system compared to the apb350 that was deployed in 2011 in connection with the u.s. navy 's leap program and then redeployed in 2013 in conjunction with the u.s. department of homeland security . the pb3-a1 features an advanced pto design with a focus on reliability , manufacturability , and cost and efficiency improvement . in its final configuration , the pb3 uses a modular ess to provide continuous power to the payload even when the powerbuoy is not generating new power due to calm sea states . in a calm sea state ( i.e. , no waves to generate power ) , we believe the ess will have enough storage capacity to provide up to seven days of continuous power ( or longer , depending on payload , continuous power rating and on-board modular ess configuration ) to the majority of ocean sensors when starting from a fully charged state . when the pb3 is deployed in the ocean , real-time performance and weather data is collected and transmitted to the company 's monitoring and analysis center at its corporate headquarters in pennington , nj . subsequent to its initial august deployment , the pb3-a1 was retrieved for maintenance and repairs and redeployed in october 2015. in january 2016 , we again retrieved the pb3 for additional maintenance and repair . costs related to the retrieval are reflected in our product development costs . after repair and upgrades , we redeployed the pb3-a1 in june 2016 . 32 we also are continuing to work to develop solutions seeking to improve our products ' durability and reliability and to reduce their cost . for example , the original apb350 utilized a rack and pinion pto and successfully powered u.s. navy and u.s. homeland security equipment off the coast of new jersey for nearly three months . the redesigned pb3 leverages our knowledge base from that design to incorporate new design features which we believe will improve its reliability and efficiency , including a redesigned pto and a higher efficiency and higher voltage ess . in july 2016 , we deployed our first commercial pb3 powerbuoy , approximately four miles off of the coast of new jersey . the company currently anticipates that this deployment will be the final validation of the pb3 prior to the anticipated march 2017 six-month lease of the pb3 powerbuoy under a previously announced customer agreement . in january 2013 , we filed a shelf registration statement on form s-3 ( the โ 2013 form s-3 โ ) , which was declared effective by the sec in february 2013. under the 2013 form s-3 , in june 2013 , the company established an at the market offering facility ( the โ 2013 atm facility โ ) with ascendiant capital markets , llc ( โ ascendiant โ ) via an at the market offering agreement ( the โ 2013 atm agreement โ ) . under the 2013 atm agreement , we offered and sold shares of our common stock from time to time through ascendiant , acting as sales agent , in ordinary brokerage transactions at prevailing market prices . under the 2013 atm facility , during fiscal 2014 , we issued 330,633 shares of our common stock at an average price to the public of $ 30.20 per share , receiving net proceeds from the 2013 atm facility of approximately $ 9,698,000. also in fiscal 2014 , we entered into an underwriting agreement with roth capital partners , llc on april 4 , 2014 , ( the โ 2014 underwriting agreement โ ) with respect to the issuance and sale in an underwritten public offering of an aggregate of 380,000 shares of our common stock at a price of $ 31.00 per share ( the โ 2014 public offering โ ) under the 2013 form s-3 . the underwriting agreement contained customary representations , warranties and agreements by us , customary conditions to closing , indemnification obligations , and a 90-day lock-up period that limited transactions in our common stock by us . net proceeds from the 2014 public offering , which was completed in early april 2014 , were approximately $ 10,828,000. form s-3 limits the aggregate market value of securities that we are permitted to offer in any 12-month period to one-third of our public float . story_separator_special_tag in 2014 , we fully utilized our available transaction capacity to sell securities under the 2013 form s-3 . however , we regained the ability to utilize the 2013 form s-3 as we entered fiscal 2016. under the sec 's regulations , the securities registered under our 2013 form s-3 may only be offered and sold if not more than three years have elapsed from the initial effective date of the form s-3 , except that if a new shelf registration statement is filed then we are permitted to continue to offer and sell securities under the form s-3 until the earlier of the effective date of the new shelf registration statement or 180 days after the third anniversary of the initial effective date . on february 12 , 2016 , we filed a new form s-3 shelf registration statement ( the โ 2016 form s-3 โ ) to register the offering and sale of up to $ 15 million of our securities . the 2016 form s-3 registration was declared effective by the sec on april 26 , 2016. in october 2015 , we entered into an at the market offering agreement ( the โ 2015 offering agreement โ ) with rodman & renshaw , a unit of h. c. wainwright & co. , llc ( the โ manager โ ) under which we offered shares of our common stock , from time to time through or to the manager , acting as sales agent and or principal , ( the โ 2015 atm offering โ ) . under the 2015 offering agreement , during the year ended april 30 , 2016 , we sold 144,571 shares of common stock with an aggregate market value of $ 293,343 under the offering agreement and paid the manager a sales commission of approximately $ 4,400 related to those shares . on june 2 , 2016 , we entered into a securities purchase agreement , which was amended on june 7 , 2016 ( as amended , the โ purchase agreement โ ) with certain institutional purchasers ( the โ purchasers โ ) . pursuant to the terms of the purchase agreement , we sold an aggregate of 417,000 shares of common stock together with warrants to purchase up to an aggregate of 145,952 shares of common stock . each share of common stock was sold together with a warrant to purchase 0.35 of a share of common stock at a combined purchase price of $ 4.60. the net proceeds from the offering to us were approximately $ 1.6 million , after deducting placement agent fees and estimated offering expenses payable by us , but excluding the proceeds , if any , from the exercise of the warrants issued in the offering . the warrants have an exercise price of $ 6.08 per share , will be exercisable on december 8 , 2016 , and will expire five years following the date of issuance . the sale of additional equity or convertible securities could result in dilution to our stockholders . if additional funds are raised through the issuance of debt securities or preferred stock , these securities could have rights senior to those associated with our common stock and could contain covenants that would restrict our operations . we do not have any committed sources of debt or equity financing and we can not assure you that financing will be available in amounts or on terms acceptable to us when needed , or at all . if we are unable to obtain required financing when needed , we may be required to reduce the scope of our operations , including our planned product development and marketing efforts , which could materially and adversely affect our financial condition and operating results . if we are unable to secure additional financing , we may be forced to cease our operations . during fiscal 2014 , our subsidiary vwp received approximately a $ 5.6 million ( $ 5.2 million ) in initial grant funding from arena . the company recorded this payment as an advance payment within the consolidated balance sheet . we classified the initial grant funding received from arena , of a $ 5,595,723 ( $ 5,179,960 ) , which included gst , as restricted cash . in july 2014 , the vwp board of directors determined that the project contemplated by the grant was no longer commercially viable and subsequently terminated the funding deed and returned to arena the grant funds received . 33 during fiscal 2015 , the company remitted the gst in the amount of a $ 508,702 ( $ 470,905 ) to the australian tax office ( โ ato โ ) in accordance with local tax laws and reclaimed this amount from the ato during such fiscal period . in august 2014 , the company returned the initial grant funding received of a $ 5,595,723 ( $ 5,179,960 ) and interest of a $ 109,051 ( $ 102,061 ) to arena in accordance with the deed of variation and termination of funding deed executed between the parties in august 2014. as of april 30 , 2016 , our backlog was negligible . as of april 30 , 2015 , our negotiated backlog was $ 0.9 million . in 2016 , we have excluded from backlog the suspended utility project with mes as we do not expect work under that contract to continue due to the shift in focus to an autonomous project . subsequently , on may 31 , 2016 , we entered into a contract with mes totaling $ 975,587 , a portion of which was performed in fiscal 2016 as agreed under a loi signed in march 2016. our backlog can include both funded amounts , which are unfilled firm orders for our products and services for which funding has been both authorized and appropriated by the customer ( u.s. congress , in the case of u.s. government agencies ) , and unfunded amounts , which are unfilled firm orders for which funding has not been appropriated .
| โ during the year ended april 30 , 2015 , our firm-fixed price contract with mes recorded under the percentage-of-completion method had an increase in estimated total costs of the project . this increase in estimated project costs resulted in us incurring a gross loss on this contract and we recorded an accrual for the future anticipated loss on the contract . some of our projects in fiscal 2016 and 2015 were under cost-sharing contracts . under cost-sharing contracts , we receive a fixed amount agreed upon with the customer that is only intended to fund a portion of the costs on a specific project . we fund the remainder of the costs primarily as part of our product development efforts . revenue is typically recorded using the percentage-of-completion method applied to the contractual amount agreed upon with the customer . an equal amount corresponding to the revenue is recorded in cost of revenues resulting in gross profit on these contracts of zero . our share of the costs is considered to be product development expense . our ability to generate a gross profit will depend on the nature of future contracts , our success generating revenues through sales of our powerbuoy systems , the nature of contracts for our development efforts , and our ability to manage costs incurred on our fixed price contracts . 38 product development costs product development costs increased by approximately $ 2.9 million , or 70 % , to $ 7.0 million in fiscal 2016 as compared to $ 4.1 million in fiscal 2015. the increase in product development costs was related primarily to increased costs associated with the deployment and retrieval costs of our legacy pb40 and pb3-a1 powerbuoys , in addition to development costs associated with our investigation of the potential use of our powerbuoys in autonomous market applications . over the next several years , it is our goal to fund the majority of our product development efforts with external funding from commercial relationships , including cost-sharing arrangements . if we are unable to obtain commercial relationships or cost-sharing arrangements ,
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cost of sales & gross profit : replace_table_token_9_th gross profit margin decreased slightly to 29.5 % in the year ended december 31 , 2016 compared to 29.6 % for the same period in 2015 , primarily due to lower pricing and lower sales volume , partially offset by lower input costs for plastic resins . 20 selling , general and administrative expenses : replace_table_token_10_th selling , general and administrative ( โ sg & a โ ) expenses for the year ended december 31 , 2016 were $ 138.6 million , a decrease of $ 8.8 million or 6 % compared to the same period in the prior year . sg & a expenses were favorably impacted by lower compensation expense and other employee-related costs of approximately $ 11.5 million , lower legal and professional costs of $ 1.5 million associated with the brazilian investigation completed in the first quarter of 2015 and the non-recurring reversal of a long-term liability of approximately $ 2.3 million recognized in 2016 , partially offset by additional environmental contingency expense of $ 0.9 million and the absence of a $ 3.0 million benefit recognized in 2015 related to the reversal of the legal reserve associated with the orbis litigation , each described in note 10 to the consolidated financial statements . impairment charges : the company recorded $ 9.9 million of non-cash impairment charges , primarily related to its plasticos novel do nordeste s.a. ( โ novel โ ) reporting unit during the year ended december 31 , 2016 , as discussed in note 3 to the consolidated financial statements . no impairment charges were recorded in during the same period in 2015. net interest expense : replace_table_token_11_th net interest expense for the year ended december 31 , 2016 was $ 8.2 million compared to $ 9.0 million during 2015. the decrease in net interest expense is due to a decrease in average borrowings during the year ended december 31 , 2016 compared to the prior year , and higher interest income on the note receivable from the sale of the lawn and garden business described in note 5 to the consolidated financial statements . income taxes : replace_table_token_12_th the effective tax rate was 80.9 % for the year ended december 31 , 2016 compared to 35.7 % in the prior year . the 2016 effective tax rate is higher than our statutory rate and the effective tax rate for the same period in 2015 , due to losses in jurisdictions where the tax benefits are not currently recognized , including the impairment charges in brazil . discontinued operations : loss from discontinued operations , net of income taxes was $ 0.5 million for the year ended december 31 , 2016 compared to income of $ 3.7 million for the year ended december 31 , 2015. a gain on sale of the lawn and garden business of $ 4.7 million , net of income taxes , was included in income ( loss ) from discontinued operations in the accompanying consolidated statements of operations for the year ended december 31 , 2015 . 21 story_separator_special_tag reflect the excess carrying value over fair value less cost to sell the lawn and garden business . a disagreement between the parties over the calculation of the final working capital adjustment was resolved by arbitration on march 9 , 2016. as a result of the final ruling , the company recorded an additional gain of $ 0.6 million , net of tax , in 2015. the final working capital adjustment resulted in a cash payment to the buyer of approximately $ 4.0 million in 2016. the total gain on the sale of the lawn and garden business was $ 4.7 million , net of tax , during 2015 and is included in income ( loss ) from discontinued operations in the accompanying consolidated statements of operations . financial condition & liquidity and capital resources operating activities cash provided by operating activities from continuing operations was $ 33.7 million , $ 49.4 million and $ 51.8 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . the decrease in cash provided by continuing operations of $ 15.6 million during the year ended december 31 , 2016 compared to 2015 was mainly due to an increase in cash used for working capital of $ 8.4 million , which was driven by a significant reduction in accounts payable in 2016. the decline in operating cash flow also included a decrease in income from continuing operations of $ 12.5 million , which includes non-cash impairment charges of $ 9.9 million , a decrease in other long-term liabilities of $ 1.7 million , and a decrease of $ 1.6 million in non-cash stock-based compensation expense . income from continuing operations was $ 1.5 million for the year ended december 31 , 2016 compared to $ 14.1 million for the same period in 2015. depreciation and amortization costs from continuing operations were $ 34.5 million in the year ended december 31 , 2016 , compared to $ 35.0 million for the year ended december 31 , 2015. the lower depreciation and amortization are attributable to the reduction of $ 11.2 million in capital expenditures in 2016 compared to 2015 . 23 the decrease in cash provided by continuing operations during the year ended december 31 , 2015 was mainly due to a use of working capital , partially offset by higher net income . story_separator_special_tag accounts payables and accrued expenses h ad a negative impact on operating cash flows in 2015 of $ 13.1 million compared to positive cash flows of $ 8.1 million in 2014 due to lower accounts payable primarily related to the impact of lower raw material costs , the reversal of the prior year legal ac crual related to the orbis litigation as described in note 10 and lower taxes payable in 2015 compared to 2014. income from continuing operations was $ 14.1 million in 2015 compared to $ 9.0 million in 2014. depreciation and amortization costs from continui ng operations were $ 35.0 million in the year ended december 31 , 2015 , compared to $ 31.2 million for the year ended december 31 , 2014. the higher depreciation and amortization are attributable to the higher level of assets placed in service over the past se veral years and assets acquired in connection with the acquisition of scepter . investing activities capital expenditures were $ 12.5 million , $ 23.7 million and $ 24.2 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . higher capital spending in 2015 and 2014 compared to 2016 was due to additional investments that were made for new manufacturing focused on growth and productivity improvements in addition to higher spending due to scepter . the company paid a final working capital adjustment to the buyer of the lawn and garden business of approximately $ 4.0 million in the first quarter of 2016 as described in note 5. during 2015 , the company received approximately $ 69.8 million in cash proceeds in connection with the sale of the lawn and garden business and $ 1.0 million in connection with the sale of wek . the company paid approximately $ 156.6 million in connection with the acquisition of scepter during 2014. financing activities the company used cash to pay dividends of $ 16.2 million , $ 16.7 million and $ 15.7 million for the years 2016 , 2015 and 2014 , respectively . in addition , under a share repurchase plan , the company used cash of $ 30.0 million to purchase 1,992,379 shares of its stock in 2015 and $ 54.9 million to purchase 2,742,506 shares of its stock in 2014. the company did not repurchase any stock during the year ended december 31 , 2016. net repayments on the credit facility were $ 3.8 million for the year ended december 31 , 2016 compared to net repayments of $ 37.1 million for the year ended december 31 , 2015 , when a portion of the cash proceeds from the sale of the lawn and garden business was used to pay down debt . credit sources on may 30 , 2014 , the company entered into a first amendment to the fourth amended and restated loan agreement ( the `` loan amendment '' ) . the loan amendment provided for a $ 300 million senior revolving credit facility expiring in december 2018. on july 2 , 2014 , the company borrowed approximately $ 135.3 million under the loan amendment to fund the acquisition of scepter . amounts borrowed under the loan amendment are secured by pledges of stock of certain of our foreign and domestic subsidiaries . borrowings under the loan amendment bear interest at the libor rate , prime rate , federal funds effective rate , the canadian deposit offered rate , or the eurocurrency reference rate depending on the type of loan requested by the company , in each case plus the applicable margin as set forth in the loan amendment . the company has senior unsecured notes totaling $ 100 million with a group of investors pursuant to a note purchase agreement . the series of four notes range in face value from $ 11 million to $ 40 million , with interest rates ranging from 4.67 % to 5.45 % , payable semiannually , and maturing between 2021 and 2026. total debt outstanding at december 31 , 2016 was $ 189.5 million , net of deferred financing costs , compared with $ 191.9 million at december 31 , 2015. the company 's loan amendment provides available borrowing up to $ 300 million , reduced for letters of credit issued . as of december 31 , 2016 , the company had $ 4.4 million of letters of credit issued related to insurance and other financing contracts in the ordinary course of business . as of december 31 , 2016 , there was $ 204.9 million available under our loan amendment . as of december 31 , 2016 , the company was in compliance with all its debt covenants . the most restrictive financial covenants for all of the company 's debt are an interest coverage ratio ( defined as earnings before interest , taxes , depreciation and amortization , as adjusted , divided by interest expense ) and a leverage ratio ( defined as total debt divided by earnings before interest , taxes , depreciation and amortization , as adjusted ) . the ratios as of and for the period ended december 31 , 2016 are shown in the following table : required level actual level interest coverage ratio 3.00 to 1 ( minimum ) 8.30 leverage ratio 3.25 to 1 ( maximum ) 2.88 24 in march 2017 , the company entered into a fifth amended and restated loan agreement ( the โ loan agreement โ ) .
| cost of sales & gross profit : replace_table_token_14_th gross profit margin increased to 29.6 % in the year ended december 31 , 2015 compared to 25.9 % in the prior year primarily due to the acquisition of scepter in july 2014 and lower input costs primarily for plastic resins , partially offset by lower volume primarily in our material handling segment and negative mix of products sold across both of our reportable segments . gross margin in 2014 was negatively impacted by a $ 2.3 million inventory fair value adjustment resulting from our acquisition of scepter . selling , general and administrative expenses : replace_table_token_15_th selling , general and administrative ( โ sg & a โ ) expenses for the year ended december 31 , 2015 were $ 147.4 million , an increase of $ 8.7 million or 6 % compared to the prior year . an increase in sg & a of $ 11.4 million was due to the inclusion of scepter expenses during the first six months of 2015. excluding the impact of scepter , sg & a expenses were favorable by $ 6.0 million versus the prior year due to the reversal of the prior year legal accrual related to the orbis litigation as described in note 10 , $ 3.6 million of transaction costs in the year ended december 31 , 2014 related to the acquisition of scepter and $ 3.5 million from foreign currency translation . these reductions were partially offset by an increase in legal and professional costs of $ 1.6 million associated with the brazilian investigation that was completed in the first quarter of 2015 , $ 1.8 million of incremental stock compensation expenses , a $ 1.3 million charge for environmental reserves described in note 10 , $ 1.0 million of additional long-term compensation expenses for retirement eligible employees and an increase in other employee-related costs . 22 net interest expense : replace_table_token_16_th net interest expense for the year ended december 31 , 2015 was $ 9.0 million compared to $ 8.5 million during 2014. the increase in net interest expense is due to an increase in average borrowings and average borrowing rate during the
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in december 2015 , we signed a master distribution agreement with meheco yonstron pharmaceutical co. ltd. , a chinese distribution and logistics company , and began selling our chinese market products to meheco in 2016. meheco then sold our products to multiple sub-distributors who then sold to chinese hospitals . this agreement expired in december 2017 , and we are currently in the process of signing distribution agreements with sub-distributors in order to sell our products directly to sub-distributors in china . 42 we anticipate that the expansion of our sales organization in china will result in increased sales , marketing and regulatory expenses during 2018. as of december 31 , 2017 we had seven 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 may 2015 , we acquired the production and distribution rights of uresil llc 's tru-incise valvulotome for sales outside 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 q3 2015. in march 2016 , we acquired substantially all of the assets as well as the production and distribution rights of the procol business from hancock jaffe laboratories and cryolife , inc. for $ 2.7 million plus 10 % of net sales for three years following the closing . procol is a biologic vascular graft used for dialysis access and is approved for sale in the united states . in november 2016 , we acquired substantially all of the assets related to the peripheral vascular allograft operations of restore flow allografts , llc for $ 12.0 million plus additional payments of up to $ 6.0 million depending upon the satisfaction of certain contingencies . 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 december 2015 , we launched the 15-cm anastoclip ac . in october 2016 , we launched additional sizes of our xenosure patch . in december 2016 , we launched the 7.0mm diameter size omniflow graft . in october 2017 , we launched xenosure biologic pledgets . 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 march 2015 , we initiated a project to transfer the manufacturing of the 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 a project to transfer the manufacturing of the newly acquired tru-incise valvulotome product line to our facility in burlington . we have been purchasing the devices from uresil , llc since the acquisition . the manufacturing transition was completed in 2017. in march 2016 , we initiated a project to transfer the manufacturing of the newly acquired procol biologic product line to our facility in burlington . we have an agreement to purchase the product from the seller , hancock jaffe laboratories , for up to three years following the closing . we initiated the transfer of the production line and transition of manufacturing in 2016 , and we expect it to be complete in 2018 , subject to regulatory approval . in 2017 we completed the renovation of our manufacturing facility in burlington , in which we expect most of our biologic offerings , including the xenosure patch as well as certain biologic grafts , will be produced or processed . the cost of the facility renovation was approximately $ 3.0 million . 43 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 process engineering and other charges , as well as longer term impacts to revenues and operating expenditures . 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 , 2017 , approximately 42 % of our sales took place 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 respective currency , thereby partially mitigating our exposure to exchange rate fluctuations . however , as most of our foreign sales are denominated in local currency , 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 revenue in u.s. dollars than we did before the rate increase went into effect . story_separator_special_tag for the year ended december 31 , 2017 , we estimate that the effects of changes in foreign exchange rates increased sales by approximately $ 0.4 million , as compared to rates in effect for the year ended december 31 , 2016. 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 and services , 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 . 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 asset 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 . 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 . 44 story_separator_special_tag valuation allowance of $ 2.0 million for deferred tax assets primarily related to australian net operating loss and capital loss carry forwards and massachusetts tax credit carry forwards that are not expected to be realized . refer to note 8 to our consolidated financial statements for additional information about income tax expense ( benefit ) including information related to u.s. tax reform legislation . comparison of the year ended december 31 , 2016 to the year ended december 31 , 2015 the following tables set forth , for the periods indicated , our results of operations and the change between the specified periods expressed as a percentage increase or decrease : replace_table_token_10_th net sales . net sales increased 14 % or $ 10.8 million to $ 89.2 million for the year ended december 31 , 2016 , compared to $ 78.4 million for the year ended december 31 , 2015. sales increases were primarily driven by increased sales of our biologic vascular patches of $ 5.2 million ( of which we estimate that $ 2.3 million was related to a safety alert initiated by a competitor ) , valvulotomes of $ 1.9 million , vessel closure systems of $ 1.5 million and procol biologic vascular grafts , acquired in 2016 , of $ 1.0 million . we also had human tissue cryopreservation service revenues from our restoreflow allograft business , acquired in late 2016 , of $ 0.5 million . these and other product line increases were partially offset by decreased sales of radiopaque tape of $ 0.4 million ( related primarily to the inclusion in 2015 of $ 0.6 million of oem tape sales ) . direct-to-hospital net sales were 92 % for both of the years ended december 31 , 2016 and december 31 , 2015. net sales by geography . net sales in the americas increased $ 5.7 million for the year ended december 31 , 2016. the increase was primarily driven by biologic vascular patches , valvulotomes , vessel closure systems procol biologic vascular grafts , and was partially offset by decreased sales of carotid shunts and radiopaque tape . we also had human tissue cryopreservation service revenues in the u.s. from our restoreflow allograft business of $ 0.5 million . international net sales increased $ 5.1 million for the year ended december 31 , 2016. the increase occurred across most product lines but was primarily driven by sales of our biologic vascular patches and grafts , valvulotomes , eptfe vascular grafts and shunts . replace_table_token_11_th * not applicable 47 gross profit . gross profit increased $ 8.8 million to $ 62.9 million for the year ended december 31 , 2016 , while gross margin increased by 150 basis points to 70.6 % in the period .
| these and other product line increases were partially offset by decreased sales of eptfe vascular grafts of $ 0.4 million . replace_table_token_8_th * not applicable 45 gross profit . gross profit increased $ 7.8 million to $ 70.7 million for the year ended december 31 , 2017 , while gross margin decreased by 50 basis points to 70.1 % in the period . the gross margin was favorably impacted by higher average selling prices across nearly all product lines , lower per-unit manufacturing costs of our biologic patch products as well as other products , increased sales of biologic patches , and lower sales to china where average selling prices are comparatively lower . these increases were offset , however , by the newly introduced restoreflow product line , as well as higher sales into non-direct markets where we typically realize lower gross margins than in the united states . the gross profit increase was a result of higher sales offset slightly by the lower gross margin . replace_table_token_9_th * not a meaningful percentage . sales and marketing . for the year ended december 31 , 2017 , sales and marketing expense decreased $ 0.2 million or 1 % to $ 25.9 million . the decrease was primarily driven by reduced discretionary spending for professional services , sales meetings , trade shows , advertising and product samples , offset in part by increased compensation-related expense . as a percentage of net sales , sales and marketing expense decreased to 26 % in 2017 from 29 % in 2016. general and administrative . for the year ended december 31 , 2017 , general and administrative expense increased $ 2.7 million or 19 % , to $ 17.0 million . general and administrative expense increases were primarily related to compensation costs ( including a charge in 2017 of $ 0.5 million related to a stock option modification associated with the departure of our president of international operations ) , facilities costs and acquisition-related expenses , and to a lesser extent recruiting costs
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in addition , the amendment - 50 - allows celgene , at its election , to use trial samples with additional technologies for companion diagnostics . for additional information regarding the development collaboration agreement , see the section of this report captioned โ businessโcollaborationsโcelgene corporation โ and note 17 - subsequent events of the consolidated financial statements included in this report . in may 2015 , we entered into a clinical research collaboration agreement with merck sharp & dohme corp. , a subsidiary of merck & co. , inc. , or merck , to develop an assay intended to optimize immune-related gene expression signatures and evaluate the potential to predict benefit from merck 's anti-pd-1 therapy , keytruda , in multiple tumor types . in february 2016 , we expanded our collaboration with merck by entering into a new development collaboration agreement to clinically develop and commercialize a novel diagnostic test , based on an optimized gene expression signature , to predict response to keytruda in multiple tumor types . in october 2017 , we were notified by merck of the decision not to pursue regulatory approval of the companion diagnostic test for keytruda . as a result , the scope of the collaboration was significantly reduced . for additional information regarding the development collaboration agreement , see the section of this report captioned โ businessโcollaborationsโmerck & co. , inc. โ . in january 2016 , we entered into a collaboration with medivation , inc. and astellas pharma inc. to pursue the translation of a novel gene expression signature algorithm discovered by medivation into a companion diagnostic assay using the ncounter analysis system . in september 2016 , medivation was acquired by pfizer , inc. , or pfizer , and became a wholly owned subsidiary of pfizer . in may 2017 , we received notification from pfizer and astellas terminating the collaboration agreement as a result of a decision to discontinue the related clinical trial . for additional information regarding the development collaboration agreement , see the section of this report captioned โ businessโcollaborationsโmedivation , inc. and astellas pharma , inc. โ . in august 2017 , we entered into a collaboration agreement with lam research corporation , or lam , to support the development of our hyb & seq product candidate and related assays . for additional information regarding the development collaboration agreement , see the section of this report captioned โ businessโcollaborationsโlam research corporation โ . our total revenue increased to $ 114.9 million in 2017 from $ 86.5 million in 2016 and $ 62.7 million in 2015 . the increase was driven primarily by increased revenue of $ 25.5 million recorded from our various collaborations which are discussed in more detail in the above referenced section of this report . absent the increase in collaboration revenue , our core product and service revenues increased moderately driven in part by growth in our prosigna revenue , as well as increased revenue from consumables and service contracts associated with our growing install base of ncounter analysis systems . historically , we have generated a substantial majority of our revenue from sales to customers in north america ; however , as we have expanded our european direct sales force and entered into agreements with distributors of our products in europe , the middle east , asia pacific and south america , the amount of revenue generated outside of north america has generally increased , although there have been significant quarter-to-quarter fluctuations . we have never been profitable and had net losses of $ 43.6 million , $ 47.1 million , and $ 45.6 million in 2017 , 2016 and 2015 , respectively . as of december 31 , 2017 , our accumulated deficit was $ 313.1 million . key financial metrics we are organized as , and operate in , one reportable segment , which is the development , manufacture and commercialization of instruments , consumables and services for efficiently profiling the activity of hundreds of genes and proteins simultaneously from a single tissue sample . our chief operating decision maker is the chief executive officer , who manages our operations and evaluates our financial performance on a total company basis . our principal operations and decision-making functions are located at our corporate headquarters in the united states . revenue we generate revenue from the sale of our products and related services . for a description of our revenue recognition policies , see the section of this report captioned โ โcritical accounting policies and significant estimatesโrevenue recognition. โ product revenue our products consist of our ncounter analysis system and related consumables , including prosigna in vitro diagnostic kits . our ncounter max analysis system typically consists of one ncounter digital analyzer and one ncounter prep station , having a u.s. list price of $ 235,000. the u.s. list price of the similarly configured ncounter dx analysis system is $ 265,000 , or $ 285,000 if fully enabled to run prosigna . our newly developed ncounter sprint profiler has a reduced footprint and combines the function of the prep station with the digital analyzer in a single instrument . it has a u.s. list price of $ 149,000. outside the united states , depending on the country , list prices are generally higher . in certain cases , customers may pay less than the list price for our various ncounter instruments . for example , some of our systems are sold to customers through - 51 - independent distributors , and these distributors may purchase systems from us at a discount to list price . our customer base is primarily composed of academic institutions , government laboratories , biopharmaceutical companies and clinical laboratories that perform analyses or testing using our ncounter analysis system and purchase related consumables , potentially including prosigna kits . story_separator_special_tag for our research customers , related consumables include ( 1 ) gene and protein expression analysis panels , which are standardized and pre-manufactured , ( 2 ) custom codesets , which we manufacture to the specific requirements of an individual researcher , and ( 3 ) master kits , cartridges and reagents , which are ancillary reagents , cartridges , tips and reagent plates required to setup and process samples in our instruments . for our clinical laboratory customers , related consumables include prosigna in vitro diagnostic kits and selected ncounter reagents . we sell our ncounter dx analysis systems to clinical laboratory customers or offer to lease them under โ reagent rental โ arrangements where an instrument is placed at a customer location at minimal direct cost and the customer commits to purchase a minimum volume of consumable products over a period of time . to date , the majority of our clinical laboratory customers have elected to purchase instruments . our average consumables revenue per installed system was approximately $ 90,000 for the year ended december 31 , 2017 . the list price of a prosigna test in the united states and europe is $ 2,080 and 1,550 per patient , respectively . although the price of prosigna and our additional future diagnostic products will depend on many factors , including whether and how much third-party payors will reimburse laboratories for conducting such tests , we expect that the gross margin for our diagnostic kits may be higher than for our research consumables . we sell prosigna kits to our lab customers , who will be responsible for providing the testing service and contracting and billing payors . prosigna kits are sold to clinical laboratories on a fixed dollars-per-kit basis , which does not expose us to direct third-party payor reimbursement risk . however , we provide customary volume discounts , and in some cases , introductory pricing during the period in which third-party payor reimbursement is being established . as a result , the average selling price per prosigna test is lower than list price . service revenue service revenue consists of fees associated with service contracts and conducting proof-of-principle studies . we include a one-year warranty with the sale of our instruments and offer service contracts , which are purchased by a majority of our customers . we selectively provide proof-of-principle studies to prospective customers in order to help them better understand the benefits of the ncounter analysis system , and in some cases allowing customers early access to technologies under development for which we generate data and perform analysis services on their behalf . collaboration revenue collaboration revenue has been derived primarily from our collaborations with celgene , merck , lam and , historically , our terminated collaboration with medivation and astellas . as of december 31 , 2017 , we have received a total of $ 83.4 million from these collaboration agreements , of which $ 42.3 million , $ 16.7 million , and $ 5.9 million has been recorded as collaboration revenue in 2017 , 2016 , and 2015 , respectively , with the remainder recorded as deferred revenue and customer deposits , which will be recognized as collaboration revenue over our remaining development performance period for each of the agreements . collaboration revenue also includes revenue recognized under several smaller collaborations . revenue by geography we sell our products through our own sales forces in the united states , canada , singapore , israel and certain european countries . we sell through distributors in other parts of the world . as we have expanded our european direct sales force and entered into agreements with distributors of our products in europe , the middle east , asia pacific and south america , the amount of revenue generated outside of north america has generally increased , although there have been significant quarter-to-quarter fluctuations . in the future , we intend to continue to expand our sales force and establish additional distributor relationships outside the united states to better access international markets . the following table reflects total revenue by geography based on the geographic location of our customers , distributors and collaborators . for sales to distributors , their geographic location may be different from the geographic locations of the ultimate end customer . americas consists of the united states , canada , mexico and south america ; and asia pacific includes japan , china , south korea , singapore , malaysia , india and australia . - 52 - replace_table_token_3_th most of our revenue is denominated in u.s. dollars . our expenses are generally denominated in the currencies in which our operations are located , which is primarily in the united states . changes in foreign currency exchange rates have not materially affected us to date ; however , they may become material to us in the future as our operations outside of the united states expand . cost of product and service revenue cost of product and service revenue consists primarily of costs incurred in the production process , including costs of purchasing instruments from third-party contract manufacturers , consumable component materials and assembly labor and overhead , installation , warranty , service and packaging and delivery costs . in addition , cost of product and service revenue includes royalty costs for licensed technologies included in our products , provisions for slow-moving and obsolete inventory and stock-based compensation expense . we provide a one-year warranty on each ncounter analysis system sold and establish a reserve for warranty repairs based on historical warranty repair costs incurred . the average unit cost of our instruments has declined in the current year as compared to prior years primarily as a result of introducing our lower-cost ncounter sprint profiler in july 2015. we expect the average unit costs of our instruments to continue to decline as we expand our market opportunity among smaller research laboratories and sell a higher proportion of sprint systems .
| our collaboration with medivation and astellas was terminated during the second quarter of 2017 , and during the fourth quarter of 2017 , we were notified by merck of a change in scope associated with planned future regulatory activities . both of these events resulted in a decrease of the total expected costs associated with the collaborations , and as a result , the completion percentage used in the proportional performance model used for revenue recognition increased substantially . these changes in estimates resulted in an acceleration of revenue recognized during 2017 , relative to the original planned project time lines and estimated costs . the addition of our new collaboration agreement with lam , which was entered into during the third quarter of 2017 , also contributed to our increased collaboration revenue in 2017 as compared to the prior year . cost of product and service revenue ; gross profit ; and gross margin replace_table_token_7_th for the year ended december 31 , 2017 , cost of product and service revenue increased due to higher volumes of consumables sold , including our prosigna in vitro diagnostic kits , as well as increased revenue from service contracts and data analysis services as compared to 2016. these increases were partially offset by the lower volume of instruments sold during the year . our gross margin on product and service revenue in 2017 benefited from a shift in revenue mix from instruments to consumables , driven in large part by continued growth in prosigna in vitro diagnostic kit revenue , the addition of new higher margin service revenue from our dsp technology access program , and a lower royalty rate on our license of the foundational ncounter patents due to the achievement of a cumulative revenue milestone that took effect in the third quarter of 2016. these increases were offset by lower average selling prices realized on certain sales of our ncounter analysis systems , as a result of selected promotion
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we divide our business operations into four geographic operating segmentsโthe united states ( u.s. ) , asia , mexico and europe , the middle east , africa and india ( emeai ) , as follows : our u.s. segment includes ( 1 ) the manufacturing of wind blades at our newton , iowa plant , ( 2 ) the manufacturing of precision molding and assembly systems used to manufacture wind blades at our warren , rhode island facility , ( 3 ) the manufacturing of composite solutions for the transportation industry at our rhode island facility , ( 4 ) wind blade inspection and repair services in north america , ( 5 ) our advanced engineering center in kolding , denmark , which provides technical and engineering resources to our manufacturing facilities , ( 6 ) our engineering center in berlin , germany which we purchased in july 2019 and ( 7 ) our corporate headquarters , the costs of which are included in general and administrative expenses . our asia segment includes ( 1 ) the manufacturing of wind blades at our facilities in dafeng , china and yangzhou , china , the latter of which commenced operations in march 2019 , ( 2 ) the manufacturing of precision molding and assembly systems at our taicang port , china facility and ( 3 ) wind blade inspection and repair services . our mexico segment manufactures wind blades from three facilities in juรกrez , mexico and a facility in matamoros , mexico at which we commenced operations in july 2018. in november 2018 , we entered into a new lease agreement with a third party for a new precision molding and assembly systems manufacturing facility in juรกrez , mexico and we commenced operations at this facility in march 2019. this segment also performs wind blade inspection and repair services . our emeai segment manufactures wind blades from two facilities in izmir , turkey and also performs wind blade inspection and repair services . in february 2019 , we entered into a new lease agreement with a third party for a new manufacturing facility that was built in chennai , india and we commenced operations at this facility in the first quarter of 2020. this segment also performs wind blade inspection and repair services . key trends affecting our business we have identified the following material trends affecting our business : our business seeks to capitalize on two major global trends : ( i ) increasing worldwide demand for renewable energy ; and ( ii ) increasing worldwide demand for electric vehicles . the wind power generation industry has grown rapidly and expanded worldwide over the last five years to meet global demand for electricity and the expanded use of renewable energy . our sales of wind blades to our wind turbine customers have grown rapidly over the last several years in response to these trends . in 2019 , our net sales grew to $ 1.44 billion compared to net sales of $ 1.03 billion in 2018. we expect our revenue to continue to grow in 2020 but at a slower rate than in 2019. during the last several years , wind turbine oems generally have increasingly outsourced the production of wind blades and other key components to specialized manufacturers to meet this increasing global demand for wind energy in a cost-effective manner in new and growing markets . that shift , together with the overall expansion of the wind power generation industry , has increased our addressable market . given our growth in production , we have hired several thousand new employees globally in the past two years . in addition , we have expanded our wind turbine oem customer base from one to five oem customers since 2012 , capitalizing on the growth and expansion of the wind energy generation industry generally as well as the specific trend of most wind turbine oems increasing the outsourcing of the manufacturing of wind blades for growth and diversification . 51 changing customer demands , including shifts to bigger wind turbines with larger wind blades , have driven some of our customers to require us to transition to new wind blade models one or two times during the term of a long-term supply agreement . although w e generally receive transition payments to compensate us for certain costs incurred during these transitions , these payments generally do not fully cover the transition costs and lost margin . in 2019 , we had a significant number of our manufacturing lines in transition to larger wind blade models and we also had a significant number of lines starting up in our new manufacturing facilities in matamoros , mexico and yangzhou , china . this large number of transitions and startups had an adverse impact on our re sults of operations and profitability in 2019. in 2020 , we expect to continue to have a significant number of lines in transition and startup which will have an adverse impact on our results of operations for 2020 , but we expect this to provide a foundat ion for longer term revenue growth and profitability as these lines ramp up to full production levels . we expect our new manufacturing facilities to generally generate operating losses in their first 18 months of operations due to production and overhead expenses as they initially operate far below capacity during the pre-production and production ramp up periods . as a result , this generally has a negative impact on our results of operations during these ramp-up periods . in addition , construction of new facilities and expansion of existing facilities , including the fabrication of precision molding and assembly systems to outfit those facilities , is complex and involves inherent risks . for planning purposes , we generally estimate that the startup of a new six-line manufacturing facility requires cash for net operating expenses and working capital of between $ 20 million to $ 25 million . story_separator_special_tag we also estimate that capital expenditures , primarily for machinery and equipment , of between $ 30 million to $ 35 million will be required . we expect to incur significant startup costs and expenses during 2020 in connection with the recent startup of our new manufacturing facility in chennai , india . many governments are shifting from feed-in tariffs to auction-based tenders as a means of promoting the development and growth of renewable energy sources such as wind energy . as a result of this shift , our wind turbine oem customers have experienced intense pricing pressure with respect to the sale of their turbines together with increased competitive pricing from solar energy . as a result of these pricing pressures , the financial performance of certain smaller wind turbine oems has deteriorated over the last twelve months . in 2019 , one of our former customers , senvion , entered into insolvency proceedings in germany and senvion 's insolvency had an adverse impact on our results of operations in 2019. in addition , enercon , one of our current customers , announced in 2019 that it was entering into financial restructuring discussions with its lenders . to date , our financial performance has not been impacted by enercon 's announced restructuring although if enercon 's financial positions deteriorates further in 2020 , it could have an adverse impact on our results of operations in 2020 . 52 the long-term supply agreements we sign with our customers provide us with significant visibility of future production demands due in part to the annual minimum purchase commitments of our customers contained in those agreements . these annual minimum purchase commitments generally require our customers to purchase a negotiated percentage of the manufacturing capacity that we have agreed to dedicate to them . generally , this percentage begins at 100 % of the manufacturing capacity for the first few years of the su pply agreement , and the percentage declines over time in subsequent years according to the terms of the agreement , but generally remains above 50 % . it is our experience that our customers will generally order wind blades from us in a volume that exceeds ( s ometimes substantially ) the annual minimum purchase commitments contained in our supply agreements , particularly in the later years of a supply agreement when the annual minimum purchase commitment per centage declines . as of february 2 7 , 20 20 , our long-term wind and transportation supply agreements provide for minimum aggregate volume commitments from our customers of approximatel y $ 2.8 billion and encourage our customers to purchase additional volume up to , in the aggregate , a total contract value of approximately $ 5.2 billion th rough the end of 2023. as noted elsewhere in this annual report on form 10-k , some of our long-term supply agreements are subject to early termination by our customers if our customers pay an early termination fee . additiona lly , some of our contracts allow our customers to reduce the number of lines under contract without penalty , prior to the end of the contact term . we caution investors that the annual minimum purchase commitments in our long-term supply agreements can unde rstate the forecasted net sales that we are likely to generate in a given period or periods if all of our long-term supply agreements remain in place and pricing remains materially unchanged , and they could potentially overstate the forecasted net sales th at we are likely to generate in a given period or periods if one or more of our agreements were to be terminated by our customers for any reason due to market conditions our plants are underutilized . see โ businessโwind blade long-term supply agreements โ in cluded in part 1 , item 1a of this annual report on form 10-k for additional information . as the global vehicle electrification trend continues , reducing the weight of these vehicles is critical to expanding range and or providing more room for additional batteries or reducing the number of batteries . we believe there is an increasing demand for composites products for electric vehicles . as part of our diversification strategy , we have made significant investments to expand our transportation business during the last several years . in 2018 and 2019 , we experienced significant losses relating to our transportation business and experienced operational challenges as we are expanding this business . specifically , we experienced extended startup delays and challenges with respect to our newton , iowa transportation facility , which had an adverse impact on our results of operations in 2019. we plan to cease manufacturing composite bus bodies from our newton , iowa manufacturing facility in the first quarter of 2020 and consolidate these operations into our warren , rhode island manufacturing facility . we expect our transportation business results of operations will improve substantially in 2020 compared to 2019 although we expect it will continue to operate at a loss in 2020. the coronavirus will have an adverse impact on our business , particularly our manufacturing facilities in china . we expect that the impact of the coronavirus will have an adverse impact on our net sales , net income and adjusted ebitda for the first quarter of 2020 and also may have an adverse impact on our financial condition and results of operations for the rest of 2020. although we are currently attempting to take all reasonable steps to mitigate the impact of the coronavirus , including taking steps to make up the anticipated lost wind blade volume later this year , we currently estimate that the coronavirus will negatively impact our net income and adjusted ebitda in 2020 by up to approximately $ 10 million .
| total cost of goods sold for the year ended december 31 , 2019 was $ 1,358.7 million and included $ 48.5 million related to 14 lines in startup and $ 19.5 million related to 10 lines in transition during the period . this compares to total cost of goods sold for the year ended december 31 , 2018 of $ 956.8 million and included $ 61.9 million related to startup costs and $ 12.8 million related to transition costs . cost of goods sold as a percentage of net sales increased by approximately two percentage points during the year ended december 31 , 2019 as compared to the same period in 2018 , driven primarily by the extended startup of our newton , iowa transportation facility , significant underutilization of labor in matamoros , mexico due to the strike , partially offset by a $ 6.7 million decrease in startup and transition costs , the impact of savings in raw material costs and foreign currency fluctuations . the impact of the fluctuating u.s. dollar against the euro , turkish lira , chinese renminbi and mexican peso decreased consolidated cost of goods sold by 3.1 % for the year ended december 31 , 2019 as compared to 2018 . 60 general and administrative expenses for the year ended decembe r 31 , 201 9 totaled $ 39.9 million , or 2.8 % of net sales , compared to $ 43.5 mil lion , or 4 . 2 % of net sales , for the same period in 201 8 . the de crease as a percentage of net sales was primarily driven by lower incentive compensation and a reduction in the performance assumptions related to certain of our share-based plans . realized loss on sale of assets and asset impairments for the year ended december 31 , 2019 totaled $ 18.1 million , comprised of $ 8.1 million of realized losses on the sale of
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as part of the change from a daily to a monthly nav reit , our board approved , among other things : ( 1 ) a change in the frequency of our nav calculations from daily to monthly and certain other related changes to our valuation policies ; and ( 2 ) adopted an amended share redemption program that provides for redemptions on a monthly basis . as a monthly nav reit , we 55 expect that investors ' subscriptions will be accepted on the first day of each month and the purchase price of each class of shares would generally equal the prior month 's nav for that class divided by the number of shares of such class outstanding , as determined monthly , plus applicable selling commissions and dealer manager fees . covid-19 the covid-19 outbreak and the associated โ shelter-in-place โ or โ stay-at-home โ orders or other quarantine mandates or public health guidance issued by local , state or federal authorities has adversely affected a number of our tenants ' businesses . the extent to which the covid-19 pandemic continues to impact our operations and those of our tenants will depend on future developments , which are highly uncertain and can not be predicted with confidence , including the scope , severity and duration of the pandemic , the actions taken to contain the pandemic or mitigate its impact , and the direct and indirect economic effects of the pandemic and containment measures , among others . during the year ended december 31 , 2020 , we provided lease concessions , either in the form of rent deferrals or abatements , to certain tenants in response to the impact of the covid-19 pandemic on those tenants . as of december 31 , 2020 , we granted rent deferrals with an aggregate deferral amount of $ 539,000. additionally , as of december 31 , 2020 , we granted rent abatements to tenants with an aggregate abatement amount of $ 618,000 , which reduced revenues during the year ended december 31 , 2020. as of march 24 , 2021 , we have collected approximately 99 % of rental payments billed to tenants during the three months ended december 31 , 2020. there have been no significant changes in rent collections subsequent to december 31 , 2020. we are actively managing our response to the covid-19 pandemic in collaboration with our tenants and business partners and are assessing potential impacts to our financial position and operating results , as well as potential adverse developments in our business . in order to manage the financial health of the company , our board is making its determinations with respect to the declaration of distributions on a monthly , instead of quarterly basis and has approved and adopted an amended and restated share redemption program ( the โ amended share redemption program โ ) that , among other changes , provides that the amended share redemption program may be suspended at any time by majority vote of the board without prior notice if the board believes such action is in the best interest of the company and its stockholders . given the recent levels of investor subscriptions and increased redemption requests , which we believe has been exacerbated by the challenging economic environment caused by the covid-19 pandemic , our stated objectives of maintaining target liquidity of 10 % of the nav up to $ 1 billion , and 5 % of the nav in excess of $ 1 billion ( โ target liquidity โ ) and satisfying the redemption plan limits are in conflict . as such , the company is temporarily redeeming less than the amended share redemption program limits to maintain this target liquidity while the company seeks to generate additional liquidity through investor subscriptions and execution of an in-process asset disposition program . on august 30 , 2020 , our board determined that , effective immediately , monthly redemptions temporarily will be limited to shares whose aggregate value is no more than 0.8 % of the aggregate nav as of the last calendar day of the previous calendar month , and in any calendar quarter , redemptions will be limited to shares whose aggregate value is no more than 2.0 % of the aggregate nav as of the last calendar day of the previous calendar quarter . while no assurances can be made regarding the timing of a return to the redemption plan limits stated in the company 's amended share redemption program , if at all , the company is currently targeting the return to the limits under the amended share redemption program to occur in the third quarter of 2021. further , in support of our efforts to achieve sustainable liquidity , our board determined that 50 % of the independent directors ' quarterly compensation payments for the third quarter of 2020 through the second quarter of 2021 will be paid in the form of d shares based on the then current nav per share at the time of issuance . in addition , our advisor agreed to take 50 % of the monthly advisory fee payment from august 2020 through june 30 , 2021 in i shares based on the then current nav per share of such shares at the time of issuance . during the year ended december 31 , 2020 , we borrowed $ 52.0 million in revolving loans in order to increase liquidity during this period of economic uncertainty . see โ โ liquidity and capital resources โ for a more complete discussion of our financial resources . we further engaged our independent valuation expert , pursuant to an agreement dated may 14 , 2020 , to provide valuation services on a monthly , instead of a rolling annual , basis , until such time that we had greater visibility into the impact of the covid-19 pandemic on our properties ' valuations . story_separator_special_tag given the relative stability of the month-over-month valuation of our real estate assets , our liabilities and our rent collections our board determined that it is in the best interests of us and our stockholders to cease incurring the additional costs associated with the monthly valuations and to return to valuing our real estate portfolio on a rolling annual basis in accordance with our valuation policies effective september 30 , 2020. for further information regarding the impact of the covid-19 pandemic on the company , see part i , item 1a titled โ risk factors. โ 56 operating highlights and key performance indicators 2020 activity disposed of five properties , consisting of three retail properties and two anchored shopping centers , for an aggregate gross sales price of $ 16.8 million . increased total debt by $ 99.7 million to $ 450.7 million , with cash proceeds utilized primarily for investment and redemptions . invested $ 50 million of limited partnership interests in cim uii onshore . portfolio information real estate portfolio as of december 31 , 2020 , we own ed 123 commercial properties located in 34 states , comprising 5.3 million rentable square feet , which includes the rentable square feet of buildings on land subject to ground leases . as of december 31 , 2020 , these properties were 98.1 % leased ( including any month-to-month agreements ) with a weighted average remaining lease term of 9.8 years . the following table shows the property s tatistics of our real estate assets as of december 31 , 2020 and 2019 : replace_table_token_4_th ( 1 ) includes square feet of buildings on land that are subject to ground leases . ( 2 ) investment-grade tenants are those with a credit rating of bbb- or higher by standard & poor 's or a credit rating of baa3 or higher by moody 's . the ratings may reflect those assigned by standard & poor 's or moody 's to the lease guarantor or the parent company , as applicable . the weighted average credit rating is weighted based on annualized rental income , and is for only those tenants rated by standard & poor 's . the following table summarizes our real estate acquisition activity during the years ended december 31 , 2020 and 2019 : replace_table_token_5_th ( 1 ) includes square feet of buildings on land that are subject to ground leases . 57 the following table shows the tenant diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2020 : replace_table_token_6_th ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of buildings on land that is subject to ground leases . the following table shows the tenant industry diversification of our real estate portfolio , based on annualized rental income as of december 31 , 2020 : replace_table_token_7_th ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of buildings on land that is subject to ground leases . 58 the following table shows the geographic diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2020 : replace_table_token_8_th ( 1 ) includes square feet of buildings on land that is subject to ground leases . the following table shows the property type diversification of our real estate portfolio , based on annualized rental income , as of december 31 , 2020 : replace_table_token_9_th ( 1 ) includes square feet of buildings on land parcels subject to ground leases . leases although there are variations in the specific terms of the leases of our properties , the following is a summary of the general structure of our current leases . generally , the leases of the properties acquired provide for initial terms of ten or more years , and provide the tenant with one or more multi-year renewal options , subject to generally the same terms and conditions as the initial lease term . certain leases also provide that in the event we wish to sell the property subject to that lease , we first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which we intend to accept for the sale of the property . the properties are generally leased under net leases pursuant to which the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation , including utilities , property taxes and insurance , while certain of the leases require us to maintain the roof , structure and parking areas of the building . additionally , certain leases provide for increases in rent as a result of fixed increases , increases in the consumer price index , and or increases in the tenant 's sales volume . our leases , as of december 31 , 2020 , provided for annual base rental payments ( payable in monthly installments ) ranging from $ 12,000 to $ 3.3 million , and had an average annual base rental payment of $ 437,000 , with a weighted average remaining lease term of 9.8 years . 59 the following table shows lease expirations of our real estate portfolio as of december 31 , 2020 , during each of the next ten years and thereafter , assuming no exercise of renewal options : replace_table_token_10_th * represents less than 1 % of the total annual base rent . ( 1 ) includes leases which are master lease agreements . ( 2 ) includes square feet of buildings on land that is subject to ground leases . the following table shows the economic metrics of our real estate assets as of and for the years ended december 31 , 2020 and 2019 : replace_table_token_11_th ( 1 ) based on annualized rental income of our real estate portfolio as of the respective reporting date . ( 2 ) through the end of the next five years as of the respective reporting date .
| we define noi as operating revenues less operating expenses , which exclude ( i ) depreciation and amortization , ( ii ) interest expense and other non-property related revenue and expense items such as ( a ) general and administrative expenses , ( b ) advisory fees and expenses , ( c ) transaction-related expenses ( d ) real estate impairment ( e ) gain on disposition or real estate , net and ( f ) income from marketable securities . our noi may not be comparable to that of other reits and should not be considered to be more relevant or accurate in evaluating our operating performance than the current gaap methodology used in calculating net income . in determining the same store property pool , we include all properties that were owned for the entirety of both the current and prior reporting periods , except for properties during the current or prior year that were under development or redevelopment . comparison of the years ended december 31 , 2020 and 2019 the following table reconciles net income , calculated in accordance with gaap , to net operating income ( dollar amounts in thousands ) : replace_table_token_12_th a total of 119 properties were acquired before january 1 , 2019 and represent our โ same store โ properties during the years ended december 31 , 2020 and 2019 . โ non-same store โ properties , for purposes of the table below , includes properties acquired and disposed on or after january 1 , 2019. the following table details the components of net operating income broken out between same store and non-same store properties ( dollar amounts in thousands ) : replace_table_token_13_th interest expense and other , net the increase in interest expense and other , net , of $ 2.8 million for the year ended december 31 , 2020 , as compared to the same period in 2019 , was primarily due to an increase of $ 90.6 million in our average outstanding debt balance for the year ended december 31 , 2020 , compared to the year ended december 31 , 2019 , partially offset by a decrease in the weighted average interest rate from 3.90 % as of december 31 , 2019 to 3.66 % as of december
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for example , xiaomi launched a line of smart home products in late fall of 2014 based on our wireless microcontrollers . we are also an early partner in apple 's homekit and we have several tier-1 customers designing homekit products using our ez-connect microcontrollers . in the video business , we saw strong volume shipments into google chromecast in european , south american and asian markets . on the service provider side of the video business , a leading service provider in korea launched their 4k platform using our armada 1500 device and we expect several other service providers to start shipping their own version of internet protocol television and over-the-top hybrid set-top boxes using our armada 1500 family of video soc in the near future . for example , one of our leading service providers in france recently launched their set-top box based on the armda 1500 pro soc . in the storage market , we continued to execute well and the overall industry appears to have stabilized . our hdd market remains strong as we continue to experience strong demand for our 500 gigabyte per platter products . we continued to see increased demand for our products used in enterprise drives at a top north america-based hdd customer . we are also continuing to accelerate our investment in next generation hdd technologies . within the ssd market , our strategy of partnering with top tier oems has resulted in excellent traction for our advanced ssd solutions . earlier this fiscal year , we announced multiple new products including our 5 th generation sata product with ldpc technology to support 3d nand , as well as 15 nanometer 2d nand , and a low-cost pcie-based ssd solution priced similar to our sata solution but with much higher performance . we continue to gain traction with our sata ssd controller and are starting to see increased adoption of our pcie ssd controller . we are also on track to introduce multiple embedded ssd products for the mobile market and expect to generate revenues from these products in fiscal 2016. despite the drop in market share of one of our major customers , we are working to solidify our leadership position in the market over the next few years . in the networking market , design win momentum continues with new programs that cover low-end fixed solutions to high-end modular platforms in the enterprise and service provider markets , driving new opportunities with our latest family of network processing solutions . we continue to gain traction with our recently introduced questflo product line of network search engines that broadens our growing networking product portfolio . today 's traditional tcam-based solutions are unable to address future scaling requirements and multiple customers are actively engaged with us for next generation solutions . our sram-based questflo products are targeted for carrier customers and increase capacity using less power delivering better performance-power metrics compared to competitors . our cost of goods sold as a percentage of net revenue for fiscal 2015 was higher compared to fiscal 2014. as we expand our presence in the mobile and wireless end markets , we expect our gross margin to face downward pressure , as these end markets generally have lower average gross margins than the rest of our business . however , we expect this growth will result in improvement to total gross margin dollars and operating profit . in addition , we are focused on efforts to improve both aspects of our gross profit , including through cost improvement and pricing . we believe our financial position is strong and we remain committed to deliver shareholder value through our share repurchase and dividend programs . our cash , cash equivalents and short-term investments were $ 2.5 billion at january 31 , 2015. we generated cash flow from operations of $ 728.9 million during fiscal 2015 . 35 we paid cash dividends of $ 0.24 per share for a total of $ 122.8 million in fiscal 2015 and we recently announced a dividend of $ 0.06 per share to be paid in the first quarter of fiscal 2016. we repurchased 5.1 million of our common shares for $ 65.0 million in fiscal 2015. we are currently involved in a patent litigation action with cmu ( see ยrisk factorsย under part i , item 1a of this annual report on form 10-k and ยnote 10 ย commitments and contingenciesย in the notes to the consolidated financial statements for a further discussion of the risks associated with this matter and other patent litigation matters ) . a jury has awarded past damages of $ 1.17 billion , and the court calculated damages , including enhancement , to total approximately $ 1.54 billion , and held that , under its decision , cmu is entitled to post judgment interest and an ongoing royalty . based on the royalty rate assessed by the district court , such additional royalties for the period of time commencing on the date ordered by the district court , january 15 , 2013 , through january 31 , 2015 could be as much as $ 400 million . on may 7 , 2014 , the district court entered final judgment and on may 14 , 2014 , we filed a notice of appeal to the u.s. court of appeals for the federal circuit in washington , d.c. , which is set for oral argument in april 2015. we have secured certain surety bonds for the duration of the appeal to stay execution of judgment pending the appeal . see ยnote 10 ย commitments and contingencies ย surety bondsย in the notes to the consolidated financial statements for a further discussion of these surety bonds . we strongly believe that we do not infringe on the methods described in the cmu patents and that our products use our own internally developed patented read channel technology . story_separator_special_tag a significant number of our products are being incorporated into consumer electronics products , including gaming devices and personal computers , which are subject to significant seasonality and fluctuations in demand . holiday and back to school buying trends may at times negatively impact our results in the first and fourth quarter , and positively impact our results in the second and third quarter of our fiscal years . in addition , consumer electronics sales are heavily dependent on new product launch timelines and product refreshes . for example , our sales of wireless connectivity products may increase significantly during a period when one of our consumers launches a new gaming console , and these sales may taper significantly after the initial launch period . historically , a relatively small number of customers have accounted for a significant portion of our net revenue . net revenue from one customer was 20 % , 24 % and 24 % for fiscal 2015 , 2014 and 2013 , respectively . net revenue from a second customer was 13 % , 12 % and 10 % for fiscal 2015 , 2014 and 2013 , respectively . in fiscal 2013 , net revenue from a third customer was 10 % . we had net revenue from one distributor representing 11 % and 11 % for fiscal 2015 and 2013 , respectively . no distributors accounted for 10 % or greater of total net revenue in fiscal 2014. most of our sales are made to customers located outside of the united states , primarily in asia . sales to customers in asia represented approximately 96 % , 95 % and 90 % of our net revenue for fiscal 2015 , 2014 and 2013 , respectively . because many manufacturers and manufacturing subcontractors of our customers are located in asia , we expect that most of our net revenue will continue to be represented by sales to our customers in that region . substantially all of our sales are denominated in u.s. dollars . a relatively large portion of our sales have historically been made on the basis of purchase orders rather than long-term agreements . in addition , the sales cycle for our products is long , which may cause us to experience a delay between the time we incur expenses and the time revenue is generated from these expenditures . we anticipate that the rate of new orders may vary significantly from quarter to quarter . consequently , if anticipated sales and shipments in any quarter do not occur when expected , expenses and inventory levels could be disproportionately high , and our operating results for that quarter and future quarters may be adversely affected . critical accounting policies and estimates the preparation of consolidated financial statements in conformity with generally accepted accounting principles in the united states ( ยgaapย ) requires management to make estimates , judgments and assumptions 36 that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosure of contingent assets and liabilities . on an ongoing basis , we evaluate our estimates , including those related to performance-based compensation , revenue recognition , provisions for sales returns and allowances , inventory excess and obsolescence , investment fair values , goodwill and other intangible assets , restructuring , income taxes , litigation and other contingencies . in addition , we use assumptions when employing the monte carlo simulation and black-scholes valuation models to calculate the fair value of share-based awards granted . we base our estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances when these carrying values are not readily available from other sources . actual results could differ from these estimates , and such differences could affect the results of operations reported in future periods . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition . we recognize revenue when there is persuasive evidence of an arrangement , delivery has occurred , the fee is fixed or determinable , and collection is reasonably assured . product revenue is generally recognized upon shipment of product to customers , net of accruals for estimated sales returns and rebates . however , some of our sales are made through distributors under agreements allowing for price protection , shipped from stock pricing adjustment rights , and limited rights of stock rotation on product unsold by the distributors . although title passes to the distributor upon shipment terms and payment by our distributors is not contingent on resale of the product , product revenue on sales made through distributors with price protection , shipped from stock pricing adjustment rights and stock rotation rights are deferred until the distributors sell the product to end customers . deferred revenue less the related cost of the inventories is reported as deferred income . we do not believe that there is any significant exposure related to impairment of deferred cost of sales , as our historical returns have been minimal and inventory turnover for our distributors generally ranges from 60 to 90 days . our sales to direct customers are made primarily pursuant to standard purchase orders for delivery of products . a portion of our net revenue is derived from sales through third-party logistics providers , who maintain warehouses in close proximity to our customer 's facilities . revenue from sales through these third-party logistics providers is not recognized until the product is pulled from stock by the customer . the provision for estimated sales returns and allowances on product sales is recorded in the same period the related revenues are recorded . these estimates are based on historical sales returns , analysis of credit memo data and other known factors .
| in addition , we also had higher inventory write downs and increased royalty expense in fiscal 2015 compared to fiscal 2014. our cost of goods sold as a percentage of net revenue may fluctuate in future periods due to , among other things , changes in the mix of products sold ; the timing of production ramps of new products ; increased pricing pressures from our customers and competitors , particularly in the consumer product markets that we are targeting ; charges for obsolete or potentially excess inventory ; changes in the costs charged by our foundry ; assembly and test subcontractors ; product warranty costs ; changes in commodity prices such as gold ; and the margin profiles of our new product introductions . we currently expect that cost of goods sold as a percentage of net revenue in the first quarter of fiscal 2016 will be slightly higher than the amount in the fourth quarter of fiscal 2015. share-based compensation expense replace_table_token_9_th share-based compensation expense decreased by $ 18.6 million in fiscal 2015 compared to fiscal 2014. the decrease was primarily due to lower expense related to the employee stock purchase plan . in addition , the reversal of previously recognized expense associated with unvested equity awards that were cancelled as a result of the resignation in february 2014 of our former chief technology officer reduced the fiscal 2015 share-based compensation expense . these decreases were partially offset by new grants of performance-based awards in fiscal 2015 to members of senior management and in april 2014 to our executive officers . research and development replace_table_token_10_th research and development expense increased by $ 7.2 million in fiscal 2015 compared to fiscal 2014. the increase was primarily attributable to $ 27.5 million of higher personnel-related costs primarily associated with an increase in incentive compensation expense that were partially offset by lower share-based compensation . in addition , we had $ 3.8 million of higher depreciation and
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we are unable to determine the extent of the effect that competition , or lack thereof , between comdata and tch in particular , may result in future increases in our transaction fee expenses or working capital requirements , or both . on january 31 , 2011 , we and hpt entered an amendment agreement that amended the hpt leases and our rent deferral agreement with hpt . this agreement is further described under the headings `` businessยour leases with hpt '' above in item 1 of this annual report , and `` liquidity and capital resourcesยlease amendments and rent deferral agreement '' and `` related party transactions '' below . 40 summary of travel center site counts the changes in the number of our sites and in their method of operation ( company operated , franchisee leased and operated or franchisee owned and operated ) can be significant factors influencing the changes in our results of operations . the following table summarizes the changes in the composition of our business during the past two years : replace_table_token_7_th ( 1 ) in march 2012 we purchased an additional travel center . relevance of fuel revenues and fuel volumes due to volatile pricing of fuel products and our pricing to fuel customers , we believe that fuel revenue is not a reliable metric for analyzing our results of operations from period to period . as a result solely of changes in fuel prices , our fuel revenue may materially increase or decrease , in both absolute amounts and on a percentage basis , without a comparable change in fuel sales volumes or in fuel gross margin per gallon . we consider fuel volumes and fuel gross margin to be better measures of comparative performance than fuel revenues . however , fuel pricing and revenues can impact our working capital requirements ; see `` liquidity and capital resources '' below . 41 story_separator_special_tag in passing on to our customers a portion of product cost increases we incurred . site level operating expenses . site level operating expenses for 2011 were $ 677,958 , an increase of $ 51,979 , or 8.3 % , compared to 2010. for 2011 , site level operating expenses as a percentage of nonfuel sales improved to 53.3 % from 54.0 % during 2010. the increase in site level operating expenses was largely attributable to the additional travel centers in operation during 2011 as compared to 2010. the remaining increase in site level operating expenses was primarily attributable to increased labor costs we incurred at same site travel centers , which principally increased to support the increases in our nonfuel sales levels . during 2011 , we also experienced increases in maintenance and utilities expenses and in other expenses that primarily resulted from the increased level of sales activity and an increase in accruals for certain litigation matters . further , we experienced an increase of $ 8,646 in transaction fees primarily as a result of the significant increase in per gallon fuel prices as compared to the prior 44 year and an increase in the transaction fee rates charged by comdata that became effective during the first quarter of 2011 for fuel purchases made by our customers with comdata 's fuel payment cards . on a same site basis , site level operating expenses for our company operated travel centers increased by $ 38,883 , or 6.3 % , for 2011 compared to 2010 and site level operating expenses as a percentage of nonfuel revenues for 2011 were 52.8 % , compared to 53.9 % for 2010. the decrease in site level operating expenses as a percentage of nonfuel revenues primarily was because certain of our expenses are fixed in nature , or otherwise do not vary directly with sales , so that increases in our revenues did not result in corresponding increases in those site level operating expenses . selling , general and administrative expenses . selling , general and administrative expenses for 2011 were $ 89,196 , an increase of $ 8,634 , or 10.7 % , compared to 2010. this increase primarily resulted from increases in legal expenses , personnel costs , including recognition of share based compensation expense that increased based on a higher share price on the date of grant of restricted shares than in the previous year as well as a larger number of share grants vesting during 2011 than during 2010 , advertising expenses increases and an increase in the fees paid to rmr under the business management and shared services agreement as a result of increases in our fuel gross margin and nonfuel revenues . real estate rent expense . rent expense for 2011 was $ 191,798 , a decrease of $ 42,430 compared to 2010. this decrease resulted from the lower rent we are required to pay due to the amendment to our hpt leases entered in january 2011 , as further described above under `` businessยour leases with hpt '' in item 1 of this annual report and below under `` liquidity and capital resourcesยlease amendments and rent deferral agreement . '' depreciation and amortization expense . depreciation and amortization expense for 2011 was $ 47,446 , an increase of $ 3,350 , or 7.6 % , compared to the same period in 2010 that primarily resulted from our site acquisitions and other property and equipment additions in 2011. interest income and expense . the decline in interest expense was primarily related to the amendment to our hpt leases and rent deferral agreement we entered with hpt effective january 1 , 2011 , which ceased the accrual of interest on the deferred rent amounts we owe to hpt . interest income and expense consisted of the following : replace_table_token_11_th income tax provision . we do not currently recognize the benefit of our deferred tax assets , including the tax benefit associated with our tax loss carry forwards from prior years , but our tax loss carry forwards are available to offset any federal tax associated with our current taxable income . story_separator_special_tag our income tax provision of $ 1,379 in 2011 and $ 887 in 2010 represents certain state minimum income based taxes payable without regard to our tax loss carry forwards as well as the recognition of deferred 45 tax liabilities related to the tax amortization of indefinite lived intangible assets that can not be used to reduce existing deferred tax assets . critical accounting policies the preparation of our financial statements in accordance with gaap requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . the critical accounting policies we employ in the preparation of our consolidated financial statements are those which involve allowances for doubtful accounts receivable , asset impairments , loyalty program reserves , reserves for self insurance , environmental liabilities and recoveries , legal contingencies , income tax accounting and accounting for leases . we maintain our allowances for doubtful accounts receivable based on historical payment patterns , aging of accounts receivable , periodic review of customers ' financial condition , and actual write off history . if the financial conditions of customers deteriorate , resulting in impairments of their ability to make payments , additional allowances may be required . our accounting policies require recording impairment losses on long lived assets to reduce the carrying value of certain assets to their fair value . for purposes of our impairment analysis of property and equipment , we perform the test at the individual travel center level , since this is the lowest grouping of assets and liabilities at which the related cash flows are largely independent of other assets and liabilities . the need to recognize impairment losses may occur under our policies in two types of circumstances . when assets are used in operations and events and circumstances indicate that the assets might be impaired , we record impairments whenever the carrying values of those assets exceed the estimated fair values of those assets , which we typically determine based on the carrying value of those assets exceeding the discounted cash flows estimated to be generated by those assets at the specific travel center . when assets are to be disposed of and their carrying values exceed the estimated fair value of the asset less the estimated cost to sell the asset , we record an impairment charge . our estimates of fair value are based on estimated market participant assumptions . key assumptions include our current expectations for projected fuel volumes , fuel gross margin , site level operating expenses and rent expense . if the business climate deteriorates our actual results may not be consistent with these assumptions and estimates . the discount rate , which is used to measure the present value of the projected future cash flows , is set using a weighted average cost of capital method that considers market and industry data as well as our specific risk factors and that is likely to be used by a market participant . the weighted-average cost of capital is our estimate of the overall after tax rate of return required by equity and debt holders of a business enterprise . we also annually assess intangible assets with indefinite lives for impairment . we use a number of assumptions and methods in preparing of valuations underlying impairment tests , including estimates of future cash flows and discount rates . applying significantly different assumptions or valuation methods could result in different results from these impairment tests . see below item 9a , `` controls and proceduresยmanagement report on assessment of internal control over financial reporting '' for a discussion of certain changes we are making in the way we assess impairment applicable to long lived assets . we have reserves for customer loyalty programs we offer to customers , similar to frequent shopper programs offered by other retailers . drivers enrolled in these programs earn points for certain fuel and nonfuel purchases that can be redeemed for discounts on future nonfuel products and services at our travel centers . in determining these reserves , we must estimate future expected point expirations . these estimates are based on historical point expiration patterns , adjusted for expected future changes . to the extent an estimate is inaccurate , liabilities , expenses and net income may be understated or overstated . we are partially self insured with respect to general liability , workers ' compensation , motor vehicle and group health benefits claims up to certain stop loss amounts . provisions are established under these 46 partial self insurance programs for both estimated losses on known claims and potential claims incurred but not asserted , based on claims histories and using actuarial methods . the most significant risk of this methodology is its dependence on claims histories , which are not always indicative of future claims . to the extent an estimate is inaccurate , liabilities , expenses and net income may be understated or overstated . we establish or adjust environmental contingency reserves when the responsibility to remediate becomes probable and the amount of associated costs is reasonably determinable . we also have a receivable for expected recoveries of certain of these estimated future environmental expenditures and cash in an escrow account to fund certain of these estimated future expenditures , resulting in an estimated net amount to be funded by us in the future . the process of determining both our estimated future costs of remediation and our estimated future recoveries of costs from insurers or others involves a high degree of management judgment based on past experiences and current and expected regulatory and insurance market conditions . to the extent an estimate is inaccurate , liabilities , expenses and net income may be understated or overstated . we record legal contingency reserves when our liability becomes probable and when we can reasonably estimate the amount of our contingent loss .
| revenues for 2011 , were $ 7,888,857 , which represented an increase from 2010 , of $ 1,926,376 , or 32.3 % , primarily related to an increase in fuel revenue . fuel revenues were 83.7 % of total revenues for 2011 , compared to 80.3 % for 2010. fuel revenues for 2011 were $ 6,603,329 , an increase of $ 1,812,670 , or 37.8 % , compared to 2010. this increase was principally the result of increases in fuel prices and also resulted from increased fuel sales volume . the table below shows the changes in fuel revenues between periods that resulted from price and volume changes : replace_table_token_10_th 43 the increase in our fuel sales volume was largely a result of the travel centers we acquired in 2011. on a same site basis for our company operated sites , fuel sales volume for the year ended december 31 , 2011 , was largely unchanged as compared to the prior year . we believe that our same site fuel sales volume was negatively affected by the capital projects begun in 2011 to replace fuel dispensers and install diesel exhaust fluid dispensers , which required us to take certain diesel dispensers out of service during the year . these projects will continue throughout 2012. nonfuel revenues were 16.1 % of total revenues for 2011 , compared to 19.4 % for 2010. nonfuel revenues for 2011 were $ 1,271,085 , an increase of $ 112,742 , or 9.7 % , compared to the same period in 2010. the change between years primarily resulted from sales at our travel centers opened during the second quarter , an increase in unit sales on a same site basis and sales price increases . on a same site basis for our company operated travel centers , nonfuel revenues increased by $ 96,310 , or 8.4 % during 2011 compared to 2010. we believe the same site nonfuel revenue increase reflects increased customer spending due to increased customer traffic , certain price increases we have instituted as a result of increased prices we paid for
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ipcv is an age-related retinal 81 disease involving the choroidal vasculature characterized by the presence of polypoidal lesions , which leads to vision loss . we are at a very early stage of site initiation and patient recruitment for this trial . oph2005 ( autosomal recessive stargardt disease ( stgd1 ) ) : an ongoing , randomized , double-masked , sham controlled , multi-center phase 2b clinical trial evaluating the safety and efficacy of zimura monotherapy for the treatment of autosomal recessive stargardt disease , referred to as stgd1 . we are at a very early stage of patient recruitment for this trial . non-infectious intermediate and posterior uveitis : a planned open-label phase 2a clinical trial of zimura monotherapy for the treatment of non-infectious intermediate and posterior uveitis , a rare inflammatory disease of the back of the eye . see `` businessโzimura '' for additional information regarding each of our ongoing or planned clinical trials . on-going business development and pipeline expansion activities since early 2017 , we have been engaged in extensive business development efforts . without limiting any option , the principal focus of this plan , based on our deep expertise and experience in ophthalmic drug development , has been to actively explore obtaining rights to additional products , product candidates and technologies to treat ophthalmic diseases , particularly those in the back of the eye . we evaluated a large number of assets and platforms during 2017 and continue to actively review assets , platforms and other compelling ophthalmology opportunities that would complement our strategic goals . we have considered multiple opportunities over the last several months , including in-licensing , obtaining rights to products , product candidates or technologies , acquisitions , mergers and reverse mergers . our selection criteria are based on several factors . in general , we are looking for : compelling science ; an identified unmet medical need based on the current standard of care ; a meaningful commercial opportunity based on existing treatment options and treatment options known to be in development ; and areas where we believe we can apply our competitive advantages . based on our work to date , among the novel technologies we have evaluated , we believe that gene therapy solutions may be particularly well-suited for our strategy as potential treatments for both orphan and age-related eye diseases . we remain committed to being opportunistic and will consider other compelling opportunities that may emerge . gene therapy research program s in february 2018 , we announced that an element of our strategy will include initiating collaborative gene therapy programs focused on discovering and developing novel gene therapy technologies to treat retinal diseases . we intend to investigate promising gene therapy product candidates through collaborations with leading companies and academic and research institutions in the united states and internationally . for our first gene therapy research collaboration , we have entered into a series of sponsored research agreements with the university of massachusetts medical school , or umms , and its horae gene therapy center to utilize their novel gene delivery technologies and `` minigene '' therapy approach to target retinal diseases . aav vectors are generally limited as a delivery vehicle by the size of their genetic cargo , which is restricted to approximately 4,700 base pairs of genetic code . the use of `` minigenes '' as a novel therapeutic strategy seeks to deliver a shortened but still functional form of a larger gene packaged into a standard-size aav delivery vector . the `` minigene '' strategy may offer an innovative solution for diseases that would otherwise be difficult to address through conventional aav gene replacement therapy where the size of the gene of interest exceeds the transgene packaging capacity of conventional aav vectors . furthermore , one of the differentiating advantages of the `` minigene '' approach is that it could potentially provide a treatment that is independent of the specific mutation a patient has . the scope of the umms collaboration addresses leber congenital amaurosis type 10 , or lca10 , which is the most common type of lca and is caused by mutations in the cep290 gene , and stdg1 , which is caused by mutations in the abca4 gene . lca10 and stdg1 are both orphan inherited degenerative retinal diseases that lead to vision loss without any fda or ema approved treatment . as a condition of each sponsored research agreement , umms has granted 82 us an option to obtain an exclusive license to any patents or patent applications that result from the sponsored research . our aggregate financial commitment for the sponsored research agreements is in the low , single-digit millions of dollars . remaining fovista activities in december 2016 and august 2017 , we received initial top-line data from our three pivotal clinical trials , referred to as oph1002 , oph1003 and oph1004 , evaluating the anti-platelet derived growth factor , or anti-pdgf , aptamer fovistaยฎ ( pegpleranib ) administered in combination with anti-vegf agents for the treatment of wet amd , indicating that these trials failed to achieve their pre-specified primary endpoints . we have terminated these trials , as well as several other smaller fovista trials in wet amd , which we have referred to as the fovista expansion studies . the national eye institute and an academic pre-clinical program are evaluating various uses of fovista for the treatment of retinal capillary hemangiomas associated with the orphan disease von-hippel-lindau syndrome , and for the treatment of retinoblastoma , a rare cancer of the eye in children , respectively . we have completed our commitments to these two programs , which primarily involved providing fovista drug product and drug substance that we had on hand for use in the studies . therefore , we do not currently expect any development activity for fovista going forward , as we have no intentions to resume development of fovista in wet amd and our supply commitments for the two external studies are complete . story_separator_special_tag novartis agreement in may 2014 , we entered into a licensing and commercialization agreement with novartis pharma ag , or novartis , which we refer to as the novartis agreement . under the novartis agreement , we granted novartis exclusive rights under specified patent rights , know-how and trademarks controlled by us to manufacture , from bulk active pharmaceutical ingredient , or api , supplied by us , standalone fovista products and products combining fovista with an anti-vegf agent to which novartis has rights in a co-formulated product , for the treatment , prevention , cure or control of any human disease , disorder or condition of the eye , and to develop and commercialize those licensed products in all countries outside of the united states , which we refer to as the novartis territory . we agreed to use commercially reasonable efforts to complete our pivotal phase 3 clinical program for fovista and novartis agreed to use commercially reasonable efforts to develop a standalone fovista product and a co-formulated product containing fovista and an anti-vegf agent to which novartis has rights , as well as a pre-filled syringe presentation of such products and to use commercially reasonable efforts , subject to obtaining marketing approval , to commercialize licensed products in the novartis territory in accordance with agreed development and marketing plans . novartis paid us a $ 200.0 million upfront fee upon execution of the novartis agreement , as well as $ 50.0 million upon the achievement of each of two patient enrollment-based milestones , and $ 30.0 million upon the achievement of a third , and final , enrollment-based milestone , for an aggregate of $ 330.0 million . in july 2017 , we and novartis entered into a letter agreement to streamline the process and timeline for evaluating data from the final fovista phase 3 clinical trial once it became available . on october 23 , 2017 , following the failure of the phase 3 fovista program and pursuant to the terms of the july 2017 letter agreement , novartis elected to terminate the novartis agreement with immediate effect . financial matters as of december 31 , 2017 , we had cash , cash equivalents and marketable securities of $ 167.0 million , of which approximately $ 2.0 million is committed to satisfying our remaining financial obligations with respect to the wind-down of the fovista phase 3 trials and obligations incurred in connection with our reduction in personnel , which was substantially completed during 2017. for 2018 , we expect the cash required to fund our operations and capital expenditures , including our zimura development programs and collaborative gene therapy research programs , as currently planned will range between $ 50.0 million and $ 55.0 million . as a result of our ongoing reassessment of our development programs and potential business development opportunities and pipeline expansion activities , we may modify , expand or terminate some or all of our research or development programs or clinical trials at any time . the outcome of these reassessments , as well as the progress of our plans to potentially acquire additional products , product candidates or technologies will determine whether and to what extent we will continue to incur research and development costs for each of our development programs going forward . our ability to become and remain profitable depends on our ability to generate revenue in excess of our expenses . we do not expect to generate significant product revenue unless , and until , we obtain marketing approval for , and commercialize , any of our product candidates , which , if we are successful , will likely take at least several years . we may be unsuccessful in our efforts to develop and commercialize these product candidates . even if we succeed in developing and commercializing one or more of our product candidates , we may never achieve sufficient sales revenue to achieve or maintain 83 profitability . our capital requirements will also depend on many other factors , including whether we are successful in our pursuit to acquire or in-license and subsequently develop additional product candidates or technologies . we may need to obtain substantial additional funding in connection with our continuing operations . if we are unable to raise capital when needed or on attractive terms , we could be forced to delay , reduce or eliminate our research and development programs or any future commercialization efforts . financial operations overview revenue in may 2014 , we entered into the novartis agreement , which is described below under `` โliquidity and capital resourcesโlicensing and commercialization agreement with novartis pharma ag . '' we used the relative selling price method to allocate arrangement consideration to our performance obligations under the novartis agreement . upon entry into the novartis agreement , we received an upfront payment of $ 200.0 million , which was not previously recorded as revenue due to our right to terminate the agreement in the event that the parties were prevented from materially progressing the development or commercialization of fovista products for a specified period as a result of specified governmental actions and the associated termination fee equivalent to the entire $ 200.0 million upfront payment , which we would have been required to pay if we elected to exercise this termination option . in each of september 2014 and march 2015 , we achieved a $ 50.0 million enrollment-based milestone , and in june 2016 , we achieved a $ 30.0 million enrollment-based milestone , for an aggregate total of $ 130.0 million , under the novartis agreement . in july 2017 , we entered into a letter agreement with novartis , which resulted in the recognition of the remaining deferred revenue under the novartis agreement during the third quarter of 2017 , as described below under `` critical accounting policies and significant judgments and estimates โ revenue recognition โ collaboration revenue '' . the recognition of this revenue during the period did not impact our cash balance .
| collaboration revenue for the year ended december 31 , 2016 was $ 50.9 million , of which $ 22.9 million was allocated to the license delivered to novartis under the novartis agreement , $ 9.7 million was allocated to research and development activities performed under the novartis agreement , $ 18.2 million related to fovista api we transferred to novartis , and a de minimis amount of revenue was associated with our joint operating committee participation obligation during the same period . research and development expenses our research and development expenses were $ 66.3 million for the year ended december 31 , 2017 , a decrease of $ 130.0 million compared to $ 196.3 million for the year ended december 31 , 2016 . research and development expenses for the year ended december 31 , 2017 include approximately $ 7.5 million in costs related to our previously announced reduction in personnel . the decrease in research and development expenses for the year ended december 31 , 2017 was primarily due to a $ 107.1 million decrease in costs associated with our fovista program , including our fovista phase 3 clinical program and our fovista expansion studies , a $ 6.2 million decrease in professional services and consulting fees , and a $ 10.3 million decrease in share-based compensation costs . the decreased costs for our fovista program included lower costs related to fovista manufacturing activities and lower clinical trial costs as a result of the wind-down of oph1002 and oph1003 and the fovista expansion studies . this overall decrease was offset by a $ 4.6 million increase associated with our zimura program , primarily related to manufacturing expenses . general and administrative expenses our general and administrative expenses were $ 35.7 million for the year ended december 31 , 2017 , a decrease of $ 14.5 million , compared to $ 50.2 million for the year ended december 31 , 2016 . general and administrative expenses for the year
| 14,900 |
in addition to rocket 1 and rocket 2 , the rocket 4 trial is designed to provide adequate six-month safety data for rhopressa to meet european requirements . based on our rhopressa clinical plan , we expect to file for regulatory approval in europe by mid-2017 . while mercury 1 and mercury 2 will be used for european approval of roclatan , we also plan to initiate a third phase 3 registration trial for roclatan , named mercury 3 , โ in europe in the first half of 2017. mercury 3 will be designed to compare roclatan to a fixed dose combination product broadly marketed in europe , which if successful should improve our commercialization prospects in that region . our stated objective is to build a major ophthalmic pharmaceutical company . in addition to our primary product candidates , rhopressa and roclatan , we are also exploring the longer-term impact of rhopressa on the diseased trabecular meshwork , as well as neuroprotection , and evaluating possible uses of our existing proprietary portfolio of rho kinase inhibitors beyond glaucoma . in february 2015 , we issued a research update on preclinical results demonstrating the potential for rhopressa to have disease-modifying activity in glaucoma patients by stopping fibrosis in the trabecular meshwork , and also increasing perfusion in the trabecular outflow pathway thus increasing both drainage and the delivery of nutrients to the diseased tissue . additionally , our preclinical small molecule , ar-13154 , has shown preclinically the potential to decrease lesion size in wet age-related macular degeneration ( amd ) at numerically higher levels than a current market-leading product . we may license , acquire or develop additional product candidates and technologies to broaden our presence in ophthalmology . in august 2015 and september 2015 , we entered into collaboration and license arrangements with graybug , inc. and ramot at tel aviv university , ltd. , respectively , neither of which represents a material financial commitment by aerie . our collaboration with graybug is focused on researching the potential use of their biodegradable polymer technology to deliver a version of ar-13154 to the back of the eye over a sustained period of time . with ramot , we are evaluating a ramot preclinical anti-beta amyloid small molecule , named eg-30 , for neuroprotection in glaucoma and reduction of geographic atrophy in advanced dry amd . we continually explore and discuss potential additional opportunities for new ophthalmic products , delivery alternatives and new therapeutic areas with potential partners . our strategy includes developing our business outside of north america , including obtaining regulatory approval on our own for our lead product candidates in europe and possibly obtaining regulatory approval through the use of a partner in japan . regarding our international commercialization strategy , if our product candidates are successful , we may potentially commercialize ourselves or with a partner in europe , and likely with a partner in japan . we expect to finalize our european commercialization strategy by the end of 2016. in march 2015 , we revised our corporate structure to align with our business strategy outside of north america by establishing aerie pharmaceuticals limited , a wholly-owned subsidiary organized under the laws of the cayman islands ( โ aerie limited โ ) . in addition , we assigned the beneficial rights to our non-u.s. and non-canadian intellectual property to aerie limited ( the โ ip assignment โ ) . as part of the ip assignment , we and aerie limited entered into a research and development agreement and cost sharing agreement pursuant to which we and aerie limited will share the costs of the development of intellectual property . additionally , in april 2015 , we continued to prepare for foreign-based activities and established aerie pharmaceuticals ireland limited ( โ aerie ireland limited โ ) as a wholly-owned subsidiary of aerie limited to develop and commercialize the beneficial rights of the intellectual property assigned as part of the ip assignment pursuant to a license arrangement to be entered into between aerie limited and aerie ireland limited . we are currently evaluating the possibility of constructing an aerie manufacturing plant in ireland . we have incurred net losses since our inception in june 2005. our operations to date have been limited to research and development and raising capital . as of december 31 , 2015 , we had an accumulated deficit of $ 217.6 million . we recorded net losses of $ 74.4 million , $ 48.1 million and $ 31.1 million for the years ended december 31 , 2015 , 2014 and 2013 , respectively . we anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development and obtaining regulatory approval and preparing for potential commercialization of our product candidates . we expect our research and development expenses to increase as we continue to initiate and conduct clinical trials for our rhopressa and roclatan product candidates and pursue regulatory approval . as we prepare for commercialization , we will likely incur significant commercial , sales , marketing and manufacturing expenses . since our initial public offering ( โ ipo โ ) in october 2013 , we are also incurring additional expenses associated with operating as a public company . as a result , we expect to continue to incur significant and increasing operating losses at least for the next several years . 62 prior to our ipo , we raised net cash proceeds of $ 78.6 million from the private placement of convertible preferred stock and convertible notes . prior to and in connection with our ipo , all outstanding shares of convertible preferred stock and all convertible notes were converted into shares of common stock . on october 30 , 2013 , we completed our ipo and raised net proceeds of approximately $ 68.3 million , after deducting underwriting discounts and commissions of $ 5.4 million and expenses of $ 3.6 million . story_separator_special_tag since our ipo , we have issued $ 125.0 million aggregate principal amount of senior secured convertible notes ( the โ 2014 convertible notes โ ) , for which we received net proceeds of approximately $ 122.9 million , after deducting discounts and issuance costs of $ 2.1 million , and issued 1,754,556 shares of our common stock under our โ at-the-market โ sales agreements , for which we received net proceeds of approximately $ 50.5 million , after deducting commissions at a rate of up to 3 % of the gross sales price per share sold and other fees and expenses . proceeds from our โ at-the-market โ sales in 2015 , the 2014 convertible notes financing in september 2014 , our ipo in october 2013 and any future sales under our current โ at-the-market โ sales agreements are currently expected to provide sufficient resources to complete all currently known non-clinical and clinical requirements for our development programs advancing rhopressa and roclatan , approval by the fda and product commercialization , pending successful outcome of the trials . we also intend to use the proceeds in part for general corporate purposes and potentially for strategic growth opportunities . to date , we have not generated product revenue and we do not expect to generate product revenue unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates . if we do not successfully commercialize any of our product candidates , we may be unable to generate product revenue or achieve profitability . we may be required to obtain further funding through public or private offerings , debt financing , collaboration and licensing arrangements or other sources . adequate additional funding may not be available to us on acceptable terms , or at all . if we are unable to raise capital when needed or on acceptable terms , we would be forced to delay , reduce or eliminate our research and development programs or commercialization efforts . financial overview revenue we have not generated any revenue from the sale of any products , and we do not expect to generate any revenue unless or until we obtain regulatory approval of and commercialize our products . general and administrative expenses general and administrative expenses consist primarily of salaries , benefits and stock-based compensation for all officers and employees in general management , finance and administration . other significant expenses include facilities expenses and professional fees for accounting , legal and other services . we expect that our general and administrative expenses will increase with the continued advancement of our product candidates and with our increased management , legal , compliance , accounting and investor relations expenses as we continue to grow . we expect these increases will likely include higher expenses for insurance , expenses related to the hiring of additional personnel and payments to outside service providers , lawyers and accountants . research and development expenses since our inception , we have focused on our development programs . research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates , which include : employee-related expenses , including salaries , benefits , travel and stock-based compensation expense for research and development personnel ; expenses incurred under agreements with contract research organizations ( โ cros โ ) , contract manufacturing organizations and service providers that assist in conducting clinical trials and preclinical studies ; costs associated with preclinical activities and development activities ; costs associated with regulatory operations ; and 63 depreciation expense for assets used in research and development activities . we expense research and development costs to operations as incurred . the costs for certain development activities , such as clinical trials , are recognized based on the terms of underlying agreements as well as an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations along with additional information provided to us by our vendors . expenses relating to activities , such as manufacturing and stability and toxicology studies , that are supportive of the product candidate itself , are classified as direct non-clinical . expenses relating to clinical trials and similar activities , including costs associated with cros , are classified as direct clinical . expenses relating to activities that support more than one development program or activity such as personnel costs , stock-based compensation , facilities and depreciation are not allocated to direct clinical or non-clinical expenses and are separately classified as โ unallocated. โ the following table shows our research and development expenses by product candidate and by type of activity for the years ended december 31 , 2015 , 2014 and 2013 : replace_table_token_5_th for the periods presented , we did not incur significant direct non-clinical or direct clinical costs for our exploration of the impact of rhopressa on the diseased trabecular meshwork and neuroprotection or for possible uses of our existing proprietary portfolio of rho kinase inhibitors beyond glaucoma . costs for these activities were primarily comprised of internal personnel costs and were included in unallocated expenses . costs associated with our current collaboration arrangements were also included in unallocated expenses . discontinued product candidates relate to previously developed ar-12286 and related compounds for which further development for the treatment of glaucoma was discontinued in 2013. research and development activities associated with the discovery and development of new drugs and products for the treatment of diseases of the eye 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 . we expect our research and development expenses to increase as we continue to conduct clinical trials for our product candidates , or if the fda requires us to conduct additional trials for approval , and explore additional product candidates and technologies to broaden our presence in ophthalmology .
| both 68 rocket 1 and rocket 2 commenced in july 2014. rocket 1 was completed in april 2015 and we received three-month topline efficacy results for rocket 2 in september 2015. additionally , we began to incur expenses for rocket 4 in mid-2015 . unallocated expenses , including employee compensation , facilities and travel costs , increased by $ 8.0 million . other income ( expense ) , net other income ( expense ) , net decreased by $ 1.0 million for the year ended december 31 , 2015 as compared to the year ended december 31 , 2014 . the decrease was mainly due to an increase in interest and amortization expense of $ 1.9 million partially offset by an increase in income of $ 0.9 million related to both an increase in the sale of deferred state tax benefits to unrelated third parties of $ 0.6 million , as further described in note 9 to our audited consolidated financial statements appearing elsewhere in this report , and an increase in investment income of $ 0.3 million . comparison of the years ended december 31 , 2014 and 2013 the following table summarizes the results of our operations for the years ended december 31 , 2014 and 2013 : replace_table_token_8_th general and administrative expenses general and administrative expenses increased by $ 9.8 million for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 . this increase was primarily associated with the expansion of our employee base to support the growth of our operations . personnel costs increased by $ 6.7 million , including employee stock based compensation expense of $ 5.2 million and new salaried employees and related expenses of $ 1.9 million . this increase in personnel costs was partially offset by a decrease in severance expense of $ 0.4 million related to a former employee . outside professional fees , including audit and legal fees , board expenses and other business related activities , increased by $ 2.8 million and travel expenses increased by $
| 14,901 |
net earnings ( loss ) attributable to noncontrolling interests the company owns a 60 % controlling interest in a joint venture formed with swire pacific limited to support the development of the company 's soup and broth business in china . the joint venture began operations on january 31 , 2011. the noncontrolling interest 's share in the net loss was included in net earnings ( loss ) attributable to noncontrolling interests in the consolidated statements of earnings . in 2014 , the company and its joint venture partner agreed to restructure manufacturing and streamline operations for its soup and broth business in china . the after-tax restructuring charge attributable to the noncontrolling interest was $ 5 million . the company also owns a 70 % controlling interest in a malaysian food products manufacturing company . the noncontrolling interest 's share in the net earnings was included in net earnings ( loss ) attributable to noncontrolling interests in the consolidated statements of earnings and was not material in 2014 , 2013 , or 2012. discussion and analysis sales an analysis of net sales by reportable segment follows : replace_table_token_7_th 17 an analysis of percent change of net sales by reportable segment follows : replace_table_token_8_th replace_table_token_9_th ( 1 ) represents revenue reductions from trade promotion and consumer coupon redemption programs . ( 2 ) in 2014 , revenue in mexico is presented on a net accounting basis in connection with a new business model under which the cost of certain services provided by the company 's suppliers is netted against revenue . ( 3 ) sum of the individual amounts does not add due to rounding . in 2014 , u.s. simple meals sales increased 3 % . u.s. soup sales decreased 1 % . excluding the benefit of the 53 rd week , u.s. soup sales decreased 2 % . further details of u.s. soup , excluding the benefit of the 53 rd week , include : sales of campbell 's condensed soups decreased 3 % , with declines in eating varieties partially offset by gains in cooking varieties . lower volumes and increased promotional spending were partly offset by higher selling prices . sales of ready-to-serve soups decreased 6 % , primarily due to declines in canned and microwavable soup varieties . broth sales increased 8 % , primarily due to more effective marketing programs , innovation and distribution gains . sales of other simple meals increased 15 % , primarily due to the acquisition of plum in june 2013 , which contributed 9 points of growth . excluding the impact of the acquisition and the benefit of the 53 rd week , sales increased due to gains in prego pasta sauces , which benefited from the launch of alfredo sauces ; and campbell 's dinner sauces , which benefited from the introduction in 2014 of campbell 's slow cooker sauces ; partially offset by declines in campbell 's canned gravy products . in 2013 , u.s. simple meals sales increased 5 % , reflecting increases in u.s. soup and and other simple meals . u.s. soup sales increased 5 % , benefiting from improved execution and the favorable impact of weather . further details of u.s. soup include : sales of campbell 's condensed soups increased 2 % , with gains in both cooking and eating varieties . sales of ready-to-serve soups increased 9 % , due to volume-driven gains in campbell 's chunky canned soups , which benefited from new varieties , increased promotional spending and a return to nfl-themed advertising . broth sales increased 4 % , primarily driven by double-digit gains in aseptically packaged broth , partially offset by lower sales of canned products and lower sales of swanson flavor boost concentrated broth , which was introduced in 2012. sales of other simple meals increased 5 % primarily due to the acquisition of plum in june 2013 , growth in prego pasta sauces , the 2013 launch of campbell 's skillet sauces , and growth in pace mexican sauces , partially offset by lower sales in other simple meals products . in 2014 , global baking and snacking sales increased 7 % . the acquisition of kelsen contributed $ 193 million to sales , or 8 points of growth . excluding the impact of the acquisition and the benefit of the 53 rd week , sales decreased primarily due to the 18 impact of currency . excluding the benefit of the 53 rd week , pepperidge farm sales increased slightly with growth in fresh bakery and goldfish crackers , partially offset by declines in adult cracker varieties and frozen products . in fresh bakery , sales increased due to gains in sandwich bread and rolls . in arnott 's , sales decreased primarily due to the impact of currency and sales declines in australia in savory and chocolate varieties , partially offset by strong gains in indonesia and the benefit of the 53 rd week . the company increased trade spending in arnott 's and pepperidge farm to remain competitive . in 2013 , global baking and snacking sales increased 4 % with gains in both pepperidge farm and arnott 's . pepperidge farm sales increased primarily due to growth in fresh bakery products , goldfish crackers and cookies . sales of fresh bakery products benefited from improved marketplace performance and increased shelf space at retail outlets resulting from the bankruptcy of a competitor . arnott 's sales increased primarily due to gains in indonesia , partially offset by the impact of currency . promotional spending was increased by pepperidge farm for competitive reasons and to capitalize on the opportunity to increase shelf space in the u.s. bread category and in arnott 's to remain competitive in the australian marketplace . in 2014 , international simple meals and beverages sales decreased 10 % . in canada , sales decreased due to the impact of currency and declines in beverages , partly offset by gains in snacks . story_separator_special_tag in latin america , sales declined due to the impact of presenting revenue on a net basis and lower selling prices in mexico . in the asia pacific region , sales decreased primarily due to the impact of currency and declines in australia , primarily in soup , partially offset by gains in malaysia . in 2013 , international simple meals and beverages sales were comparable to 2012. sales declines in the asia pacific region , primarily due to currency and declines in exports , were partially offset by gains in china , canada and latin america . promotional spending was increased , primarily to support the soup business in canada , in response to more intense price competition in the marketplace . in 2014 , u.s. beverages sales decreased 3 % , primarily from declines in v8 v-fusion multi-serve beverages and softness in single-serve beverages , due in part to the transition in 2014 to a new distribution network for the immediate consumption channel . u.s. beverages continues to be under pressure from category weakness in shelf-stable juices , as well as from competition from specialty beverages and packaged fresh juices . in 2013 , u.s. beverages sales decreased 4 % due to declines in sales of v8 vegetable juice and v8 v-fusion beverages , partially offset by an increase in v8 splash beverages . promotional spending was increased , primarily on v8 splash beverages , in response to more price-based competition in the value segment . in 2014 , bolthouse and foodservice sales increased 5 % . the increase was due in part to the benefit of the 53 rd week and the additional week of bolthouse sales in 2014 as the business was acquired one week into 2013. excluding the additional week of bolthouse in 2014 and the benefit of the 53 rd week , segment sales increased as gains in bolthouse beverages and salad dressings were partially offset by declines in north america foodservice . the north america foodservice decline was due to volume declines in fresh soup sold at retail perimeter and the impact of currency . in 2013 , bolthouse and foodservice sales increased due to the acquisition of bolthouse farms in 2013 , which contributed $ 756 million to sales . north america foodservice sales declined 8 % primarily due to declines in frozen soup products , reflecting the loss of a major restaurant customer , and higher levels of trade spending to remain competitive . gross profit gross profit , defined as net sales less cost of products sold , decreased by $ 14 million in 2014 from 2013 and increased by $ 102 million in 2013 from 2012. as a percent of sales , gross profit was 35.1 % in 2014 , 36.2 % in 2013 and 39.2 % in 2012. the 1.1 and 3.0 percentage-point decreases in gross margin percentage in 2014 and 2013 , respectively , were due to the following factors : replace_table_token_10_th ( 1 ) see note 11 to the consolidated financial statements for additional information on the pension settlement charges . 19 marketing and selling expenses marketing and selling expenses as a percent of sales were 11.3 % in 2014 , 11.8 % in 2013 and 13.1 % in 2012. marketing and selling expenses decreased 1 % in 2014 from 2013. the decrease was primarily due to lower advertising and consumer promotion expenses ( approximately 2 percentage points ) ; the impact of currency ( approximately 1 percentage point ) ; lower marketing overhead expenses ( approximately 1 percentage point ) ; and lower selling expenses ( approximately 1 percentage point ) , partially offset by the impact of acquisitions ( approximately 4 percentage points ) . marketing and selling expenses increased 1 % in 2013 from 2012. the increase was primarily due to the impact of the bolthouse farms acquisition ( approximately 3 percentage points ) ; higher selling expenses ( approximately 2 percentage points ) ; and higher marketing expenses to support innovation efforts ( approximately 2 percentage points ) , partially offset by lower advertising and consumer promotion expenses , primarily in the u.s. soup business ( approximately 6 percentage points ) . administrative expenses administrative expenses as a percent of sales were 6.9 % in 2014 , 8.4 % in 2013 and 8.1 % in 2012. administrative expenses decreased by 15 % in 2014 from 2013. the decrease was primarily due to lower incentive compensation costs ( approximately 13 percentage points ) ; cost savings from restructuring initiatives ( approximately 3 percentage points ) ; and lower pension and other benefit expenses ( approximately 2 percentage points ) , partially offset by the impact of acquisitions ( approximately 3 percentage points ) . administrative expenses increased by 17 % in 2013 from 2012 , primarily due to the impact of the bolthouse farms acquisition ( approximately 10 percentage points ) and higher incentive compensation costs ( approximately 7 percentage points ) . research and development expenses research and development expenses decreased $ 7 million , or 5 % , in 2014 from 2013. the decrease was primarily due to lower incentive compensation costs ( approximately 4 percentage points ) and cost savings from restructuring initiatives ( approximately 3 percentage points ) , partially offset by the impact of acquisitions ( approximately 3 percentage points ) . research and development expenses increased $ 12 million , or 10 % , in 2013 from 2012. the increase was primarily due to higher incentive compensation and benefit costs ( approximately 7 percentage points ) ; the impact of the bolthouse farms acquisition ( approximately 2 percentage points ) ; and higher costs associated with product innovation in north america ( approximately 1 percentage point ) . other expenses/ ( income ) other expenses in 2014 included a loss of $ 9 million on foreign exchange forward contracts used to hedge the proceeds from the sale of the european simple meals business and $ 18 million of amortization of intangible assets associated with the acquisition of bolthouse farms , kelsen and plum businesses .
| in 2014 , the company recorded a loss of $ 9 million ( $ 6 million after tax or $ .02 per share ) on foreign exchange forward contracts used to hedge the proceeds from the sale of the european simple meals business . the loss was included in other expenses . in addition , the company recorded tax expense of $ 7 million ( $ .02 per share ) associated with the sale of the business ; in 2014 , the company recorded a pre-tax restructuring charge of $ 54 million ( $ 33 million after tax or $ .10 per share ) associated with initiatives to streamline its salaried workforce in north america and its workforce in the asia pacific region ; restructure manufacturing and streamline operations for its soup and broth business in china ; improve supply chain efficiency in australia ; and reduce overhead across the organization . see note 8 to the consolidated financial statements and `` restructuring charges '' for additional information ; in 2013 , the company implemented several initiatives to improve its u.s. supply chain cost structure and increase asset utilization across its u.s. thermal plant network ; expand access to manufacturing and distribution capabilities in mexico ; improve its pepperidge farm bakery supply chain cost structure ; and reduce overhead in north america . in 2014 , the company recorded a pre-tax restructuring charge of $ 1 million and restructuring-related costs of $ 3 million in cost of products sold ( aggregate impact of $ 3 million after tax or $ .01 per share ) related to the 2013 initiatives . in 2013 , the company recorded a pre-tax restructuring charge of $ 51 million and restructuring-related costs of $ 91 million in cost of products sold ( aggregate impact of $ 90 million after tax or $ .28 per share ) related to the 2013 initiatives . see note 8 to the consolidated financial statements and `` restructuring charges '' for additional information ; and in 2013 , the company incurred pre-tax
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revenue on fixed price contracts ( without substantive milestones as described above ) is recognized on the percentage-of-completion method . the percentage-of-completion method recognizes revenue as the contract progresses based on the total costs expended as compared to an estimate of the total costs on the contract the use of the percentage-of-completion method depends on the ability to make reasonable dependable estimates and the fact that circumstances may necessitate frequent revision of estimates does not indicate that the estimates are unreliable for the purpose for which they are used . as a result of our revenue recognition policies and the billing provisions contained in our contracts , the timing of customer billings may differ from the timing of recognizing revenue . amounts recognized as revenue in excess of amounts billed to customers are reflected on the balance sheet as unbilled accounts receivable . amounts invoiced to customers in excess of revenue recognized are reflected on the balance sheet as deferred revenue . we analyze each cost reimbursable grant to determine whether we should report such reimbursements as revenue or as an offset to our expenses incurred . for the years ended december 31 , 2013 , 2012 and 2011 , we recorded approximately $ 0.02 million , $ 1.1 million and $ 0.7 million , respectively , of costs reimbursed by the government as an offset to research and development expenses . share-based payments we have a long-term incentive compensation plan , or ltip , under which options to purchase shares of our common stock may be granted to employees , consultants and directors at a price no less than the quoted market value on the date of grant . the ltip also provides for awards in the form of stock appreciation rights , restricted or unrestricted stock awards , stock-equivalent units or performance-based stock awards . we account for share-based awards to employees and non-employee directors at fair value . the amount of compensation expense recognized using the fair value method requires us to exercise judgment and make assumptions relating to the factors that determine the fair value of our stock option grants . we use the black-scholes model to estimate the fair value of our option grants . the fair value calculated by this model is a function of several factors , including grant price , the risk-free interest rate , the expected term of the option and the anticipated volatility of the option . goodwill we continually assess the realizability and recoverability of our goodwill . these assessments contain substantial judgment in determining the fair value of such assets and with respect to future usage of the assets and potential cash flows associated with them . 43 financial instruments our financial instruments , and or embedded features contained in those instruments , often are classified as derivative liabilities and are recorded at their fair values . the determination of fair value of these instruments and features requires estimates and judgments . certain of our stock purchase warrants are considered to be derivative liabilities due to the presence of net settlement features and or non-standard anti-dilution provisions , ; generally the fair value of our warrants is determined based on the black-scholes option pricing model . use of the black-scholes option-pricing model requires the use of unobservable inputs such as the expected term , anticipated volatility and expected dividends . story_separator_special_tag times , serif ; margin : 0pt 0 '' > research and development expenses our research and development expenses were $ 15.3 million and $ 19.5 million for the years ended december 31 , 2013 and 2012 , respectively , a decrease of $ 4.2 million , or 21.5 % , from 2012. these expenses resulted from research and development activities in all periods related primarily to our sparvax ยฎ and rbche bioscavenger programs . direct expenses included salaries and other costs of personnel , raw materials and supplies , and an allocation of indirect expenses . we also incurred third-party costs , such as contract research , consulting and clinical development costs for individual projects . research and development expenses for 2013 were net of the receipt of approximately $ 0.5 million , the result of the settlement of a lawsuit filed against a vendor . research and development expenses for the years ended december 31 , 2013 and 2012 were net of cost reimbursements under certain of our government grants of $ 0.02 million and $ 1.1million , respectively . 45 research and development expenses for the years ended december 31 , 2013 and 2012 were attributable to research programs as follows : replace_table_token_8_th for the year ended december 31 , 2013 , research and development expenses decreased $ 4.2 million from 2012 , primarily due to ( i ) the receipt in the 2013 period of approximately $ 0.5 million , the result of the settlement of a lawsuit filed against a vendor and ( ii ) decreased costs related to sparvax ยฎ resulting from reduced overall development activity in 2013 , partially as a result of the fda 's two clinical holds imposed in august 2012 and december 2013. these reductions in cost were partially offset by increased costs in our rbche bioscavenger program . with the lifting of the fda 's first clinical hold in may 2013 on sparvax ยฎ , and as a result of the consent and extension of the period of performance of our development contract from barda , costs increased in the fourth quarter of 2013 , when compared to the third quarter of 2013 , as a result of pre-study activities related to a planned phase 2 clinical trial . as a result of the partial federal government shutdown from october 1 through october 16 , 2013 and a second fda clinical hold imposed in december 2013 , work was suspended temporarily under our development contract for sparvax ยฎ . consequently , research and development costs and corresponding revenues under this contract for the fourth quarter 2013 were lower than they otherwise would have been . story_separator_special_tag unless the fda clinical hold is lifted , and we are able to secure new contracts or orders from the u.s. government to fund development activities for our sparvax ยฎ program , we anticipate that research and development costs for this program in future periods to be less than in past years . general and administrative expenses general and administrative functions include executive management , finance and administration , government affairs and regulations , corporate development , human resources , legal , and compliance . for each function , we may incur expenses such as salaries , supplies and third-party consulting and other external costs and non-cash expenditures such as expense related to stock option and restricted share awards . an allocation of indirect costs such as facilities , utilities and other administrative overhead is also included in general and administrative expenses . general and administrative expenses increased by $ 1.7 million , or 14.7 % , to $ 13.3 million for the year ended december 31 , 2013 , from $ 11.6 million for 2012. the increase in expenses during 2013 was due to $ 3.3 million in merger transactions costs related to the terminated merger with theraclone sciences , inc. ( โ theraclone โ ) which were partially offset by reduced labor and associated share-based compensation costs as well as decreased professional fees . other income ( expense ) other income ( expense ) primarily consists of changes in the fair value of our derivative financial instruments , income related to the realization of the cumulative translation adjustment , and interest expense on our debt and other financial obligations . other expense was $ 0.8 million in the year ended december 31 , 2013 , compared to other income of $ 1.5 million in 2012 , resulting in a change in other income ( expense ) of approximately $ 2.3 million , or 153.3 % . the change was primarily the result of ( i ) the $ 1.0 million change in the fair value of derivative instruments , from an unrealized gain of $ 0.6 million to an unrealized losses of $ 0.4 million , for the year ended december 31 , 2012 and 2013 , respectively and ( ii ) as a result of substantially completing the liquidation of our canadian subsidiary in july 2012 , which resulted in the realization of approximately $ 1.2 million of income in our condensed consolidated statement of operations , which represents the amount of previously recorded foreign currency translation adjustments related to our canadian subsidiary . income taxes the provision for income taxes was $ 0.1 million and $ 0.2 million during the years ended december 31 , 2013 and 2012 , respectively , a decrease of approximately $ 0.1 million . our provision for income taxes results from the difference between the treatment of goodwill for income tax purposes and for u.s. gaap . 46 year ended december 31 , 2012 compared to december 31 , 2011 revenue we recognized revenue of $ 25.2 million and $ 24.3 million during the years ended december 31 , 2012 and 2011 , respectively . our revenue in 2012 was derived from contracts with the u.s. government for the development of our product candidates . replace_table_token_9_th our revenue changed in 2012 from 2011 primarily due to the following : under our contract for the development of sparvax ยฎ , we recognized approximately $ 22.9 million of revenue in 2012 , an increase of $ 3.6 million ( or 18.7 % ) from 2011. during 2012 revenue for the sparvax ยฎ program was primarily attributable to cmc work , certain non-clinical activities and limited clinical trial pre-study activities . during 2011 , revenue was primarily attributable to cmc work . milestone revenue for the achievement of key technical milestones was approximately $ 2.2 million and $ 3.5 million for the years ended december 31 , 2012 and 2011 , respectively . under our contract for our second generation rbche bioscavenger , we recognized approximately $ 1.8 million , representing an increase of approximately $ 1.1 million ( or 157.1 % ) from 2011. significant technical progress was made in the development of our second generation rbche bioscavenger in 2012 , including the establishment of final clones , genetic stability and fed batch evaluation to establish the bioreactor conditions for manufacturing . under our niaid contracts for the advanced development of valortim ยฎ , we recognized $ 0.5 million of revenue in 2012 , a substantial decrease of $ 3.2 million ( or 86.5 % ) from 2011 levels as a result of our 2007 contract with niaid for valortim ยฎ ending in accordance with its terms in the first quarter 2012. research and development expenses our research and development expenses were $ 19.5 million and $ 21.2 million for the years ended december 31 , 2012 and 2011 , respectively . these expenses resulted from research and development activities related to sparvax ยฎ , rbche bioscavenger and valortim ยฎ . research and development expenses include direct expenses ( salaries and other costs of personnel , raw materials and supplies , contract research , consulting and clinical development costs ) and an allocation of indirect expenses . research and development expenses for the years ended december 31 , 2012 and 2011 were attributable to research programs as follows : replace_table_token_10_th 47 research and development expenses for both 2012 and 2011 were net of cost reimbursements under certain of our government grants of $ 1.1 million and $ 0.7 million , respectively . in 2012 , research and development expenses decreased approximately $ 1.7 million from 2011 , primarily due to a reduction in ( i ) indirect operating expenses including overhead and internal research and development , and ( ii ) direct costs related to our valortim ยฎ program as a result of the completion in the first quarter of 2012 of work under our 2007 contract with niaid , offset by higher direct sparvax ยฎ program expenses . general and administrative expenses expenses associated with general and administrative functions were $ 11.6
| that clinical trial was suspended prior to first patient dosing as a result of a second clinical hold issued by the fda in december 2013. in addition , as a result of the partial federal government shutdown from october 1 through october 16 , 2013 , work was temporarily suspended under our development contract for sparvax ยฎ . as a result , revenues and corresponding research and development costs under this contract for the fourth quarter 2013 were lower than they otherwise would have been expected . 44 as noted above , in december 2013 we received notification from the fda that our sparvax ยฎ rpa anthrax vaccine program was placed on clinical hold for a second time . specifically the fda observed a statistically significant downward trend in potency in the engineering lot of fdp manufactured in early 2012 and a similar but not statistically significant trend in the cgmp lot of sparvax ยฎ fdp produced four months later that we had intended to use in a planned phase 2 clinical trial . pharmathene recently completed the in-life portion of an ongoing non-clinical rabbit study which showed sparvax ยฎ to be beneficial in preventing anthrax infection in animals exposed to anthrax spores . this study was designed to evaluate the efficacy of sparvax ยฎ compared to biothrax ยฎ in animals exposed to a lethal dose of anthrax . the study used a cgmp lot of sparvax ยฎ fdp that was 22 months old at the initial dose . the dose was repeated 28 days later using the same lot . rabbits were vaccinated with an estimated human equivalent dose of each vaccine and the data showed 100 % survival for both products . additional data from future sparvax ยฎ clinical trials and non-clinical animal studies will be required to establish efficacy in humans . to move forward with clinical development of sparvax ยฎ and to be able to respond to the fda 's concerns , the fda has requested that we produce a new cgmp lot of fdp , provide the lot release data to the fda ,
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as a result of our analysis , we recorded non-cash impairment charges of $ 28.0 million related to goodwill and $ 25.9 million related to other long-lived assets , including $ 17.4 million related to customer relationships , $ 4.8 million related to in-process research and development , and $ 3.6 million related to certain tangible assets . in addition , during 2014 , we recognized $ 4.3 million of asset impairments on tangible assets held for sale , including certain lab tools and a vacant building and land . changes in contingent consideration included in our agreement to acquire ald in the fourth quarter of 2013 were performance milestones that could trigger contingent payments to the original selling shareholders . during the year ended december 31 , 2013 , the first milestone was achieved , and we paid the former shareholders $ 5.0 million and increased the estimated fair value of the remaining contingent payments by $ 0.8 million . during 2014 , we determined that all of the remaining performance milestones were not met , reversed the fair value of the liability , and recorded a non-cash gain of $ 29.4 million . other , net during 2014 , we completed our plan to liquidate our subsidiary in japan , since we moved to a distributor model to serve our customers in that region . as a result of the liquidation , we reclassified a cumulative translation gain of $ 3.1 million from other comprehensive income to ยother , netย on the consolidated statements of operations . 28 income taxes the 2015 income tax expense is comprised of two components : ( i ) $ 1.8 million related primarily to u.s. tax amortization of the company 's indefinite-lived intangible assets that is not available to offset existing deferred tax assets and related valuation allowance and state and local income taxes and ( ii ) $ 7.5 million in tax expense relating to our profitable foreign operations . the 2014 income tax benefit included $ 13.4 million in tax benefits relating to our domestic operations offset by $ 2.0 million in tax expense relating to our foreign operations . our 2015 effective tax rate is different than the statutory rate primarily due to our inability to recognize our u.s. deferred tax assets on a more-likely-than-not basis with respect to current year pre-tax u.s. operating losses . our 2014 effective tax rate is lower than the statutory rate primarily related to a $ 4.9 million tax benefit associated with our successful negotiation of an incentive tax rate in one of our foreign subsidiaries , a $ 2.3 million reversal of uncertain tax positions as a result of concluding the 2010 irs examination , and the recognition of only a portion of our u.s. deferred tax assets on a more-likely-than-not basis with respect to current year pre-tax operating losses . we maintain a valuation allowance on our u.s. deferred tax assets . years ended december 31 , 2014 and 2013 the following table presents revenue and expense line items reported in our consolidated statements of operations for fiscal 2014 and 2013 and the period-over-period dollar and percentage changes for those line items . our results of operations are reported as one business segment . replace_table_token_7_th 29 net sales the following is an analysis of sales by market and by region : replace_table_token_8_th total sales increased in 2014 from 2013 primarily due to an increase in the volume of mocvd systems , largely due to customers increasing their manufacturing capacity . pricing was not a significant driver of the change in total sales . total sales also increased as a result of our acquisition of psp , which contributed $ 7.9 million to 2014 results . the increase in sales was partially offset by a decline in volume of our systems sold to data storage customers , primarily due to our customers ' unwillingness to make technology investments given the overcapacity in the hdd industry . by region , sales decreased in the united states in 2014 primarily due to a decrease in purchases by our data storage customers . in china and rest of world , sales increased as a result of mocvd sales growth . in emea , sales increased as a result of growth in both mocvd and ion beam and other data storage system sales . we believe there will continue to be year-to-year variations in the geographic distribution of sales in the future . between 2014 and 2013 , total orders increased $ 178.8 million , or 54 % , to $ 510.0 million . the increase is primarily attributable to a 74 % increase in orders of our mocvd systems largely as customers in china , europe , and south korea begin to add manufacturing capacity . ion beam and other data storage orders increased 5 % between 2014 and 2013 , but given the slow growth and overcapacity in the hdd industry , we expect demand to be weak as customers continue to only make select technology purchases . in 2014 , the book-to-bill ratio was 1.3 , an improvement over 2013 , when it was 1.0. our backlog at december 31 , 2014 was $ 286.7 million , which was higher than the ending backlog at december 31 , 2013 of $ 143.3 million . at december 31 , 2014 , $ 23.4 million of the backlog was from our acquisition of psp . during the year ended december 31 , 2014 we recorded backlog adjustments of approximately $ 1.6 million relating to orders that no longer met our bookings criteria . for certain sales arrangements we require a deposit for a portion of the sales price prior to manufacturing a system for a customer . at december 31 , 2014 and 2013 , we had customer deposits of $ 73.0 million and $ 27.5 million , respectively . gross profit gross margins increased from the prior year primarily due to higher mocvd sales volume , a favorable mix of products , and favorable warranty and service spending . story_separator_special_tag this was partially offset by our acquisition of psp , whereby we wrote up existing inventory on the date of acquisition to fair value , unfavorable overhead rates , primarily driven by our ald business , and declines in margins from our ion beam and other data storage system sales that resulted from reduced sales volume , higher inventory reserves , and unfavorable overhead rates . selling , general , and administrative selling , general , and administrative expenses increased primarily due to an increase in personnel and personnel-related expenses , including an increase in share-based compensation of $ 3.5 million as well as additional costs from our ald 30 business , which was acquired in the fourth quarter of 2013. our acquisition of psp in the fourth quarter of 2014 also contributed to the increase in selling , general , and administrative expenses , including $ 3.2 million of acquisition related costs . partially offsetting the increase in selling , general , and administrative expense was a reduction in third party professional fees associated with an accounting review , which was completed in the fourth quarter of 2013. research and development we continue to invest in research and development of new products and enhancements to existing products and spent $ 81.2 million and $ 81.4 million in 2014 and 2013 , respectively . in 2014 , we spent additional amounts on our ald technology as compared with 2013 , offset by a reduction in spending in our other product lines . we continue to focus our research and development expenses on projects in areas we anticipate to be high-growth . we selectively funded these product development activities which resulted in lower professional consulting expense , as well as reduced spending for project materials and personnel and personnel-related costs . amortization expense amortization expense increased primarily due to additional amortization associated with intangible assets acquired as part of our acquisition of ald during the fourth quarter of 2013. we expect to incur additional amortization expense in 2015 as a result of intangible assets acquired as part of our acquisition of psp during the fourth quarter of 2014 , partially offset by the elimination of amortization of certain ald intangible assets that have been either impaired or fully amortized in the fourth quarter of 2014. restructuring expense during 2014 , we announced the closing of our ft. collins , colorado and camarillo , california facilities . business activities formally conducted at these sites have been transferred to our plainview , new york facility . in addition , we responded to the challenging business environment we were facing , particularly for sales to customers in the data storage industry , and reduced headcount by approximately 90 employees . as a result of these actions , we recorded $ 4.4 million in personnel severance and related costs and facility closing costs . during 2013 , we recorded $ 1.5 million in personnel severance and related costs principally resulting from the transition from a direct sales presence in japan to a distributor model and the consolidation of certain sales and administrative functions . asset impairment during 2014 , based on a combination of factors , including our determination that incumbent deposition technology for flexible oled display encapsulation had progressed to satisfy current market requirements , we believed that there were sufficient indicators that required an interim asset impairment analysis on our ald business . as a result of our analysis , we recorded non-cash impairment charges of $ 28.0 million related to goodwill and $ 25.9 million related to other long-lived assets , including $ 17.4 million related to customer relationships , $ 4.8 million related to in-process research and development , and $ 3.6 million related to certain tangible assets . in addition , during 2014 , we recognized $ 4.3 million of asset impairments on tangible assets held for sale , including certain lab tools and a vacant building and land . during 2013 , we recognized asset impairment charges of $ 1.2 million on tangible assets held for sale , including certain lab tools . changes in contingent consideration included in our agreement to acquire ald in the fourth quarter of 2013 were performance milestones that could trigger contingent payments to the original selling shareholders . during the year ended december 31 , 2013 , the first milestone was achieved , and we paid the former shareholders $ 5.0 million and increased the estimated fair value of the remaining contingent payments by $ 0.8 million . during 2014 , we determined that all of the remaining performance milestones were not met , reversed the fair value of the liability , and recorded a non-cash gain of $ 29.4 million . 31 other , net during 2014 , we completed our plan to liquidate our subsidiary in japan , since we moved to a distributor model to serve our customers in that region . as a result of the liquidation , we reclassified a cumulative translation gain of $ 3.1 million from other comprehensive income to ยother , netย on the consolidated statements of operations . income taxes the 2014 net benefit for income taxes included a $ 13.4 million tax benefit relating to our domestic operations offset by a $ 2.0 million tax expense relating to our foreign operations . the 2013 net benefit for income taxes included a $ 32.4 million benefit relating to our domestic operations offset by a $ 3.5 million expense relating to our foreign operations . our 2014 effective tax rate is lower than the statutory rate primarily related to a $ 4.9 million tax benefit associated with our successful negotiation of an incentive tax rate in one of our foreign subsidiaries , a $ 2.3 million reversal of uncertain tax positions as a result of concluding the 2010 irs examination , and the recognition of only a portion of our u.s. deferred tax assets on a more-likely-than-not basis with respect to current year pre-tax operating losses . we maintain a valuation allowance on our u.s. deferred tax assets .
| the uncertainty around led unit demand and the chinese economy has reduced our ability to forecast near-term orders within the lighting , display & power electronics market . we also expect data storage demand to be weak as customers continue to only make select technology purchases . one of the performance measures we use as a leading indicator of the business is the book-to-bill ratio . the ratio is defined as orders recorded in a given period divided by revenue recognized in the same period . a ratio greater than one indicates we are adding orders faster than we are recognizing revenue . in 2015 , the ratio was 0.8 , a reduction compared to 2014 , when it was 1.3. our backlog at december 31 , 2015 was $ 186.0 million , which was lower than the ending backlog at december 31 , 2014 of $ 286.7 million . during the year ended december 31 , 2015 , we recorded backlog adjustments of approximately $ 7.7 million relating to orders that no longer met our bookings criteria . for certain sales arrangements , we require a deposit for a portion of the sales price prior to manufacturing a system for a customer . at december 31 , 2015 and 2014 , we had customer deposits of $ 28.2 million and $ 73.0 million , respectively . gross profit gross margins increased from the prior year primarily due to our acquisition of psp in 2015 , which contributed to an increase in sales volume and an improved product mix , as well as negatively impacting 2014 gross margin for an inventory fair value step-up that was recorded in connection with the purchase accounting . products sold into our scientific & industrial markets improved margins as well . finally , $ 4.6 million of customer deposits were forfeited and recognized into revenue and gross profit in 2015 , favorably impacting gross margin . 27 selling , general , and administrative selling , general , and administrative expenses remained relatively consistent in 2015 as compared to 2014. increases related to a full year of expenses associated with our psp business which
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for the full year 2017 , the company expects logistics operating income to be approximately $ 20 million , up significantly from the 2016 level of $ 11.9 million , primarily due to the inclusion of span alaska 's freight forwarding business for a full year . in the first quarter 2017 , the company expects logistics operating income to be approximately double the $ 1.6 million achieved in the first quarter 2016. depreciation , amortization and ebitda : for the full year 2017 , the company expects depreciation and amortization expense to increase by approximately $ 15 million to $ 150 million , inclusive of dry-docking amortization of approximately $ 50 million , primarily due to the higher levels of maintenance capital and vessel dry-docking expenditures in 2016 and planned for 2017. as a result , the company expects full year 2017 ebitda to approximate the $ 288.6 million achieved in 2016. interest expense : the company expects its interest expense in 2017 to be approximately $ 25 million . income tax expense : the company 's effective tax rate for the fourth quarter and full year 2016 was 34.5 percent and 37.6 percent , respectively . for the full year 2017 , the company expects its effective tax rate 2017 to be approximately 39 percent . capital spending and vessel dry-docking : for the full year 2016 , the company made maintenance capital expenditure payments of $ 84.9 million , capitalized vessel construction expenditures of $ 94.5 million , and dry-docking payments of $ 59.2 million . for the full year 2017 , the company expects to make maintenance capital expenditure payments of approximately $ 50 million , capitalized vessel construction expenditures of approximately $ 210 million , and dry-docking payments of approximately $ 60 million . 25 story_separator_special_tag style= '' margin:0pt ; font-family : times new roman , times , serif ; font-size : 9pt ; '' > net income during the year ended december 31 , 2015 increased $ 32.2 million , or 45.5 percent , compared to the prior year . analysis of operating revenue and income by segment additional detailed information related to the operations and financial performance of the company 's reportable segments is included in part ii item 6 and note 15 to the consolidated financial statements in item 8 of part ii below . the following information should be read in relation to the information contained in those sections . ocean transportation : 2016 compared with 2015 : replace_table_token_12_th 27 ( 1 ) approximate container volumes included for the period are based on the voyage departure date , but revenue and operating income are adjusted to reflect the percentage of revenue and operating income earned during the reporting period for voyages in transit at the end of each reporting period . ( 2 ) alaska container volumes represent operations from may 29 , 2015 . ( 3 ) 2016 volume includes the benefit of a 53 rd week . ocean transportation revenue increased $ 43.1 million , or 2.9 percent , during the year ended december 31 , 2016 compared with the year ended december 31 , 2015. this increase was primarily due to the inclusion of revenue from the company 's acquired alaska service for the full year period , partially offset by lower freight rates in the company 's china service and lower fuel surcharge revenue . on a year-over-year feu basis , hawaii container volume increased by 0.6 percent as modest market growth was offset by the absence of volume gains attributed to a competitor 's service reconfiguration and vessel mechanical failure in the prior year ; alaska volume was higher due to the inclusion of a full year period in 2016 ; china volume declined by 1.8 percent ; and guam volume was 2.7 percent lower as competitive losses associated with the launch of a competitor 's bi-weekly u.s. flagged containership service in january 2016 were partially offset by modest market growth . ocean transportation operating income decreased $ 46.5 million , or 24.8 percent , during the year ended december 31 , 2016 compared with the year ended december 31 , 2015. the decrease was primarily due to lower freight rates in the company 's china service , higher vessel operating expenses related to the deployment of additional vessels in the hawaii trade in the first half of 2016 , unfavorable timing of fuel surcharge collections , higher terminal handling expenses , and higher vessel dry-docking amortization . partially offsetting these unfavorable items were the absence of general and administrative expenses related to the horizon acquisition and costs related to the molasses settlement , and container yield improvements in hawaii . the company 's ssat terminal joint venture investment contributed $ 15.8 million during the year ended december 31 , 2016 , compared to $ 16.5 million in the year ended december 31 , 2015. on a year-over-year basis , ssat 's lift volume improved during 2016 ; however , the positive impact of lift volume was offset by the absence of the benefits related to the clearing of international cargo volume after the u.s. west coast labor disruptions in the first half 2015 and by an increase in ssat 's allowance for doubtful accounts receivable . ocean transportation : 2015 compared with 2014 : replace_table_token_13_th ( 1 ) approximate container volumes included for the period are based on the voyage departure date , but revenue and operating income are adjusted to reflect the percentage of revenue and operating income earned during the reporting period for voyages that straddle the beginning or end of each reporting period . story_separator_special_tag ( 2 ) alaska container volumes represent operations from may 29 , 2015. ocean transportation revenue increased $ 219.6 million , or 17.2 percent , during the year ended december 31 , 2015 compared with the year ended december 31 , 2014. this increase was primarily due to the inclusion of revenue from the company 's acquired alaska operations , higher container volume and yield in hawaii , and higher freight rates in the company 's china service , partially offset by lower fuel surcharge revenue and lower volume in the south pacific and china . 28 alaska volume included in the company results reflects operations from may 29 , 2015. on a year over year basis , hawaii container volume increased by 8.7 percent primarily due to volume gains resulting from a competitor 's service reconfiguration , and modest market growth ; china volume was 3.8 percent lower due to one fewer sailing , the absence of the extraordinarily high demand experienced in the fourth quarter 2014 during the u.s. west coast labor disruptions , and market softness in the fourth quarter 2015 ; guam volume declined by 1.9 percent due to the timing of select shipments ; and hawaii automobile volume was essentially flat . ocean transportation operating income increased $ 56.7 million during the year ended december 31 , 2015 compared with the year ended december 31 , 2014. the increase was primarily due to higher freight rates in china , container volume and yield improvements in hawaii , the inclusion of operating results for the alaska trade , and improved results at ssat . partially offsetting these favorable operating income items were additional selling , general and administrative expenses primarily due to the horizon acquisition , higher vessel operating expenses related to the deployment of additional vessels in the hawaii trade , higher terminal handling expenses , lower china container volume , and costs related to the company 's settlement with the state of hawaii ( the โ molasses settlement โ ) . the company 's ssat terminal joint venture investment contributed $ 16.5 million during the year ended december 31 , 2015 , compared to a $ 6.6 million contribution in the year ended december 31 , 2014. the increase was primarily attributable to the clearing of international carrier cargo backlog and improved lift volume . logistics : 2016 compared with 2015 : replace_table_token_14_th ( 1 ) logistics operating results include span alaska operating results from the date of acquisition on august 4 , 2016. logistics revenue increased $ 13.6 million , or 3.5 percent , during the year ended december 31 , 2016 compared to the year ended december 31 , 2015. this increase was primarily due to the inclusion of freight forwarding revenue from the acquired span alaska business , partially offset by lower fuel surcharge revenue . logistics operating income increased $ 3.4 million during the year ended december 31 , 2016 compared to the year ended december 31 , 2015. the increase was primarily due to the inclusion of freight forwarding operating results attributable to the acquired span alaska business and higher intermodal volume , partially offset by lower intermodal yield . logistics : 2015 compared with 2014 : replace_table_token_15_th logistics revenue decreased $ 48.9 million , or 11.2 percent , during the year ended december 31 , 2015 compared to the year ended december 31 , 2014. this decrease was primarily the result of lower intermodal and highway volume and lower fuel surcharge revenue , partially offset by favorable changes in business mix and increased warehouse revenue . logistics operating income decreased $ 0.4 million during the year ended december 31 , 2015 compared to the year ended december 31 , 2014. the decrease was primarily due to lower intermodal and highway volume , partially offset by warehouse operating improvements and improved yield . 29 liquidity and capital resources sources of liquidity : sources of liquidity available to the company at december 31 , 2016 compared to december 31 , 2015 , were as follows : replace_table_token_16_th ( 1 ) eligible accounts receivable of $ 174.7 million and $ 176.6 million at december 31 , 2016 and 2015 , respectively , were assigned to the ccf . ( 2 ) the increase in cash on deposit in the ccf deposits relates to excess deposits paid into the ccf over withdrawals from the ccf . such amounts will be used to pay future progress payments for new vessels under construction ( see note 7 to the consolidated financial statements in item 8 of part ii below for additional information about ccf ) . revolving credit facility : as of december 31 , 2016 , the company had $ 333.8 million of availability under the revolving credit facility ( see note 8 to the consolidated financial statements in item 8 of part ii below for additional information about debt ) . changes in the cash and cash equivalents : significant changes in the company 's cash and cash equivalents for the year ended december 31 , 2016 , compared to december 31 , 2015 are as follows : replace_table_token_17_th ( 1 ) changes in net cash provided by operating activities : changes in net cash provided by operating activities for the year ended december 31 , 2016 compared to the prior year are due to the following : replace_table_token_18_th decrease in distributions from the company 's terminal joint venture , ssat , was due to no distributions received during the year ended december 31 , 2016 , compared to $ 14.0 million of distributions received in the prior year . increase in deferred dry-docking payments was due to the increased number of vessels in dry-docking during the year ended december 31 , 2016 , compared with prior year . changes in accounts receivable are due to the timing of billings and collections , and changes in prepaid expenses and other assets are due to the timing of income tax and other advanced payments during the year ended december 31 , 2016 , compared with prior year .
| income tax expense during the year ended december 31 , 2016 was $ 48.6 million , or 37.6 percent of income before income taxes , as compared to $ 74.8 million , or 42.1 percent of income before income taxes , in the prior year . the decrease in the income tax rate was primarily due to deferred tax charges recorded in 2015 that did not reoccur in 2016. in addition , the 2016 income tax rate was favorably impacted by the release of unrecognized tax benefit reserves . net income during the year ended december 31 , 2016 decreased $ 22.5 million , or 21.8 percent compared to the prior year . 26 consolidated results : 2015 compared with 2014 : replace_table_token_11_th fiscal year : fiscal year ended december 31 , 2015 and 2014 include 52 weeks each . consolidated operating revenue for the year ended december 31 , 2015 increased $ 170.7 million , or 10.0 percent , compared to the prior year . this increase was due to an increase of $ 219.6 million for ocean transportation , partially offset by a decrease of $ 48.9 million for logistics . operating costs and expenses for the year ended december 31 , 2015 increased $ 114.4 million , or 7.3 percent , compared to the prior year . the increase was due to an increase of $ 162.9 million for ocean transportation , partially offset by a decrease of $ 48.5 million for logistics . operating income during the year ended december 31 , 2015 increased $ 56.3 million , or 40.2 percent , compared to the prior year . the increase was due to an increase of $ 56.7 million for ocean transportation , partially offset by a decrease of $ 0.4 million for logistics . the reasons for changes in operating revenue , operating costs and expenses , and operating income are described below , by business segment , in the analysis of operating revenue and income by segment . income tax expense during the year ended december 31 , 2015 was $ 74.8 million , or 42.1 percent , of income before income taxes , as compared to $ 51.9 million , or 42.3 percent
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as of december 31 , 2015 , our aggregate ownership interests in nustar energy consisted of the following : the 2 % general partner interest ; 100 % of the incentive distribution rights issued by nustar energy , which entitle us to receive increasing percentages of the cash distributed by nustar energy , currently at the maximum percentage of 23 % ; and 10,252,660 common units of nustar energy representing a 12.9 % limited partner interest . we account for our ownership interest in nustar energy using the equity method . therefore , our financial results reflect a portion of nustar energy 's net income based on our ownership interest . we have no separate operating activities apart from those conducted by nustar energy and therefore generate no revenues from operations . nustar energy is engaged in the transportation of petroleum products and anhydrous ammonia , the terminalling and storage of petroleum products and the marketing of petroleum products . nustar energy has terminal and storage facilities in the united states , canada , mexico , the netherlands , including st. eustatius in the caribbean , and the united kingdom . nustar energy 's partnership agreement requires that it distribute all โ available cash โ to its partners each quarter , and this term is defined in its partnership agreement as cash on hand at the end of the quarter , plus certain permitted borrowings made subsequent to the end of the quarter , less cash reserves determined by nustar energy 's board of directors . similarly , we are 29 required by our limited liability company agreement to distribute all of our available cash at the end of each quarter , less reserves established by our board of directors . on january 2 , 2015 , nustar energy acquired full ownership of a refined products terminal in linden , nj , for $ 142.5 million ( the linden acquisition ) . prior to the acquisition , the terminal operated as a joint venture between nustar energy and linden holding corp , with each party owning 50 % . on february 26 , 2014 , nustar energy sold its remaining 50 % ownership interest in nustar asphalt llc ( the 2014 asphalt sale ) to lindsay goldberg llc , a private investment firm . effective february 27 , 2014 , nustar asphalt llc changed its name to axeon specialty products llc ( axeon ) . on january 1 , 2013 , nustar energy sold its fuels refinery in san antonio , texas and related assets for approximately $ 117.0 million ( the san antonio refinery sale ) . 30 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > nustar energy expects first quarter 2016 results for its fuels marketing segment to be lower than the first quarter 2015 and full-year 2016 results in this segment to be comparable or higher than 2015. however , earnings in this segment , as in any margin-based business , are subject to many factors that can increase or reduce margins , which may cause the segment 's actual results to vary significantly from nustar energy 's forecast . nustar energy 's outlook for the partnership , both overall and for any of its segments , may change , as nustar energy bases its expectations on its continuing evaluation of a number of factors , many of which are outside its control , including the price of crude oil , the state of the economy and the capital markets , changes to refinery maintenance schedules and unplanned refinery downtime , supply of and demand for crude oil , refined products and anhydrous ammonia , demand for its transportation and storage services and changes in laws or regulations affecting its assets . 35 liquidity and capital resources general our cash flows consist of distributions from nustar energy on our partnership interests , including the incentive distribution rights that we own . due to our ownership of nustar energy 's incentive distribution rights , our portion of nustar energy 's total distributions may exceed our ownership interest in nustar energy . our primary cash requirements are for distributions to members , capital contributions to maintain our 2 % general partner interest in nustar energy in the event that nustar energy issues additional units , debt service requirements , if any , benefit plan funding and general and administrative expenses . in addition , because nustar gp , llc , a wholly owned subsidiary of nustar gp holdings , elected to be treated as a taxable entity in august 2006 , we may be required to pay income taxes , which may exceed the amount of tax expense recorded in the consolidated financial statements . we expect to fund our cash requirements primarily with the quarterly cash distributions we receive from nustar energy and borrowings under our revolving credit facility , if necessary . additionally , nustar energy reimburses us for all costs incurred on its behalf , which are primarily employee-related costs . cash distributions from nustar energy nustar energy distributes all of its available cash within 45 days following the end of each quarter based on the partnership interests outstanding as of a record date that is set after the end of each quarter . the following table reflects the cash distributions earned for the periods shown with respect to our ownership interests in nustar energy and our incentive distribution rights : replace_table_token_11_th cash flows for the years ended december 31 , 2015 , 2014 and 2013 cash distributions received from nustar energy were $ 96.0 million for the year ended december 31 , 2015 , which we used primarily to fund distributions to our unitholders totaling $ 93.6 million . cash distributions received from nustar energy were $ 96.0 million for the year ended december 31 , 2014 , which we used primarily to fund distributions to our unitholders totaling $ 93.1 million . story_separator_special_tag we also received $ 7.2 million in proceeds from the exercise of unit options in 2014. cash distributions received from nustar energy were $ 96.1 million for the year ended december 31 , 2013 , which we used primarily to fund distributions to our unitholders totaling $ 92.9 million . we borrowed $ 26.0 million from our revolving credit facility during 2013 , mainly to repay $ 18.5 million on our previous revolving credit facility and to repay $ 7.5 million to nustar energy for employee benefits and related costs . credit facility borrowings under our revolving credit facility are used to fund capital contributions to nustar energy to maintain our 2 % general partner interest when nustar energy issues additional common units and to meet other liquidity and capital resource requirements . our revolving credit facility dated june 28 , 2013 , as most recently amended on june 17 , 2015 , will mature on june 27 , 2016 and has a borrowing capacity of up to $ 50.0 million , of which , up to $ 10.0 million may be available for letters of credit . our obligations under our revolving credit facility are guaranteed by riverwalk holdings , llc ( riverwalk ) , a wholly owned subsidiary . riverwalk pledged 1,792,918 nustar energy units that it owns to secure its guarantee . as of december 31 , 2015 , we had outstanding borrowings of $ 26.0 million and availability of $ 24.0 million for borrowings under our revolving credit facility . interest on our revolving credit facility is based upon , at our option , either an alternative base rate or a libor-based rate . as of december 31 , 2015 , the interest rate was 2.4 % . our management believes that we are in compliance with the covenants of the revolving credit facility as of december 31 , 2015 . we are in discussions with the 36 lenders to renew or replace our revolving credit facility . please refer to note 10 of the notes to consolidated financial statements in item 8 . โ financial statements and supplementary data โ for a detailed discussion on our revolving credit facility . cash distributions to unitholders our limited liability company agreement requires that , within 50 days after the end of each quarter , we distribute all of our available cash to the holders of record of our units on the applicable record date . available cash is defined as all cash on hand at the end of any calendar quarter , less the amount of cash reserves necessary or appropriate , as determined in good faith by our board of directors , to fund debt we may incur , if any , general and administrative expenses , future distributions and other miscellaneous uses of cash . the following table shows our cash distributions applicable to the period in which the distributions were earned : replace_table_token_12_th pension and other postretirement benefit funded status during 2015 , we contributed $ 8.3 million to nustar gp llc 's pension and postretirement benefit plans . approximately $ 8.4 million is expected to be contributed to these pension and postretirement benefit plans in 2016 , which principally represents contributions either required by regulations or laws or , with respect to unfunded plans , necessary to fund current benefits . we have not disclosed pension and postretirement funding beyond 2016 as the funding can vary from year to year based upon changes in the fair value of the plan assets and actuarial assumptions . funding for these plans will be provided by nustar energy . contingencies we are not currently a party to any material legal proceedings and have not recorded any accruals for loss contingencies . nustar energy is a party to claims and legal proceedings arising in the ordinary course of its business , which it believes are not material to its financial position or results of operations . however , due to the inherent uncertainty of litigation , there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on nustar energy 's results of operations and ability to pay distributions , which would impact our results of operations and ability to pay distributions . related party transactions agreements with nustar energy pursuant to a services agreement between nustar gp , llc and nustar energy , nustar energy has reimbursed nustar gp , llc for furnishing administrative and certain operating services necessary to conduct the business of nustar energy . please refer to note 5 of the notes to consolidated financial statements in item 8 . โ financial statements and supplementary data โ for a more detailed discussion of agreements with nustar energy . employee benefit plans and unit-based compensation as of december 31 , 2015 , we sponsored the following employee benefit plans , among others : the nustar thrift plan ( the thrift plan ) , a qualified employee profit-sharing plan ; the nustar pension plan , a qualified non-contributory defined benefit pension plan ; the nustar excess thrift plan , a benefit plan to those employees whose compensation and or annual contributions under the thrift plan are subject to the limitations applicable to qualified retirement plans ; the nustar excess pension plan , a benefit plan to a select group of management or other highly compensated employees ; and the nustar gp , llc retiree welfare benefits plan , a medical benefits plan for certain retired employees . as of december 31 , 2015 , we had the following long-term incentive plans : the fourth amended and restated 2000 long-term incentive plan , under which nustar gp , llc may award up to 3,250,000 nustar energy ( ns ) common units ; the 2006 long-term incentive plan , under which nustar gp holdings may award up to 2,000,000 nustar gp holdings ( nsh ) units .
| 32 year ended december 31 , 2014 compared to year ended december 31 , 2013 financial highlights ( thousands of dollars , except unit and per unit data ) replace_table_token_8_th the following table summarizes nustar energy 's statement of income ( loss ) data : replace_table_token_9_th nustar energy 's segment operating income increased $ 371.0 million for the year ended december 31 , 2014 , compared to the year ended december 31 , 2013 , mainly due to an operating loss of $ 127.5 million in nustar energy 's storage segment in 2013 , which included a goodwill impairment charge of $ 304.5 million . nustar energy 's segment operating income in the pipeline segment increased $ 36.9 million for the year ended december 31 , 2014 compared to the prior year , mainly due to increased throughputs on their eagle ford system . nustar energy 's fuels marketing segment operating income increased by $ 24.9 million for the year ended december 31 , 2014 , compared to the prior year , mainly due to improved product margins and lower operating expense in their bunker fuel operations . additionally , nustar energy recorded equity in earnings of joint ventures of $ 4.8 million for the year ended december 31 , 2014 , compared to a loss in equity of joint ventures of $ 40.0 million for the year ended december 31 , 2013 , primarily due to losses from nustar energy 's investment in axeon in 2013 . 33 nustar energy 's loss from discontinued operations decreased $ 95.4 million for the year ended december 31 , 2014 , compared to the prior year , mainly due to an asset impairment charge of $ 102.5 million in 2013 associated with certain storage assets . therefore , nustar energy reported net income of $ 210.4 million for the year ended december 31 , 2014 , compared to a loss of $ 284.7 million for the year ended december 31 , 2013. equity in earnings ( loss ) of nustar energy the following table summarizes our equity in earnings ( loss ) of nustar energy : replace_table_token_10_th for the year ended december 31 , 2014 , nustar energy reported net income per unit applicable to limited partners of $ 2.10 , compared to a net loss of $ 4.00 per unit for the year ended december 31 , 2013. as our results are based on nustar energy 's results , we reported equity in earnings for
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the decrease in non-employee director fees is attributed to the settlement terms of a derivative and class action complaint approved by the court of chancery of the state of delaware on july 27 , 2017 , pursuant to which our former non-employee directors agreed to pay or cause to be paid $ 1,500 to us , which non-recurring amount was applied against non-employee director fees during the fiscal quarter of fiscal 2018. these fiscal 2018 decreases in sg & a expenses were partially offset by non-recurring costs related to the write-off of a long-term equipment deposit , severance and other certain non-recurring costs associated with the transition of our business to a dedicated cdmo . 28 operating loss operating loss was $ 20,638 , or a negative 38.5 % of revenue , for fiscal 2018 compared to an operating income of $ 1,292 , or a 2.2 % of revenue , in fiscal 2017. the $ 21,930 decrease was attributable to a decline in gross profit of $ 22,295 and an sg & a decrease of $ 1,623 , partially offset by restructuring charges of $ 1,258 in fiscal 2018 , as noted above . discontinued operations as a result of the sale of our r84 and ps-targeting technologies in september 2018 and february 2018 , respectively ( as described in note 10 to the accompanying consolidated financial statements ) , the abandonment of our remaining research and development assets , and the strategic shift in our corporate direction to focus solely on our cdmo business , the operating results of our former research and development segment have been excluded from continuing operations and reported as income ( loss ) from discontinued operations , net of tax , in the accompanying consolidated financial statements for all periods presented . the gains of $ 1,000 and $ 8,000 , respectively , which were recorded in connection with the aforementioned sales of our r84 and ps-targeting technologies , which are included in income ( loss ) from discontinued operations , net of tax , in the accompanying consolidated statements of operations and comprehensive loss for the fiscal years ended april 30 , 2019 and 2018 , respectively . critical accounting policies our discussion and analysis of our consolidated financial position and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states ( โ gaap โ ) . the preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosures . we review our estimates and assumptions on an ongoing basis . we base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may vary from what we anticipate , and different assumptions or estimates about the future could change our reported results . while our significant accounting policies are more fully described in note 2 to the accompanying consolidated financial statements , we believe the following accounting policies to be critical to the assumptions and estimates used in the preparation of our consolidated financial statements . revenue recognition on may 1 , 2018 , we adopted accounting standards update ( โ asu โ ) 2014-09 , revenue from contracts with customers ( topic 606 ) ( codified as โ asc 606 โ ) , using the modified retrospective method applied to all contracts not completed as of may 1 , 2018. under the modified retrospective method , results for reporting periods beginning after may 1 , 2018 are presented under asc 606 , while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under the accounting standards in effect for those periods . the cumulative effect of adopting asc 606 resulted in a one-time adjustment of $ 2,739 to the opening balance of accumulated deficit which is reflected in the accompanying consolidated statements of stockholders ' equity for the fiscal year ended april 30 , 2019. the cumulative effect adjustment relates to the recognition of revenue and related costs for customer contracts that transfer goods or services over time . under asc 606 , the timing of the recognition of revenue and the related cost of revenue associated with goods or services provided to customers with no alternative use are recognized over time utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation . under these customer contracts the customer retains control of the product as it is being created or enhanced by our services and or we are entitled to compensation for progress to date that includes an element of profit margin . our revenues derived from contract manufacturing services provided under our customer contracts are disaggregated into the following revenue streams . 29 manufacturing revenue the manufacturing revenue stream generally represents revenue from the manufacturing of customer product ( s ) derived from mammalian cell culture covering clinical through commercial manufacturing runs . under a manufacturing contract , a quantity of manufacturing runs are ordered and the product is manufactured according to the customer 's specifications and typically only one performance obligation is included . each manufacturing run represents a distinct service that is sold separately and has stand-alone value to the customer . the product ( s ) are manufactured exclusively for a specific customer and have no alternative use . the customer retains control of their product during the entire manufacturing process and can make changes to the process or specifications at their request . under these agreements , we are entitled to consideration for progress to date that includes an element of profit margin . story_separator_special_tag revenue associated with this stream is recognized over time utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation . process development revenue the process development revenue stream generally represents revenue from non-manufacturing related services associated with the custom development of a manufacturing process and analytical methods for a customer 's product . under a process development contract , the customer owns the product details and process , which has no alternative use . these process development projects are customized to each customer to meet their specifications and typically only one performance obligation is included . each process represents a distinct service that is sold separately and has stand-alone value to the customer . the customer also retains control of their product as the product is being created or enhanced by our services and can make changes to their process or specifications upon request . revenue associated with this stream is recognized over time utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost of the performance obligation . the timing of revenue recognition , billings and cash collections results in billed trade receivables , contract assets ( unbilled receivables ) , and contract liabilities ( customer deposits and deferred revenue ) . contract assets are recorded when our right to consideration is conditioned on something other than the passage of time . contract assets are reclassified to trade receivables on the balance sheet when our rights become unconditional . contract liabilities represent customer deposits and deferred revenue billed and or received in advance of our fulfillment of performance obligations . contract liabilities will convert to contract manufacturing revenue as we perform our obligations under the contract . we apply the practical expedient available under asc 606 that permits us not to disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less . in addition , we currently do not have any unsatisfied performance obligations for contracts greater than one year . costs incurred to obtain a contract are not material . these costs are generally employee sales commissions , which are expensed when incurred and included in selling , general and administrative expense in the accompanying condensed consolidated statements of operations and comprehensive loss . prior to the adoption of asc 606 , revenue was generally recognized when all of the following criteria are met : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or services have been rendered , ( iii ) the seller 's price to the buyer is fixed or determinable , and ( iv ) collectability is reasonably assured . stock-based compensation we account for stock options , restricted stock units and other stock-based awards granted under our equity compensation plans in accordance with the authoritative guidance for stock-based compensation . the estimated fair value of stock options granted to employees in exchange for services is measured at the grant date , using a fair value based method , such as a black-scholes option valuation model , and is recognized as expense on a straight-line basis over the requisite service periods . the fair value of restricted stock units is measured at the grant date based on the closing market price of our common stock on the date of grant , and is recognized as expense on a straight-line basis over the period of vesting . forfeitures are recognized as a reduction of stock-based compensation expense as they occur . as of april 30 , 2019 , there were no outstanding stock-based awards with market or performance conditions . 30 the estimated fair value of stock options are measured at the grant date , using a fair value based method , such as a black-scholes option valuation model , and is amortized as compensation expense on a straight-line basis over the requisite service period of the award , which is generally the vesting period . the use of a valuation model requires us to make certain estimates and assumptions with respect to selected model inputs . the expected volatility is based on the daily historical volatility of our common stock covering the estimated expected term . the expected term of options granted reflects actual historical exercise activity and assumptions regarding future exercise activity of unexercised , outstanding options . the risk-free interest rate is based on u.s. treasury notes with terms within the contractual life of the option at the time of grant . the expected dividend yield assumption is based on our expectation of future dividend payouts . we have never declared or paid any cash dividends on our common stock and currently do not anticipate paying such cash dividends . if factors change and we employ different assumptions in the determination of fair value in future periods , the stock-based compensation expense that we record may differ significantly from what we have recorded in the current period . there are a number of factors that affect the amount of stock-based compensation expense , including the number of employee options granted during subsequent fiscal years , the price of our common stock on the date of grant , the volatility of our stock price , the estimate of the expected life of options granted and the risk-free interest rates . liquidity and capital resources the accompanying consolidated financial statements have been prepared assuming we will continue as a going concern , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . at april 30 , 2019 , we had $ 32,351 in cash and cash equivalents . our ability to fund our operations is dependent on the amount of cash on hand and our ability to generate positive cash flow to sustain our current operations .
| the net change in revenue was attributed to the following components , represented as a percentage of revenue : attributable to % of revenue net increase in revenue from the adoption of asc 606 24.7 % net decrease in revenue from our , historically , two largest customers due to a reduction in manufacturing demand during fiscal 2019 , excluding the impact of the adoption of asc 606 ( 39.9 % ) net change in revenues from all other customers , excluding the impact of the adoption of asc 606 15.2 % total 0.0 % gross profit ( loss ) gross profit was $ 7,224 in fiscal 2019 compared to a gross loss of $ 2,924 in fiscal 2018 , an increase of $ 10,148 primarily due to the variability of manufacturing costs from product to product . gross margins were a positive 13.5 % and a negative 5.5 % , respectively . excluding the $ 3,500 favorable impact from the adoption of asc 606 , the increase in gross profit was attributable to decreased manufacturing labor and overhead costs and the variability of manufacturing costs from product to product . selling , general and administrative expenses sg & a expenses were $ 12,846 in fiscal 2019 compared to $ 16,456 in fiscal 2018 , a decrease of $ 3,610 or 22 % . as a percentage of revenue , sg & a expenses for the fiscal years 2019 and 2018 were 24.0 % and 30.7 % , respectively . the net decrease in sg & a expenses were attributed to the following components : attributable to costs associated with the transition of our business to a dedicated cdmo : increase from settlement of a derivative and class action complaint resolved during the first quarter of fiscal 2018 $ 1,500 decrease in payroll and related costs ( 2,298 ) decrease in legal and other professional consulting fees ( 1,298 ) write-off of a long-term equipment deposit ( 1,023 ) decrease in administrative facility costs ( 927 ) net change in all other non-recurring sg & a expenses ( 397 ) subtotal of net change in sg & a expenses associated with business transition $ ( 4,443 ) sg & a expenses : increase in bonus related to achievement level of corporate goals $ 657 increase in stock-based compensation 301 net change in all other sg & a expenses ( 125 ) subtotal of net change in sg & a expenses $ 833 total $ ( 3,610 ) 27 restructuring charges in fiscal 2018 during fiscal year 2018 , we incurred restructuring charges of $ 1,588 directly related to a restructuring plan we
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we continued to manage our cost structure down by taking restructure actions during the second and fourth quarters of 2013. we are focusing our research and development efforts in our strategic growth markets , namely new programming technology , automated programming systems for the manufacturing environment and software . we continue to focus on extending the capabilities and support for our product lines and supporting the latest semiconductor devices , including nand flash , e-mmc , and microcontrollers on our newer products . in september 2013 , we announced our new psv7000 , data i/o 's most advanced programming system which can cut the cost of programming by up to 50 % and represents new capabilities to handle and program small parts . our customer focus has been on strategic high volume manufacturers in key market segments like wireless and consumer electronics , automotive electronics and industrial controls as well as programming centers . business restructuring progress as a result of the business downturn we experienced in the second half of 2011 and in 2012 , as well as the uncertain business outlook at the time , we took restructuring actions in september 2012 to reduce quarterly operating expenses and production costs . these actions included reductions in personnel and the use of contractors , professionals , and consultants , as well as focusing our development efforts on a smaller number of projects . the net restructuring charge in 2012 associated with these actions was $ 207,000 and was primarily related to severance . the remaining 2012 restructuring actions were completely paid out during the first quarter of 2013. during the second quarter of 2013 , we took additional restructuring actions to reduce our excess office space and eliminate certain job positions . these actions resulted in restructuring costs of $ 642,000 for the second quarter . the positions eliminated will allow us to have the flexibility to add other critical positions or change fixed to variable costs through outsourcing . the net effect of the space and personnel reductions , offset in part by the other planned additions , will be to reduce annual operating expenses by approximately $ 300,000 and these actions have been fully implemented . 19 during the fourth quarter of 2013 , we took additional restructuring actions focused primarily on reducing layers of management and moving management closer to sales channels and customers . the restructure actions eliminate certain job positions and in some cases allow the company to have the flexibility to add other critical positions . these actions resulted in restructuring costs of $ 541,000 for the fourth quarter . the net effect of the restructure actions , offset in part by planned personnel additions , will be to reduce annual operating expenses by approximately $ 750,000 when fully implemented by the end of the first quarter of 2014. the portion of the restructure reserve expected to be paid during 2014 is $ 723,000. the long term portion is $ 150,000 and relates to the lease abandonment payments that are expected to be completely paid by july 2016. critical accounting policy judgments and estimates the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america requires that we make estimates and judgments , which affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to sales returns , bad debts , inventories , intangible assets , income taxes , warranty obligations , restructuring charges , contingencies such as litigation and contract terms that have multiple elements and other complexities typical in the capital equipment industry . we base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements : revenue recognition : we recognize revenue at the time the product is shipped . we have determined that our programming equipment has reached a point of maturity and stability such that product acceptance can be assured by testing at the factory prior to shipment and that the installation meets the criteria to be considered a separate element . these systems are standard products with published product specifications and are configurable with standard options . the evidence that these systems could be deemed as accepted was based upon having standardized factory production of the units , results from batteries of tests of product performance to our published specifications , quality inspections and installation standardization , as well as past product operation validation with the customer and the history provided by our installed base of products upon which the current versions were based . the revenue related to products requiring installation that is perfunctory is recognized at the time of shipment . installation that is considered perfunctory includes any installation that can be performed by other parties , such as distributors , other vendors , or in most cases the customers themselves . this takes into account the complexity , skill and training needed as well as customer expectations regarding installation . we enter into multiple deliverables arrangements that arise during the sale of a system that includes an installation component , a service and support component and a software maintenance component . we allocate the value of each element based on relative selling prices . relative selling price is based on the selling price of the standalone system . for the installation and service and support components , we use what we charge to distributors who perform these components . story_separator_special_tag for software maintenance components , we use what we charge for annual software maintenance renewals after the initial year the system is sold . revenue is recognized on the system sale based on shipping terms , installation revenue is recognized after the installation is performed , and hardware service and support and software maintenance revenue is recognized ratably over the term of the agreement , typically one year . when we sell software separately , we recognize software revenue upon shipment provided that only inconsequential obligations remain on our part and substantive acceptance conditions , if any , have been met . we recognize revenue when persuasive evidence of an arrangement exists , shipment has occurred , the price is fixed or determinable , the buyer has paid or is obligated to pay , collectability is reasonably assured , substantive acceptance conditions , if any , have been met , the obligation is not contingent on resale of the product , the buyer 's obligation would not be changed in the event of theft , physical destruction or damage to the product , the buyer acquiring the product for resale has economic substance apart from us and we do not have significant obligations for future performance to directly bring about the resale of the product by the buyer . we establish a reserve for sales returns based on historical trends in product returns and estimates for new items . 20 we transfer certain products out of service from their internal use and make them available for sale . the products transferred are our standard products in one of the following areas : service loaners , rental or test units ; engineering test units ; or sales demonstration equipment . once transferred , the equipment is sold by our regular sales channels as used equipment inventory . these product units often involve refurbishing and an equipment warranty , and are conducted as sales in our normal and ordinary course of business . the transfer amount is the product unit 's net book value and the sale transaction is accounted for as revenue and cost of goods sold . allowance for doubtful accounts : we base the allowance for doubtful accounts receivable on our assessment of the collectability of specific customer accounts and the aging of accounts receivable . if there is deterioration of a major customer 's credit worthiness or actual defaults are higher than historical experience , our estimates of the recoverability of amounts due to us could be adversely affected . inventory : inventories are stated at the lower of cost or market . adjustments are made to standard cost , which approximates actual cost on a first-in , first-out basis . we estimate reductions to inventory for obsolete , slow-moving , excess and non-salable inventory by reviewing current transactions and forecasted product demand . we evaluate our inventories on an item by item basis and record inventory adjustments accordingly . if there is a significant decrease in demand for our products or there is a higher risk of inventory obsolescence because of rapidly changing technology and customer requirements , we may be required to increase our inventory adjustments and our gross margin could be adversely affected . warranty accruals : we accrue for warranty costs based on the expected material and labor costs to fulfill our warranty obligations . if we experience an increase in warranty claims , which are higher than our historical experience , our gross margin could be adversely affected . tax valuation allowances : given the uncertainty created by our history of losses , as well as the current uncertain economic outlook for our industry and capital spending , we expect to continue to limit the recognition of net deferred tax assets and accounting for uncertain tax positions and maintain the tax valuation allowances . at the current time , we expect , therefore , that reversals of the tax valuation allowance will take place only as we are able to take advantage of the underlying tax loss or other attributes in carry forward . the transfer pricing and expense or cost sharing arrangements are complex areas where judgments , such as the determination of arms-length arrangements , can be subject to challenges by different tax jurisdictions . share-based compensation : we account for share-based awards made to our employees and directors , including employee stock option awards and restricted stock awards , using the estimated grant date fair value method of accounting . we estimate the fair value using the black-scholes valuation model , which requires the input of highly subjective assumptions , including the option 's expected life and the price volatility of the underlying stock . the expected stock price volatility assumption was determined using the historical volatility of our common stock . changes in the subjective assumptions required in the valuation model may significantly affect the estimated value of the awards , the related stock-based compensation expense and , consequently , our results of operations . employee stock purchase plan ( โ espp โ ) shares were issued under provisions that do not require us to record any equity compensation expense . 21 story_separator_special_tag face= '' calibri , sans-serif '' style= '' font-size : 10pt '' > $ 13,837 at december 31 , 2013 , our principal sources of liquidity consisted of existing cash and cash equivalents . our working capital decreased by $ 1,593,000 for the twelve month period ending december 31 , 2013. our current ratio was 3.8 and 4.6 for december 31 , 2013 and 2012 , respectively . for the twelve month period ending december 31 , 2013 , our cash position declined $ 102,000 primarily due to funding the loss , partially offset by other working capital changes and non-cash expenses .
| in addition to product development , a significant part of r & d spending is on creating software and support for new devices introduced by the semiconductor companies . we are focusing our r & d efforts on solutions for strategic growth markets , including new programming technology , automated programming systems for the manufacturing environment and extending the capabilities and support for our programmer architecture . our r & d spending fluctuates based on the number , type , and the development stage of our product initiatives and projects . 22 selling , general and administrative replace_table_token_7_th selling , general and administrative ( โ sg & a โ ) expenses decreased $ 1,072,000 for the year ended december 31 , 2013 compared to 2012. the decrease was primarily related to the ceo search firm and separation pay expense of $ 496,000 in 2012 ; savings from personnel and contractor reductions from the september 2012 restructuring actions ; and cost control actions . partially offsetting the savings were higher commissions , primarily related to the sales volume , as well as incentive pay in 2013 , which we did not have in 2012. impairment charge in 2012 and again in 2013 , year-end impairment evaluations were performed . we evaluated changes in azido projects and projected cash flows which decreased or eliminated our expected future cash flows related to azido technology 's use or disposition . based on these evaluations , impairment charges of $ 31,000 and $ 2.3 million were taken against this software technology for the years ending december 31 , 2013 and 2012 , respectively . as of december 31 , 2013 , the azido technology net carrying value is $ 0. interest replace_table_token_8_th interest income decreased by $ 131,000 for the twelve month period ending december 31 , 2013 compared to the same period in 2012 primarily due to interest received related to foreign income tax refunds that occurred in 2012. income taxes replace_table_token_9_th income tax benefit decreased by $ 319,000 for the twelve month period ending december 31 , 2013 compared to 2012 primarily from refund settlements of foreign income taxes during 2012. the effective tax rate differed from the statutory tax rate
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therefore , steps such as additional patent applications , confidentiality and non-disclosure agreements , as well as other security measures are generally taken . to enforce or protect intellectual property rights , litigation or threatened litigation commonly occurs . fiscal 2013 overview the following is a summary of our financial results for the year ended june 30 , 2013 : our year-over-year revenues increased 19 % to $ 1.4 billion . gross margin improved from 35 % in fiscal 2012 to 38 % in fiscal 2013 . gross profit increased by $ 113.8 million to $ 523.3 million . operating income was $ 96.5 million in fiscal 2013 compared to $ 39.3 million in fiscal 2012 . net income per diluted share was $ 0.74 in fiscal 2013 compared to $ 0.39 for fiscal 2012 . combined cash , cash equivalents and short-term investments increased to $ 1.0 billion at june 30 , 2013 compared to $ 744.5 million at june 24 , 2012 . cash provided by operating activities was $ 285.2 million for fiscal 2013 , compared to $ 242.3 million for fiscal 2012. inventory increased to $ 197.0 million at june 30 , 2013 compared to $ 188.8 million at june 24 , 2012 . we spent $ 77.5 million on purchases of property and equipment in fiscal 2013 compared to $ 95.0 million in fiscal 2012 . 28 business outlook we project that the markets for our products will remain highly competitive during fiscal 2014 . we anticipate focusing on the following key areas , among others , in response to this competitive environment : lead with innovation and drive to cost parity . we continue to work on developing new leds , led lighting systems , and power and rf devices to deliver improved value that approaches cost parity with existing technology and solutions . we believe that as our technology approaches cost parity , the market for these products will expand significantly . build the cree brand . we are working to build the cree brand in both the commercial and consumer lighting segments by expanding our product offerings and continuing to invest in marketing the value of the cree led bulb and led lighting directly to the end user . focus on select market segments to drive led adoption . in addition to our broad sales strategies , we are focused on a number of market segments where we can upgrade existing lighting and drive led adoption with a combination of new product offerings , short payback , expanded services and innovative channel approaches . translate product innovation into revenue and profit growth . we target revenue growth from new products and increased led adoption and profit growth from the combination of higher sales , lower cost products and operating expense leverage . story_separator_special_tag 2012 , and 2011 , respectively . power and rf products revenue increased approximately 22 % to $ 89.4 million in fiscal 2013 from $ 73.0 million in fiscal 2012 . this increase was primarily the result of higher rf product unit sales in fiscal 2013 . the overall asp for power and rf products decreased by 9 % in fiscal 2013 compared to fiscal 2012 primarily due to the sale of new lower cost power and rf products . power and rf products revenue decreased approximately 25 % to $ 73.0 million in fiscal 2012 from $ 97.6 million in fiscal 2011 . this decrease was primarily due to a lower demand in the solar inverter market and the delay of rf orders related to military programs . power and rf products overall asp decreased by 11 % in fiscal 2012 compared to fiscal 2011 due to change in product mix . unallocated revenue all of our revenue is allocated to our reportable segments . the company 's codm does not review inter-segment revenue when evaluating performance and allocating resources to each segment , and inter-segment revenue is not included in the segment revenues presented above . as such , total segment revenue in the table above is equal to the company 's consolidated revenue . gross profit and gross margin gross profit and gross margin for fiscal 2013 , 2012 and 2011 were as follows ( in thousands , except percentages ) : replace_table_token_6_th our consolidated gross profit increased 28 % to $ 523.3 million in fiscal 2013 from $ 409.5 million in fiscal 2012 . our consolidated gross margin increased to 38 % in fiscal 2013 from 35 % in fiscal 2012 . these consolidated gross profit and gross margin increases were due to the improvements in our led products and our power and rf products business segments , primarily due to higher volume of units sold , factory cost reductions , the introduction of new lower cost products , and higher factory utilization . our consolidated gross profit decreased 6 % to $ 409.5 million in fiscal 2012 from $ 435.8 million in fiscal 2011. our consolidated gross margin decreased to 35 % in fiscal 2012 from 44 % in fiscal 2011. these consolidated gross profit and gross margin decreases were due to the decrease in led products and power and rf products gross profit , offset by an increase in lighting products gross profit . the 23 % decrease in led products gross profit was due to a competitive pricing environment and lower factory utilization . the 36 % decrease in power and rf products gross profit was due to reduced solar demand that resulted in lower factory utilization . the 337 % increase in lighting products gross profit was due to increased sales volume due to the ruud lighting acquisition , factory cost reductions and lower cost new product designs . led products segment gross profit and gross margin our led products gross profit was $ 344.6 million , $ 290.6 million , and $ 375.4 million for fiscal 2013 , 2012 , and 2011 , respectively . led products gross margin was 43 % , 38 % , and 46 % for fiscal 2013 , 2012 , and 2011 , respectively . story_separator_special_tag led products gross profit increased approximately 19 % to $ 344.6 million in fiscal 2013 from $ 290.6 million in fiscal 2012 , and led products gross margin increased to 43 % in fiscal 2013 from 38 % in fiscal 2012 . led products gross profit and gross margin 31 increased during fiscal 2013 due to factory cost reductions , the introduction of new lower cost products and higher factory utilization . these benefits more than offset the asp decline in fiscal 2013 as compared to fiscal 2012. led products gross profit decreased approximately 23 % to $ 290.6 million in fiscal 2012 from $ 375.4 million in fiscal 2011 , and led products gross margin decreased to 38 % in fiscal 2012 from 46 % in fiscal 2011 . led products gross profit and gross margin fell during fiscal 2012 due to a competitive pricing environment for led chips and components and lower factory utilization . lighting products segment gross profit and gross margin lighting products gross profit was $ 148.9 million , $ 103.4 million , and $ 23.7 million for fiscal 2013 , 2012 , and 2011 , respectively . lighting products gross margin was 30 % , 31 % , and 29 % for fiscal 2013 , 2012 , and 2011 , respectively . lighting products gross profit increased approximately 44 % to $ 148.9 million in fiscal 2013 from $ 103.4 million in fiscal 2012 , primarily due to an increase in the number of overall units sold . lighting products gross margin decreased to 30 % in fiscal 2013 from 31 % in fiscal 2012 , primarily due to a change in product mix . lighting products gross profit increased approximately 337 % to $ 103.4 million in fiscal 2012 from $ 23.7 million in fiscal 2011. lighting products gross margin increased to 31 % in fiscal 2012 from 29 % in fiscal 2011. lighting products gross profit and gross margin increased during fiscal 2012 due to a combination of increased sales volumes due to the ruud lighting acquisition , factory cost reductions and lower cost new product designs . power and rf products segment gross profit and gross margin power and rf products gross profit was $ 48.1 million , $ 32.1 million , and $ 49.8 million for fiscal 2013 , 2012 , and 2011 , respectively . power and rf products gross margin was 54 % , 44 % , and 51 % for fiscal 2013 , 2012 , and 2011 , respectively . power and rf products gross profit increased approximately 50 % to $ 48.1 million in fiscal 2013 from $ 32.1 million in fiscal 2012 . power and rf products gross margin increased to 54 % in fiscal 2013 from 44 % in fiscal 2012 . these gross profit and gross margin increases were due primarily to factory cost reductions , increased factory utilization , and higher sales of new lower cost products . these benefits more than offset the asp decline in fiscal 2013 as compared to fiscal 2012 . power and rf products gross profit decreased approximately 36 % to $ 32.1 million in fiscal 2012 from $ 49.8 million in fiscal 2011 . power and rf products gross margin decreased to 44 % in fiscal 2012 from 51 % in fiscal 2011 . power and rf products gross profit and gross margin decreased during fiscal 2012 due to lower sales volumes , primarily from reduced solar demand , which resulted in lower factory utilization . unallocated costs unallocated costs were $ 18.5 million , $ 16.6 million , and $ 13.2 million for fiscal 2013 , 2012 , and 2011 , respectively . these costs consist primarily of manufacturing employees ' stock-based compensation , expenses for profit sharing and quarterly or annual incentive plans , matching contributions under our 401 ( k ) plan and acquisition related costs . these costs are not allocated to the reportable segments ' gross profit because our codm does not review them regularly when evaluating segment performance and allocating resources . unallocated costs increased by $ 1.9 million in fiscal 2013 as compared to fiscal 2012 , primarily due to higher stock-based compensation and higher incentive compensation as a result of improved overall company performance . unallocated costs increased by $ 3.5 million in fiscal 2012 as compared to fiscal 2011 , primarily due to increases in stock-based compensation driven by the increase in employees and recognition of certain inventory charges related to the ruud lighting acquisition . these increases were partially offset by the reduction in incentive compensation as a result of lower operating performance for fiscal 2012. for further information on the allocation of costs to segment gross profit , refer to note 13 , `` reportable segments , '' in our consolidated financial statements included in item 8 of this annual report . research and development research and development expenses include costs associated with the development of new products , enhancements of existing products and general technology research . these costs consist primarily of employee salaries and related compensation costs , occupancy costs , consulting costs and the cost of development equipment and supplies . 32 the following sets forth our research and development expenses in dollars and as a percentage of revenues ( in thousands , except percentages ) : replace_table_token_7_th research and development expenses in fiscal 2013 increased 9 % to $ 155.9 million from $ 143.4 million in fiscal 2012 . this increase was primarily due to increased spending on research and development activities focused on new higher performance and lower cost led chips , led components , led lighting products and power and rf products . research and development expenses increased 25 % in fiscal 2012 to $ 143.4 million compared to $ 115.0 million in fiscal 2011 . the increase was primarily due to increased spending to support the transition to 150mm wafer capabilities as well as continued research and development activities focused on new led chips , led components , led lighting products and power and rf products .
| led products revenue increased approximately 6 % to $ 801.5 million in fiscal 2013 from $ 756.9 million in fiscal 2012. this increase was the result of an overall increase in the number of units sold , primarily from our newer products , partially offset by a decline in selling prices . the average selling prices , or asp , for led products decreased by 8 % in fiscal 2013 compared to fiscal 2012 , due primarily to sales of new lower cost products and competitive pricing pressure . led products revenue decreased approximately 6 % to $ 756.9 million in fiscal 2012 from $ 808.2 million in fiscal 2011. this decrease was primarily due to generally weaker demand and downward pricing pressure for our led chips and components . led products overall asp increased by 8 % in fiscal 2012 compared to fiscal 2011 due primarily to changes in product mix . lighting products segment revenue lighting products revenues represented approximately 36 % , 29 % , and 8 % of our total revenues for fiscal 2013 , 2012 and 2011 respectively . lighting products revenue was $ 495.1 million , $ 334.7 million , and $ 81.8 million for fiscal 2013 , 2012 , and 2011 respectively . lighting products revenue increased 48 % to $ 495.1 million in fiscal 2013 as compared to $ 334.7 million in fiscal 2012 . this increase was the result of an overall increase in the number of units sold , including sales from new and re-designed products , as well as recognizing a full year of sales in fiscal 2013 for products acquired from ruud lighting . lighting products overall asp decreased by 27 % in fiscal 2013 compared to fiscal 2012 due to a change in product mix . lighting products revenue increased 309 % to $ 334.7 million in fiscal 2012 as compared to $ 81.8 million in fiscal 2011 . this increase was primarily due to sales of products acquired from ruud lighting and an increase in the sales of our existing products . including the ruud lighting products
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one of our venture capital business segments focuses on ( 1 ) establishing a business incubator for start-up and high growth companies to support such companies during critical growth periods , which will include education and support services , and ( 2 ) searching the investment opportunities in selected start-up and high growth companies , which may generate significant returns to the company . our venture capital business focuses on companies located in south-east asia and east asia , including hong kong , malaysia , china , thailand and singapore . another venture capital business segment focuses on rental activities of commercial properties and the sale of investment properties . story_separator_special_tag > the impairment losses on other receivables were $ 24,070 and $ 0 for the years ended december 31 , 2019 and 2018 , respectively . impairment of goodwill and intangible assets for the year ended december 31 , 2019 , no impairment of goodwill or intangible assets were recorded . for the year ended december 31 , 2018 , impairment losses on goodwill were $ 892,137 and impairment losses on intangible assets were $ 105,000. the company performed impairment tests as of december 31 , 2019 and determined that there were no impairment of goodwill and intangible assets at december 31 , 2019. impairment of notes receivable-related party for the year ended december 31 , 2019 , no impairment was recorded . the impairment loss on notes receivable was $ 77,088 for the year ended december 31 , 2018. impairment of other investments as of december 31 , 2019 , no impairments of other investments were recorded . at december 31 , 2018 , the company determined that its investments in acorn group holdings limited and greenpro ksp holding group limited ( related parties ) were impaired and recorded an impairment loss on unconsolidated investments of $ 618,265 in 2018. in addition , during 2018 , the company made a deposit on a potential real estate acquisition that was subsequently cancelled . as of december 31 , 2018 , the deposit was not returned , and the company determined that the deposit was impaired and recorded an impairment loss on the deposit of $ 371,932 in 2018. as a result , total impairment losses were $ 990,197 for the year ended december 31 , 2018. fair value of common stock issued in connection with financing transaction for the year ended december 31 , 2019 , there were no shares of common stock issued in connection with a financing transaction . on july 18 , 2018 , the company sold 906,666 shares of the company 's common stock in a private placement to v1 group limited ( โ v1 group โ ) . the company determined the fair value of the 906,666 shares issued to v1 group was $ 6 per share based on the company 's contemporaneous public offering price , or $ 5,440,000. the company received a net of $ 800,000 from v1 group 's investment . the difference of $ 4,640,000 was recorded as an expense of the transaction for the year ended december 31 , 2018. attributable to noncontrolling interest the company recorded net income ( loss ) attributable to noncontrolling interest in the consolidated statements of operations for noncontrolling interests of consolidated subsidiaries . 36 at december 31 , 2019 , the consolidated financial statements include noncontrolling interests related to the company 's respective 60 % ownership of forward win international limited , yabez ( hong kong ) company limited and yabez business service ( sz ) company limited . the company recorded net loss attributable to noncontrolling interest of $ 4,929 for the year ended december 31 , 2019 and net income attributable to noncontrolling interest of $ 224,604 for the year ended december 31 , 2018. in 2018 , net income attributable to noncontrolling interests was primarily due to the share of its income allocated to noncontrolling interests from our consolidated subsidiary forward win international limited , which sells property located in hong kong . in 2019 , net loss attributable to noncontrolling interests was primarily due to a net loss recorded from forward win international limited and its share of loss allocated to the noncontrolling interests . net loss net losses were $ 1,349,478 and $ 8,325,163 for the year ended december 31 , 2019 and 2018 , respectively . the decrease in net loss in 2019 was mainly due to an increase in service revenue of $ 1,520,853 , a decrease in impairment losses of $ 2,040,352 , and a decrease in the fair value of common stock issued with financing transaction of $ 4,640,000 compared to 2018. there were no seasonal aspects that had a material effect on the financial condition or results of operations of the company . other than as disclosed elsewhere in this annual report , we are not aware of any trends , uncertainties , demands , commitments or events for the year ended december 31 , 2019 that are reasonably likely to have a material adverse effect on our financial condition , changes in our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources , or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions . off-balance sheet arrangements we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in our financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that are material to our stockholders as of december 31 , 2019. contractual obligations as of december 31 , 2019 , two of the company 's subsidiaries lease three offices story_separator_special_tag in hong kong under three separate non-cancellable operating leases , two of which have a term of three years commencing from october 15 , 2019 to october 14 , 2022 and from may 1 , 2018 to april 30 , 2021 , and one of which has a term of six months commencing from november 1 , 2019 to april 30 , 2020. one of the subsidiaries of the company leases an office in prc under a separate non-cancellable operating lease with a term of three years commencing from march 25 , 2019 to march 24 , 2022. another subsidiary of the company leases an office in malaysia under a separate non-cancellable operating lease with a term of one year commencing from april 1 , 2019 to march 31 , 2020. at december 31 , 2019 , the future minimum rental payments under these leases aggregate are approximately $ 541,588 and are due as follows : 2020 : $ 345,450 ; 2021 : $ 161,574 and 2022 : $ 34,564 , respectively . 37 related party transactions for the years ended december 31 , 2019 and 2018 , related party service income totaled $ 1,977,186 and $ 420,730 , respectively . for the years ended december 31 , 2019 and 2018 , related party expenses included in cost of services and general and administrative expenses totaled $ 486,587 and $ 143,088 , respectively . for the years ended december 31 , 2019 and 2018 , related party other income totaled $ 9,798 and $ 14,900 , respectively . for the year ended december 31 , 2019 , there were no impairments of related party investments . for the year ended december 31 , 2018 , impairment of related party investments totaled $ 618,265. the amount due from related parties was $ 61,623 and $ 95,794 as of december 31 , 2019 and 2018 , respectively . the amount due to related parties were $ 1,009,760 and $ 862,532 as of december 31 , 2019 and 2018 , respectively . our related parties are mainly those companies in which greenpro venture capital limited or greenpro resources limited owns a certain percentage of the shares of such companies , or those companies that the company can exercise significant influence over those companies in making financial and operating policy decisions . some of the related parties are either controlled by or under common control of mr. loke che chan , gilbert or mr. lee chong kuang , the director of the company . one of the related parties is controlled by ms. chen yanhong , the director of one of our subsidiaries . critical accounting policies and estimates use of estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements , and the reported amounts of revenues and expenses during the reporting period . significant accounting estimates include certain assumptions related to , among others , the allowance for doubtful accounts receivable , impairment analysis of real estate assets and other long-term assets including goodwill , valuation allowance on deferred income taxes , and the accrual of potential liabilities . actual results may differ from these estimates . revenue recognition the company follows the guidance of accounting standards codification ( asc ) 606 , revenue from contracts . asc 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts , which includes ( 1 ) identifying the contracts or agreements with a customer , ( 2 ) identifying our performance obligations in the contract or agreement , ( 3 ) determining the transaction price , ( 4 ) allocating the transaction price to the separate performance obligations , and ( 5 ) recognizing revenue as each performance obligation is satisfied . the company only applies the five-step model to contracts when it is probable that the company will collect the consideration it is entitled to in exchange for the services it transfers to its clients . the company 's revenue consists of revenue from providing business consulting and corporate advisory services ( โ service revenue โ ) , revenue from the sale of real estate properties , and revenue from the rental of real estate properties . impairment of long-lived assets long-lived assets primarily include real estate held for investment , real estate held for use , and equipment and intangible assets . in accordance with the provision of asc 360 , the company generally conducts its annual impairment evaluation to its long-lived assets , usually in the fourth quarter of each year , or more frequently if indicators of impairment exist , such as a significant sustained change in the business climate . the recoverability of long-lived assets is measured at the reporting unit level . if the total of the expected undiscounted future net cash flows is less than the carrying amount of the asset , a loss is recognized for the difference between the fair value and carrying amount of the asset . 38 recent accounting pronouncements refer to note 1 in the accompanying financial statements . liquidity and capital resources as of december 31 , 2019 , we had working capital deficiency of $ 2,078,026 as compared to working capital deficiency of $ 541,221 as of december 31 , 2018. the increase of working capital deficiency was mainly due to a decrease of cash and cash equivalents , prepaids and other current assets and deferred costs of revenue , and an increase of a short-term loan of $ 385,158 in 2019. as of december 31 , 2019 , we had total current assets of $ 1,798,245 consisting of cash and
| sale of properties for the year ended december 31 , 2019 , revenue from the sale of properties was $ 189,522 , which was derived from the sale of one property located in hong kong . for the year ended december 31 , 2018 , there was revenue of $ 1,368,220 generated from the sale of eight properties located in hong kong . as opportunities permit , management expects to continue to purchase and sell commercial real estate in near future . accordingly , we expect revenue and costs attributable to the sale of properties to fluctuate on a going forward basis . 34 total operating costs and expenses total operating costs and expenses were $ 6,075,907 and $ 8,432,359 for the years ended december 31 , 2019 and 2018 , respectively . they consist of cost of service revenue , cost of real estate properties sold , cost of rental revenue , general and administrative , impairment of goodwill and intangible assets and impairment of other investments , and impairment of other receivable . the losses from operations for the company for the years ended december 31 , 2019 and 2018 were $ 1,591,085 and $ 4,218,999 , respectively . the decrease in a loss from operations was mainly due to an increase in service revenue of $ 1,520,853 and a decrease in impairment losses of $ 2,040,352. cost of service revenue costs of revenue for provision of services were $ 1,191,301 and $ 998,783 for the years ended december 31 , 2019 and 2018 , respectively . it primarily consists of employee compensation and related payroll benefits , company formation cost and other professional fees directly attributable to cost related to the services rendered . 35 cost of real estate properties sold costs of revenue on properties sold were $ 137,205 and $ 1,019,790 for the years ended december 31 , 2019 and 2018 , respectively . it primarily consists of the purchase price of property , legal fees , improvement costs to the building structure , and other
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when the corporation determines a customer is unlikely to pay , a charge is recorded to bad debt expense in the income statement and the allowance for doubtful accounts is increased . when the corporation is reasonably certain the customer can not pay , the receivable is written off by removing the accounts receivable amount and reducing the allowance for doubtful accounts accordingly . as of december 31 , 2011 , there was approximately $ 209 million in outstanding accounts receivable and $ 0 million recorded in the allowance for doubtful accounts to cover potential future customer non-payments . however , if economic conditions were to deteriorate significantly or one of the corporation 's large customers declares bankruptcy , a larger allowance for doubtful accounts might be necessary . the allowance for doubtful accounts was approximately $ 0 million at year-end 2010 and $ 0 million at year-end 2009 . inventory valuation โ inventories are stated at the lower of cost or market . cost is principally determined using the last-in , first-out ( `` lifo '' ) method . the value of inventories on the lifo basis represented about 67 % , 77 % and 82 % of total inventories at december 31 , 2011 , january 1 , 2011 and january 2 , 2010 , respectively . if the first-in , first-out ( `` fifo '' ) method had been in use , inventories would have been $ 25.9 million , $ 23.8 million and $ 23.4 million higher than reported at december 31 , 2011 , january 1 , 2011 and january 2 , 2010 , respectively . long-lived assets - the corporation reviews long-lived assets for impairment as events or changes in circumstances occur indicating the amount of the asset reflected in the corporation 's balance sheet may not be recoverable . the corporation compares an estimate of undiscounted cash flows produced by the asset , or the appropriate group of assets , to the carrying value to determine whether impairment exists . the estimates of future cash flows involve considerable management judgment and are based upon the corporation 's assumptions about future operating performance . the actual cash flows could differ from management 's estimates due to changes in business conditions , operating performance and economic conditions . asset impairment charges associated with the corporation 's restructuring activities are discussed in restructuring related and impairment charges in the notes to consolidated financial statements . the corporation 's continuous focus on improving the manufacturing process tends to increase the likelihood of assets being replaced ; therefore , the corporation is regularly evaluating the expected useful lives of its equipment which can result in accelerated depreciation . goodwill and other intangibles โ the corporation evaluates its goodwill for impairment on an annual basis during the fourth quarter or whenever indicators of impairment exist . the corporation had seven reporting units within its office furniture and hearth products operating segments , which contained goodwill during the fourth quarter analysis . these reporting units constitute components for which discrete financial information is available and regularly reviewed by segment management . in september 2011 , the financial accounting standards board ( `` fasb '' ) issued guidance that simplified how entities test for goodwill impairment . this guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a two-step goodwill impairment test . the corporation early adopted this guidance for the annual impairment evaluation for certain reporting units during the fourth quarter of 2011 where the fair value was well in excess of carrying value in the prior years analysis . the corporation determined that based on relevant qualitative factors that it was more likely than not the fair values of the reporting units were greater than their carrying amount . therefore no further testing was performed on these reporting units . the qualitative factors considered included , but were not limited to , general economic conditions , outlook for the office furniture industry and recent and forecasted financial performance . the corporation prepared a fair value analysis for all other reporting units . determining the fair value of a reporting unit involves - 24 - the use of significant estimates and assumptions . the estimate of fair value of each reporting unit is based on management 's projection of revenues , gross margin , operating costs and cash flows considering historical and estimated future results , general economic and market conditions as well as the impact of planned business and operational strategies . the valuations employ present value techniques to measure fair value and consider market factors . management believes the assumptions used for the impairment test are consistent with those utilized by a market participant in performing similar valuations of its reporting units . a separate discount rate was utilized for each reporting unit with rates ranging from 10.0 % to 10.5 % . management bases its fair value estimates on assumptions they believe to be reasonable at the time , but such assumptions are subject to inherent uncertainty . actual results may differ from those estimates . in addition , for reasonableness , the corporation computed the fair value of the two reporting units using ebit multiples of market competitors , noting the fair value as determined by the discounted cash flow analysis was consistent with these estimates . if the fair value of the reporting unit is less than its carrying value , an additional step is required to determine the implied fair value of goodwill associated with that reporting unit . the implied fair value of goodwill is determined by first allocating the fair value of the reporting unit to all of its assets and liabilities and then computing the excess of the reporting unit 's fair value over the amounts assigned to the assets and liabilities . story_separator_special_tag if the carrying value of goodwill exceeds the implied fair value of goodwill , such excess represents the amount of goodwill impairment , and , accordingly such impairment is recognized . as a result of the review performed in the fourth quarter of 2011 , the corporation determined the fair value of its reporting units exceeds the carrying value and , therefore , no impairment of goodwill was recorded . the corporation recorded $ 7 million of impairment charges in 2009. the reporting unit impacted was an office furniture manufacturing unit acquired in 2008. the significant estimates and assumptions used in estimating future cash flows of the corporation 's reporting units are based on management 's view of longer-term broad market trends . management combines this trend data with estimates of current economic conditions in the u.s. , competitor behavior , the mix of products sales , commodity costs , wage rates , the level of manufacturing capacity , and the pricing environment . in addition , estimates of fair value are impacted by estimates of the market participant derived weighted average cost of capital . the corporation has one reporting unit in the office furniture segment where the fair value exceeds the carrying value by eleven percent . there is approximately $ 24 million of goodwill associated with this reporting unit . while management does not believe that impairment is probable , the performance of this business requires continued improvement in future periods to sustain its carrying value . holding the other valuation assumptions constant , a downward shift in future operating profits of ten percent across all periods from projected levels would indicate the carrying value of the business is in excess of the fair value as of the measurement date . the amount of any future impairment is dependent on the performance of the business which is dependent upon a number of variables which can not be predicted with certainty . goodwill of approximately $ 271 million remains on the consolidated balance sheet as of the end of fiscal 2011 . the corporation also determines the fair value of indefinite-lived trade names on an annual basis during the fourth quarter or whenever indication of impairment exists . the corporation performed its fiscal 2011 assessment of indefinite lived trade names during the fourth quarter . the estimate of the fair value of the trade names was based on a discounted cash flow model using inputs which included : projected revenues from management 's long-term plan , assumed royalty rates that could be payable if the trade names were not owned and a discount rate . as a result of the review , the corporation determined the fair value of all trade names exceed their carrying value . in 2010 the corporation recorded an impairment charge of $ 1.1 million upon the sale of a non-core business in the office furniture segment which was included in discontinued operations in the consolidated statements of income . the corporation recorded a $ 18 million impairment charge for certain office furniture trade names in 2009. a carrying value of all indefinite-lived trade names of approximately $ 41 million remains on the consolidated balance sheet at the end of fiscal 2011 . the corporation has definite-lived intangibles that are amortized over their estimated useful lives . impairment losses are recognized if the carrying amount of an intangible , subject to amortization , is not recoverable from expected future cash flows and its carrying amount exceeds its fair value . during 2010 , the corporation committed to a plan to sell certain hearth product retail and distribution locations and classified the group of net assets as held for sale . the corporation recorded an impairment charge of $ 4.9 million in 2010 to adjust the carrying value of the net assets to fair market value less cost to sell as of the reporting date . the corporation also recorded an impairment charge of $ 2.0 million upon the sale of a non-core business in the office furniture segment which was included in discontinued operations in the consolidated statements of income . intangibles , net of amortization , of approximately $ 61 million are included on the consolidated balance sheet as of the end of fiscal 2011 . key to recoverability of goodwill , indefinite-lived intangibles and long-lived assets is the forecast of the speed and magnitude of the economic recovery and its impact on future revenues , operating margins and cash flows . management 's projection for the - 25 - u.s. office furniture and domestic hearth markets and global economic conditions is inherently subject to a number of uncertain factors , such as global economic improvement , u.s housing market , credit availability and borrowing rates , and overall consumer confidence . in the near term , as management monitors the above factors , it is possible it may change the revenue and cash flow projections of certain reporting units , which may require the recording of additional asset impairment charges . there are certain reporting units that have been recently acquired and therefore have a historical cost that is closer to the current fair value . for all reporting units other then the one described above , the estimated fair value exceeds the carrying value by a large margin with the closest calculated margin at greater than 15 percent of the carrying value . while the corporation has recorded impairment charges connected to acquisitions in the office furniture segment over the past few years , management 's strategy with regards to these reporting units has not changed and the corporation expects to receive additional value from these reporting units as the economy stabilizes . self-insured reserves โ the corporation is partially self-insured or carries high deductibles for general , auto , and product liability ; workers ' compensation ; and certain employee health benefits . the general , auto , product , and workers ' compensation liabilities are managed via a wholly-owned insurance captive ; the related liabilities are included in the accompanying financial statements .
| the increase in 2010 was due to volume related expenses , higher fuel costs , investments in selling and growth initiatives and higher incentive-based compensation . these were offset partially by improved distribution efficiencies and cost control initiatives . selling and administrative expenses include freight expense for shipments to customers , product development costs and amortization expense of intangible assets . refer to summary of significant accounting policies and goodwill and other intangible assets in the notes to consolidated financial statements for further information regarding the comparative expense levels for these items . restructuring and impairment charges during 2011 , the corporation made the decision to transition out of its lithia springs , georgia office furniture distribution center . the distribution center is operated by a third-party logistics provider . the corporation is adding distribution capacity to its cedartown , georgia office furniture manufacturing facility and distribution center to make up for the loss of the lithia springs distribution center . to make room for the additional distribution capacity , the corporation is consolidating some office furniture manufacturing production from the cedartown facility into exisiting office furniture manufacturing facilities in muscatine , iowa . - 27 - in addition the corporation made the decision to consolidate some office furniture manufacturing production from its hickory , north carolina facility into its wayland , new york facility . in connection with the closure , consolidations and realignment , the corporation recorded $ 2.0 million of pre-tax charges which included $ 0.2 million of accelerated depreciation of machinery and equipment recorded in cost of sales and $ 1.8 million of severance and facility exist costs recorded as restructuring costs in 2011. the corporation made the decision to close certain hearth products retail and distribution locations during the first quarter of 2011. a pre-tax charge of $ 0.4 million was recorded for severance and facility exit costs . during 2010 , the corporation made the decision to close an office furniture facility in salisbury ,
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โ avonex pen and dose titration in february 2012 , the fda approved two separate dosing innovations designed to improve the treatment experience for patients receiving once-a-week avonex for relapsing forms of ms : avonex pen and a new dose titration regimen . avonex pen is the first intramuscular autoinjector approved for ms and is designed to enhance the self-injection process for patients receiving avonex therapy . a new dose titration regimen , facilitated by the avostartgrip titration devices , provides patients with the option to gradually increase the dose of avonex at treatment initiation to reduce the incidence and severity of flu-like symptoms that patients may experience with therapy . these avonex dosing innovations are commercially available in the e.u. , u.s. and other countries . 37 results of operations revenues revenues are summarized as follows : replace_table_token_9_th product revenues product revenues are summarized as follows : replace_table_token_10_th avonex revenues from avonex are summarized as follows : replace_table_token_11_th for 2012 compared to 2011 , as well as for 2011 compared to 2010 , the increase in u.s. avonex revenues was due to price increases offset by decreased unit sales volume . u.s. avonex unit sales volume decreased approximately 2 % and 3 % for 2012 and 2011 , respectively , over the prior year comparative periods . for 2012 compared to 2011 , as well as for 2011 compared to 2010 , the increase in rest of world avonex revenues was due to increased demand primarily in europe driven by customer penetration attributable to the avonex pen launch , offset by pricing reductions resulting from austerity measures enacted in some countries . rest of world avonex unit volume primarily in europe increased 8 % and 6 % for 2012 and 2011 , respectively , over the prior year comparative periods . the increase in rest of world avonex revenues for 2012 compared to 2011 also reflects gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program , which partially offset negative impacts of foreign currency as those gains were less than the impacts of foreign currency exchange rates on sales . the increase in rest of world avonex revenues for 2011 compared to 2010 also reflects the favorable impact of foreign currency exchange rates offset by losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program . 38 gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program totaled $ 25.4 million in 2012 , compared to losses recognized of $ 30.6 million for 2011 and gains recognized of $ 35.0 million in 2010 . we expect avonex to continue facing increased competition in the ms marketplace in both the u.s. and rest of world . we and a number of other companies are working to develop or have commercialized additional treatments for ms , including oral and other alternative formulations that may compete with avonex . in addition , the continued growth of tysabri and the commercialization of certain of our own pipeline product candidates , such as tecfidera , may negatively impact future sales of avonex . increased competition also may lead to reduced unit sales of avonex , as well as increasing price pressures particularly in geographic markets outside the u.s. tysabri we collaborate with elan pharma international , ltd ( elan ) an affiliate of elan corporation , plc , on the development and commercialization of tysabri . for additional information about this collaboration , please read note 21 , collaborative and other relationships to our consolidated financial statements included in this report . revenues from tysabri are summarized as follows : replace_table_token_12_th for 2012 compared to 2011 , as well as for 2011 compared to 2010 , the increase in u.s. tysabri revenues was due to increased unit sales volume and price increases . u.s. tysabri unit sales volume increased approximately 11 % and 12 % for 2012 and 2011 , respectively , over the prior year comparative periods . net sales of tysabri from our collaboration partner , elan , to third-party customers in the u.s. for 2012 , 2011 , and 2010 totaled $ 886.0 million , $ 746.5 million , and $ 593.1 million , respectively . for 2012 compared to 2011 , the change in rest of world tysabri revenues reflects the deferral of a portion of our revenues recognized on sales of tysabri in italy ( as described below ) and pricing reductions from austerity measures enacted in some countries offset by an increase in demand . increased demand resulted in increases of approximately 14 % and 19 % in rest of world tysabri unit sales volume for 2012 and 2011 , respectively , over the prior year comparative periods . for 2011 compared to 2010 , the increase in rest of world tysabri revenues reflects an increase in demand offset by a deferral of a portion of our revenues recognized on sales of tysabri in italy ( as described below ) and pricing reductions from austerity measures enacted in some countries . the decrease in rest of world tysabri revenues for 2012 compared to 2011 also reflects gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program , which only partially offset negative impacts of foreign currency on sales . the increase in rest of world tysabri revenues for 2011 compared to 2010 reflects the favorable impact of foreign currency exchange rates offset by losses recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program . gains recognized in relation to the settlement of certain cash flow hedge instruments under our foreign currency hedging program totaled $ 9.7 million in 2012 , compared to losses recognized of $ 6.3 million for 2011 and gains recognized of $ 10.7 million in 2010 . story_separator_special_tag in the fourth quarter of 2011 , biogen idec srl received a notice from the italian national medicines agency ( aifa ) stating that sales of tysabri for the period from february 2009 through february 2011 exceeded by eur 30.7 million a reimbursement limit established pursuant to a price determination resolution ( price resolution ) granted by aifa in february 2007. in december 2011 , we filed an appeal against aifa in administrative court seeking a ruling that the reimbursement limit does not apply and that the position of aifa is unenforceable . as a result of being notified that aifa believes a reimbursement limit is in effect , we have deferred $ 62.7 million and $ 13.8 million of revenue of tysabri in italy for 2012 and 2011 , respectively . we expect to continue to defer a portion of our revenues on future sales of tysabri in italy until this matter is resolved . for additional information , please read note 22 , litigation to our consolidated financial statements included within this report . 39 we expect tysabri to continue facing increased competition in the ms marketplace in both the u.s. and rest of world . we and a number of other companies are working to develop or have commercialized additional treatments for ms , including oral and other alternative formulations that may compete with tysabri . the commercialization of certain of our own pipeline product candidates , such as tecfidera , also may negatively impact future sales of tysabri . increased competition may also lead to reduced unit sales of tysabri , as well as increasing price pressure . in addition , safety warnings included in the tysabri label , such as the risk of progressive multifocal leukoencephalopathy ( pml ) , and any future safety-related label changes , may limit the growth of tysabri unit sales . we continue to research and develop protocols and therapies that may reduce risk and improve outcomes of pml in patients . our efforts to stratify patients into lower or higher risk for developing pml , including through the jcv antibody assay , and other on-going or future clinical trials involving tysabri may have a negative impact on prescribing behavior , which may result in decreased product revenues from sales of tysabri . other product revenues other product revenues are summarized as follows : replace_table_token_13_th we have a license from acorda therapeutics , inc. ( acorda ) to develop and commercialize fampyra in all markets outside the u.s. the european commission previously granted a conditional marketing authorization for fampyra in the e.u . in july 2011. a conditional marketing authorization is renewable annually and is granted to a medicinal product with a positive benefit-risk assessment that fulfills an unmet medical need when the benefit to public health of immediate availability outweighs the risk inherent in the fact that additional data are still required . to meet the conditions of this marketing authorization , we will provide additional data from on-going clinical studies regarding fampyra 's benefits and safety in the long term . this marketing authorization was renewed as of july 2012. fampyra is the first treatment that addresses the unmet medical need of walking improvement in adult patients with ms who have walking disability . fampyra is commercially available throughout the european union and in canada , australia , new zealand , israel and south korea , and we anticipate making fampyra commercially available in additional markets in 2013. in 2011 , the german government implemented new legislation to manage pricing related to new drug products introduced within the german market through a review of each product 's comparative efficacy . we launched fampyra in germany in august 2011. during the second quarter of 2012 , the government agency completed its comparative efficacy assessment of fampyra indicating a range of pricing below our initial launch price , which was unregulated for the first 12 months after launch consistent with german law . as of the third quarter of 2012 , we have had pricing negotiations with the german authorities which were resolved in 2013. we recognized revenue during the fourth quarter of 2012 based on the lowest point of the initially indicated german pricing authority range . we will recognize revenue at the negotiated fixed price effective upon the signing of the new agreement in 2013. for information about our relationship with acorda , please read note 21 , collaborative and other relationships to our consolidated financial statements included in this report . 40 unconsolidated joint business revenues we collaborate with genentech on the development and commercialization of rituxan . for additional information related to this collaboration including information regarding the pre-tax co-promotion profit sharing formula for rituxan and its impact on future unconsolidated joint business revenues , please read note 21 , collaborative and other relationships to our consolidated financial statements included in this report . revenues from unconsolidated joint business are summarized as follows : replace_table_token_14_th biogen idec 's share of pre-tax co-promotion profits in the u.s. the following table provides a summary of amounts comprising our share of pre-tax co-promotion profits in the u.s. : replace_table_token_15_th for 2012 compared to 2011 , as well as for 2011 compared to 2010 , the increase in u.s. rituxan product revenues was primarily due to price increases and an increase in commercial demand . increased commercial demand was approximately 3 % and 4 % in u.s. rituxan unit sales volume for 2012 and 2011 , respectively , over the prior year comparative periods . the increase in demand was driven by numerous factors including a continued uptake in the rheumatoid arthritis and vasculitis indications . collaboration costs and expenses for 2012 compared to 2011 decreased primarily due to a decrease in sales and marketing expenses incurred by the collaboration and a decline in expenditures for the development of rituxan for use in other indications .
| 35 our share of rituxan revenues totaled $ 1,137.9 million for 2012 , representing an increase of 14.2 % from 2011 . total cost and expenses increased 11.5 % for 2012 compared to 2011 . this increase was primarily the result of a 16.9 % increase in cost of sales , a 9.5 % increase in research and development expense , and a 21.0 % increase in selling , general and administrative costs over the same period in 2011 . these increases reflect an increase in manufacturing costs driven by higher sales , spending associated with licensing and development of our early stage product candidates and preparing for the potential launches of tecfidera , factor viii and factor ix . we generated $ 1,879.9 million of net cash flows from operations for 2012 , which were primarily driven by earnings . cash , cash equivalents and marketable securities totaled approximately $ 3,742.4 million as of december 31 , 2012 . business environment we conduct our business within the biotechnology and pharmaceutical industries , which are highly competitive . many of our competitors are working to develop or have commercialized products similar to those we market or are developing , including oral and other alternative formulations that may compete with avonex , tysabri or other products we are developing . in addition , the commercialization of certain of our own pipeline product candidates , such as tecfidera , may negatively impact future sales of avonex , tysabri or both . we may also face increased competitive pressures from the emergence of biosimilars . in the u.s. , avonex , tysabri , and rituxan are licensed under the public health service act ( phsa ) as biological products . in march 2010 , u.s. healthcare reform legislation amended the phsa to authorize the u.s. food and drug administration ( fda ) to approve biological products , known as biosimilars , that are similar to or interchangeable with previously approved biological products based upon potentially abbreviated data packages . global economic conditions continue to present challenges for
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the following table lists the company 's primary operating subsidiaries and their current and prior operating segment : subsidiary operating segment prior operating segment arb , inc. , including stellaris , llc ( ยarbย ) west west arb structures , inc. west west q3 contracting , inc. ( ยq3cย ) west west rockford corporation ( ยrockfordย ) west west vadnais trenchless services , inc. ( ยvadnaisย ) ; acquired in 2014 west west silva group ( ยsilvaย ) east east cardinal contractors , inc. east east bw primoris , llc ( ยbwpย ) east east james construction group , llc ( ยjcgย ) : jcg heavy civil division east east jcg infrastructure and maintenance division east east jcg industrial division energy east primoris energy services corporation ( ยpesย ) energy east onquest , inc. energy engineering onquest , canada , ulc ( born heaters canada , ulc prior to 2013 ) energy engineering in 2012 , pes purchased sprint pipeline services , l.p. which has operated using the sprint name as a dba from the acquisition through february 2015. in accordance with the purchase agreement , the name of the former sprint operating entity was changed to ยprimoris pipeline servicesย ( ยppsย ) in march 2015. in this annual report on form 10-k references to pps are references to the sprint operating entity . pes acquired two subsidiaries , the saxon group ( ยsaxonย ) in 2012 and force specialty services , inc. ( ยfssiย ) in 2013. effective january 1 , 2014 , saxon and fssi were merged into pes along with the industrial division of jcg . throughout this annual report on form 10-k , references to pps , fssi , saxon and james industrial are to the divisions of pes for 2014 , while the references for the years prior to 2014 are to the entities or divisions . the company owns 50 % of the blythe power constructors joint venture ( ยblytheย ) created for the installation of a parabolic trough solar field and steam generation system in california , and its operations are included as part of the west construction services segment . the company determined that in accordance with fasb topic 810 , the company was the primary beneficiary of a variable interest entity and has consolidated the results of blythe in its financial statements . the project has been completed and the project warranty will expire in may 2015 at which time the company anticipates terminating blythe . in january 2014 , the company created a wholly owned subsidiary , bw primoris , llc , a texas limited liability company ( ยbwpย ) . bwp 's goal is to develop water projects , primarily in texas , that will need the company 's construction services . on january 22 , 2014 , bwp entered into an agreement to purchase the assets and business of blaus wasser , llc , a wyoming limited liability company , for approximately $ 5 million . during the first quarter of 2014 , bwp entered into an intercompany construction contract with cardinal contractors , inc. to build a small water treatment facility which will be owned by bwp . when the treatment facility is completed , the facility will generate revenues through a take-or-pay contract with a west texas municipal entity . for 2014 , all intercompany revenue and profit of the project have been eliminated , and at december 31 , 2014 , a total of $ 12.9 million has been capitalized as property , plant and equipment . in may 2014 , the company created a wholly owned subsidiary , vadnais trenchless services , inc. , a california company ( ยvadnaisย ) , which on june 5 , 2014 , purchased the assets of vadnais corporation for $ 6.4 million . vadnais corporation was a general contractor specializing in micro-tunneling . the assets purchased were primarily equipment , buildings and land . the purchase included a contingent earnout on meeting certain operating targets . 29 during the third quarter 2014 , the company made three small purchases totaling $ 8.2 million to acquire the net assets of surber roustabout , llc ( ยsurberย ) , ram-fab , llc ( ยram-fabย ) and williams testing , llc ( ยwilliamsย ) . surber and ram-fab operate as divisions of pes , and williams is a division of cardinal contractors , inc. surber provides general oil and gas related construction activities in texas ; ram-fab is a fabricator of custom piping systems located in arkansas ; and williams provides construction services related to sewer pipeline maintenance , rehabilitation and integrity testing in the florida market . the surber and ram-fab purchases provided for a contingent earnout amounts as discussed in ยnote 4ย business combinations ย for some end markets we perform the same services in each of the west , east and energy segments , while for other end markets , such as poured-in-place parking structures or turn-around services , only one of our segments currently serves the market . the following table shows the approximate percentage of revenues over three years derived from our major end-markets , with prior periods conformed to the current year market breakdown : replace_table_token_8_th material trends and uncertainties we generate our revenue from both large and small construction and engineering projects . the award of these contracts is dependent on many factors , most of which are not within our control . we depend in part on spending by companies in the energy and oil and gas industries , the gas utility industry , as well as municipal water and wastewater customers . over the past several years , each segment has benefited from demand for more efficient and more environmentally friendly energy and power facilities , local highway and bridge needs and from the strength of the oil and gas industry ; however , each of these industries and the government agencies periodically are adversely affected by macroeconomic conditions . economic factors outside of our control may affect the amount and size of contracts we are awarded in any particular period . story_separator_special_tag we closely monitor our customers to assess the effect that changes in economic , market and regulatory conditions may have on them . we have experienced reduced spending by some of our customers over the last several years , which we attribute to negative economic and market conditions , and we anticipate that these negative conditions may continue to affect demand for our services in the near-term . fluctuations in market prices of oil , gas and other fuel sources can affect demand for our services . the recent significant reduction in the price of oil has created uncertainty with respect to demand for our oil and gas pipeline and roustabout services in the near term , with additional uncertainty resulting over the length of time that prices will remain depressed . when the current oversupply eases and with the continuing global demand increases for oil , oil prices would expect to recover from the current levels . we believe that while the construction of gathering lines within the oil shale formations may remain at lower levels for an extended period , the need for pipeline infrastructure for mid-stream companies will result in a continuing need for our services over time . the continuing changes in the regulatory environment also can affect the demand for our services , either by increasing our work or delaying projects . for example , the regulatory environment in california may well result in delays for the construction of gas-fired power plants while the regulators continue to search for significant renewable resources . we believe that regulated utility customers will continue to invest in our maintenance and replacement services . seasonality , cyclicality and variability our results of operations are subject to quarterly variations . some of the variation is the result of weather , particularly rain and snow , which can impact our ability to perform construction services . while the majority of the company 's work is in the southern half of the united states , these seasonal impacts affect revenues and profitability since gas and other utilities defer routine replacement and repair during their period of peak demand . any quarter can be affected either negatively or positively by atypical weather patterns in any part of the country . in addition , demand for new projects tends to be lower during the early part of the year due to clients ' internal budget cycles . as a result , the company usually experiences higher revenues and earnings in the third and fourth quarters of the year as compared to the first two quarters . 30 the company is also dependent on large construction projects which tend not to be seasonal , but can fluctuate from year to year based on general economic conditions . our business may be affected by declines or delays in new projects or by client project schedules . because of the cyclical nature of our business , the financial results for any period may fluctuate from prior periods , and the company 's financial condition and operating results may vary from quarter-to-quarter . results from one quarter may not be indicative of its financial condition or operating results for any other quarter or for an entire year . the variability resulting from the combination of seasonality and awards of large projects were demonstrated in the fourth quarter of 2014 when revenues were less than that of the second and third quarters , primarily reflecting the completion of a large power plant project in 2013. critical accounting policies and estimates general ยthe preparation of financial statements in conformity with accounting principles generally accepted in the united states requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and also affect the amounts of revenues and expenses reported for each period . these estimates and assumptions must be made because certain information that is used in the preparation of our financial statements can not be calculated with a high degree of precision from data available , is dependent on future events , or is not capable of being readily calculated based on generally accepted methodologies . often , estimates are particularly difficult to determine , and we must exercise significant judgment . estimates may be used in our assessments of revenue recognition under percentage-of-completion accounting , the allowance for doubtful accounts , useful lives of property and equipment , fair value assumptions in analyzing goodwill and long-lived asset impairments , self-insured claims liabilities and deferred income taxes . actual results could differ from those that result from using the estimates under different assumptions or conditions . an accounting policy is deemed to be critical if it requires an accounting estimate to be based on assumptions about matters that are highly uncertain at the time the estimate is made , and different estimates that reasonably could have been used , or changes in the accounting estimates that are reasonably likely to occur periodically , could materially impact our consolidated financial statements . the following accounting policies are based on , among other things , judgments and assumptions made by management that include inherent risks and uncertainties . management 's estimates are based on the relevant information available at the end of each period . we periodically review these accounting policies with the audit committee of the board of directors . revenue recognition fixed-price contracts ย historically , a substantial portion of our revenue has been generated under fixed-price contracts . for fixed-price contracts , we recognize revenues primarily using the percentage-of-completion method , which may result in uneven and irregular results . in the percentage-of-completion method , estimated revenues , estimated contract values and total costs incurred to date are used to calculate revenues earned . unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract .
| 35 gross profit 2014 and 2013 gross profit for 2014 decreased by $ 20.0 million , or 7.8 % , from 2013. as discussed in the segment results below , the decrease in gross profit was $ 47.3 million in the west segment . gross profit for the energy segment increased by $ 25.9 million and increased by $ 1.4 million for the east segment . gross profit from acquisitions made in 2014 and 2013 added $ 3.0 million to 2014 gross profit . the large decrease in both revenue and gross profit in the west segment resulted in a decrease of gross profit as a percentage of revenue from 13.2 % to 11.3 % . gross profit as a percentage of revenues decreased from 13.2 % in 2013 to 11.3 % in 2014 . 2013 and 2012 gross profit increased by $ 63.3 million , or 32.9 % , in 2013 compared with 2012. of this increase , gross profit from 2012 acquisitions contributed $ 30.1 million or 15.6 % , and organic growth accounted for $ 33.2 million or 17.3 % . gross profit at the west segment increased by $ 71.4 million or 60.0 % with q3c contributing $ 29.4 million of this increase . the balance of $ 42.0 million was due to organic growth , including the impact of the close-out of a major power plant project . gross profit at the east segment decreased by $ 14.7 million , or 36.6 % , whereas profit at the energy segment increased by $ 6.6 million , or 19.9 % , all compared to 2012. in 2013 , the west segment gross profit represented 74.5 % of total gross profit , the energy segment gross profit represented 15.5 % of the gross profit , and the east segment represented 10.0 % of gross profit . in 2012 , the west segment gross profit represented 61.9 % of total gross profit , the east segment gross profit represented 20.9 % of the gross profit , and the energy segment represented 17.2 % of gross profit . gross profit as a percentage of revenues increased from 12.5 % in 2012 to 13.2 % in 2013. selling , general and administrative expenses 2014 and 2013 selling , general
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these conditions have resulted in reduced demand for many of our customers ' products , causing these customers to reduce or reschedule their orders with us . we have experienced fluctuations in our results of operations in the past and may continue to experience such fluctuations in the future . in the last two years , we have reduced our total debt obligations by $ 353 million , which has resulted in significant interest expense savings . for example , interest expense for 2014 was $ 30.8 million , compared to $ 41.0 million for 2013 and $ 71.7 million for 2012. despite the significant cash outlay required to reduce our debt , our total sources of liquidity increased $ 109 million to $ 819 million over this same two-year period , primarily because we generated cash from operations of $ 625 million in the last two years . in addition to our current sources of liquidity , we believe we have sufficient access to additional sources of capital should the need arise . a relatively small number of customers have historically generated a significant portion of our net sales . sales to our ten largest customers represented approximately 50 % of our net sales in 2014 , 2013 and 2012 . a single customer represented more than 10 % of our net sales in each of 2013 and 2012. no single customer represented more than 10 % of our net sales in 2014. we typically generate about 80 % of our net sales from products manufactured in our foreign operations . the concentration of foreign operations has resulted primarily from a desire on the part of many of our customers to require production in lower cost locations in regions such as asia , latin america and eastern europe . we expect this to continue . historically , we have had substantial recurring sales to existing customers . we typically enter into supply agreements with our major oem customers . these agreements generally have terms ranging from three to five years and cover the manufacture of a range of products . under these agreements , a customer typically agrees to purchase its requirements for specific products in particular geographic areas from us . however , these agreements generally do not obligate the customer to purchase minimum quantities of products and in some circumstances provide for cost reduction objectives during the term of the agreement , which can have the effect of reducing revenue and profitability from such arrangements . 34 critical accounting policies and estimates management 's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the united states . we review the accounting policies used in reporting our financial results on a regular basis . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , net sales and expenses and related disclosure of contingent liabilities . on an ongoing basis , we evaluate the process used to develop estimates for certain reserves and contingent liabilities , including those related to product returns , accounts receivable , inventories , income taxes , warranty obligations , environmental matters , contingencies and litigation . we base our estimates on historical experience and various other assumptions that we believe are reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . our actual results may differ materially from these estimates . we believe the following critical accounting policies reflect the more significant judgments and estimates used by us in preparing our consolidated financial statements : accounts receivable and other related allowancesโ we estimate uncollectible accounts , product returns and other adjustments related to current period net sales to establish valuation allowances . in making these estimates , we analyze the creditworthiness of our customers , past experience , specific facts and circumstances , and the overall economic climate in the industries we serve . if actual uncollectible accounts , product returns or other adjustments differ significantly from our estimates , the amount of sales or operating expenses we report could be affected . one of our most significant credit risks is the ultimate realization of our accounts receivable . this risk is mitigated by ( i ) making a significant portion of sales to financially sound companies , ( ii ) ongoing credit evaluation of our customers , ( iii ) frequent contact with our customers , especially our most significant customers , which enables us to monitor changes in their business operations and to respond accordingly and ( iv ) obtaining , in certain cases , a guaranty from a customer 's parent entity when our customer is not the ultimate parent entity . to establish our allowance for doubtful accounts , we evaluate credit risk related to specific customers based on their financial condition and the current economic environment ; however , we are not able to predict the inability of our customers to meet their financial obligations to us . we believe the allowances we have established are adequate under the circumstances ; however , a change in the economic environment or a customer 's financial condition could cause our estimates of allowances , and consequently the provision for doubtful accounts , to change , which could have a significant adverse impact on our financial position and or results of operations . our allowance for product returns and other adjustments is primarily established using historical data . inventoriesโ we state inventories at the lower of cost ( first-in , first-out method ) or market value . cost includes raw materials , labor and manufacturing overhead . we regularly evaluate the carrying value of our inventories and make provisions to reduce excess and obsolete inventories to their estimated net realizable values . story_separator_special_tag the ultimate realization of inventory carrying amounts is affected by changes in customer demand for inventory that customers are not contractually obligated to purchase and inventory held for specific customers who are experiencing financial difficulties . inventory write-downs are recorded based on forecasted demand , past experience with specific customers , the ability to redistribute inventory to other programs or back to our suppliers , and whether customers are contractually obligated and have the ability to pay for the related inventory . certain payments received from customers for inventories that have not been shipped to customers or otherwise disposed of are netted against inventory . we procure inventory based on specific customer orders and forecasts . customers have limited rights of modification ( for example , rescheduling or cancellations ) with respect to these orders . customer modifications of orders affecting inventory previously procured by us and our purchases of inventory beyond customer needs may result in excess and obsolete inventory . although we may be able to use some excess inventory for other products we manufacture , a portion of the cost of this excess inventory may not be returnable to the vendors or recoverable from customers . write-offs or write-downs of inventory could be caused by : changes in customer demand for inventory , such as cancellation of orders , and our purchases of inventory beyond customer needs that result in excess quantities on hand that we are not able to return to the vendor , use to fulfill orders from other customers or charge back to the customer ; financial difficulties experienced by specific customers for whom we hold inventory ; and declines in the market value of inventory . our practice is to dispose of excess and obsolete inventory for which a customer is not contractually liable as soon as practicable after such inventory has been identified as having no value to us . 35 property , plant and equipment โwe review property , plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable . an asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flows the asset or asset group is expected to generate . if an asset or asset group is considered impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the asset or asset group exceeds its fair value . an asset group is the unit of accounting that represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets . for asset groups for which a building is the primary asset , we estimate fair value primarily based on data provided by commercial real estate brokers . for other assets , we estimate fair value based on projected discounted future net cash flows which requires significant judgment . income taxesโ we estimate our income tax provision or benefit in each of the jurisdictions in which we operate , including estimating exposures related to examinations by taxing authorities . we believe our accruals for tax liabilities are adequate for all open years based on our assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter . although we believe our accruals for tax liabilities are adequate , tax regulations are subject to interpretation and the tax controversy process is inherently lengthy and uncertain ; therefore , our assessments can involve a series of complex judgments about future events and rely heavily on estimates and assumptions . to the extent the probable tax outcome of these matters changes , such changes in estimates will impact our income tax provision in the period in which such determination is made . we only recognize or continue to recognize tax positions that meet a โ more likely than not โ threshold of being upheld . interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense . we must also make judgments regarding the realizability of deferred tax assets . the carrying value of our net deferred tax assets is based on our belief that it is more likely than not that we will generate sufficient future taxable income in certain jurisdictions to realize these deferred tax assets . we evaluate positive and negative evidence each reporting period when assessing the need for a valuation allowance . a valuation allowance is established for deferred tax assets when we believe realization of such assets is not more likely than not . our judgments regarding future taxable income may change due to changes in market conditions , new or modified tax laws , tax planning strategies or other factors . if our assumptions , and consequently our estimates , change in the future , the valuation allowances we have established may be increased or decreased , resulting in a respective increase or decrease in income tax expense . as a result of our analysis of the positive and negative evidence available at the end of 2014 and 2013 , we released $ 87.6 million and $ 21.5 million , respectively , of our valuation allowance against certain of our u.s. and foreign deferred tax assets and net operating losses . we will continue to evaluate all evidence in future periods to determine if further release of the valuation allowance is warranted . our effective tax rate is highly dependent upon the amount and geographic distribution of our worldwide income or losses , the tax regulations , rates and holidays in each geographic region , the utilization of net operating losses , the availability of tax credits and carryforwards , and the effectiveness of our tax planning strategies . 36 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| the increase in gross margin from 2013 to 2014 was primarily attributable to improvement in our ims segment resulting from addressing inefficiencies associated with new program ramp-ups in 2013 and more favorable product mix . cps margins decreased to 10.3 % from 10.8 % primarily due to an unfavorable change in product mix . 37 in 2013 , the gross margin for our cps business improved to 10.8 % , from 8.8 % in 2012. this improvement resulted primarily from better business mix , the effect of previous restructuring actions , and increased business volume . the improvement in cps gross margin was offset by a gross margin decrease in our ims segment of 50 basis points , from 6.6 % in 2012 to 6.1 % in 2013 , which resulted primarily from decreased sales . we have experienced fluctuations in gross margin in the past and may continue to do so in the future . fluctuations in our gross margins may be caused by a number of factors , including : changes in customer demand and sales volumes for our vertically integrated system components and subassemblies ; changes in the overall volume of our business , which affect the level of capacity utilization ; changes in the mix of high and low margin products demanded by our customers ; parts shortages and operational disruption caused by natural disasters ; greater competition in the ems industry and pricing pressures from oems due to greater focus on cost reduction ; provisions for excess and obsolete inventory ; level of operational efficiency ; wage inflation and rising materials costs ; and our ability to transition manufacturing and assembly operations to lower cost regions in an efficient manner . selling , general and administrative selling , general and administrative expenses were $ 242.3 million , $ 238.1 million and $ 240.9 million in 2014 , 2013 and 2012 , respectively . as a percentage of net sales , selling , general and administrative expenses were 3.9 % for 2014 and 4.0 % for 2013 and 2012. the increase in absolute dollars from 2013 to 2014 was primarily due to increased incentive compensation expense , partially offset by
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we determined that the assets were not recoverable given the significant amount of costs required to further build evidence of clinical utility while also ceasing commercial sales of the liquid gps product . therefore , we fully impaired the intangible assets as of june 30 , 2019 and recorded an impairment loss of $ 4.0 million within operating expenses . 2018 impact of hurricane michael on october 10 , 2018 , our leased panama city , florida office was hit by hurricane michael . due to the geographic spread of our customers , no revenue was lost . however , certain implementation revenues for our software and hardware related business were delayed until later in the fourth quarter of 2018 and into 2019 , due to the disruption caused to our personnel living in the region . personnel costs for time not worked by our employees in the region during the initial period of recovery totaled $ 0.7 million . our office suffered water damage , which temporarily disabled our on-site servers , and delayed filing of our form 10-q for the period ended september 30 , 2018. we spent $ 0.4 million directly on maintaining operations and repairing our office . - 82 - evolution of gps cancer test platform nanthealth and nantomics ( our exclusive technology partner for the gps cancer test ) are continually taking steps to optimize the utility and value of our tests for physicians and their patients . to this end , we have leveraged our deep experience with rna sequencing , bioinformatics and statistics to expand the clinical utility of the gps cancer test , while also streamlining and improving our lab workflow by consolidating to next-generation sequencing as our sole testing platform . a fundamental result of this work is that the key cancer treatment biomarkers previously assessed using our proprietary quantitative proteomics platform are , beginning in april 2018 , now assessed solely via rna sequencing , gene expression and statistical analysis . this change is based on the established clinical and scientific utility of tumor rna sequencing . the tumor rna transcriptome reveals gene and somatic variant expression , identifies gene fusions and validates their expression , and determines the relevance of gene copy number alterations . gps cancer currently assesses rna expression of over 19,000 genes in a tumor sample and we have shown significant concordance between our rna and proteomics expression platforms . we believe this change will result in operational efficiencies , an improved cost structure and more rapid transfer of scientific advancements in expression analysis to our clinical report . 2017 asset purchase agreement with allscripts on august 3 , 2017 , we entered into an asset purchase agreement , which we refer to as the `` apa , '' with allscripts healthcare solutions , inc. , or โ allscripts โ , pursuant to which we agreed to sell to allscripts substantially all of the assets of our provider/patient engagement solutions business , including our fusionfx solution and components of its nantos software connectivity solutions ( the โ business โ ) . on august 25 , 2017 , we and allscripts completed the sale pursuant to the apa . allscripts conveyed to us 15,000,000 shares of our common stock at par value of $ 0.0001 per share that were previously owned by allscripts as consideration for the transaction . we retired the shares of stock . allscripts also paid $ 1.7 million of cash consideration to us as an estimated working capital payment , and we recorded a receivable of $ 1.0 million related to final working capital adjustments . we are also responsible for paying allscripts for fulfilling certain customer service obligations of the business post-closing . concurrent with the closing and as contemplated by the apa , we and allscripts modified the amended and restated mutual license and reseller agreement dated june 26 , 2015 , which was further amended on december 30 , 2017 , such that , among other things , the company committed to deliver a minimum of $ 95.0 million of total bookings over a ten-year period ( โ bookings commitment โ ) from referral transactions and sales of certain allscripts products under this agreement ( see note 4 of the consolidated financial statements ) . in the event of a bookings commitment shortfall at the end of the ten-year period , we may be obligated to pay 70 % of the shortfall , subject to certain credits . we will earn 30 % commission from allscripts on each software referral transaction that results in a booking with allscripts . we account for the bookings commitment at its estimated fair value over the life of the agreement . the estimated fair value was $ 22.0 million and $ 16.9 million as of december 31 , 2019 and 2018 , respectively . the sale of the business qualified as a discontinued operation because it comprised operations and cash flows that could be distinguished , operationally and for financial reporting purposes , from the rest of the company . the disposal of the business sold to allscripts represented a strategic shift in our operations as the sale enables us to focus on molecular sequencing and analysis , clinical decision support , connected care and payer engagement . non-gaap net loss from continuing operations and non-gaap net loss per share from continuing operations adjusted net loss from continuing operations and adjusted net loss per share from continuing operations are financial measures that are not prepared in conformity with united states generally accepted accounting principles ( u.s. gaap ) . our management believes that the presentation of non-gaap financial measures provides useful supplementary information regarding operational performance , because it enhances an investor 's overall understanding of the financial results for our core business . additionally , it provides a basis for the comparison of the financial results for our core business between current , past and future periods . other companies may define these measures in different ways . story_separator_special_tag non-gaap financial measures should be considered only as a supplement to , and not as a substitute for or as a superior measure to , financial measures prepared in accordance with u.s. gaap . non-gaap net loss from continuing operations excludes the effects of ( 1 ) loss from equity method investments including impairment losses , ( 2 ) stock-based compensation expense , ( 3 ) acquisition related sales incentives , which have been recorded as contra revenue , ( 4 ) change in fair value of derivatives liability , ( 5 ) change in fair value of the bookings commitment , ( 6 ) impairment of investments without readily determinable fair value , ( 7 ) non-cash interest expense related to convertible notes , ( 8 ) intangible amortization , ( 9 ) impairment of intangible assets , ( 10 ) loss on sale of business , ( 11 ) securities litigation costs , and ( 12 ) the impacts of certain income tax benefits and provisions from non-cash activity . - 83 - the following table reconciles net loss from continuing operations to net loss from continuing operations - non-gaap for the years ended december 31 , 2019 and 2018 : replace_table_token_0_th the following table reconciles net loss from continuing operations per share to net loss from continuing operations per share non-gaap for the years ended december 31 , 2019 and 2018 : replace_table_token_1_th - 84 - components of our results of operations revenue we generate our revenue from the sale of saas , software licenses , maintenance , hardware and services . our systems infrastructure and platforms support the delivery of both personalized comprehensive sequencing and molecular analysis and the implementation of value-based care models across the healthcare continuum . we generate revenue from the following sources : software-as-a-service related - saas related revenue is generated from our clients ' access to and usage of our hosted software solutions on a subscription basis for a specified contract term . in saas arrangements , the customer can not take possession of the software during the term of the contract and generally only has the right to access and use the software and receive any software upgrades published during the subscription period . solutions sold under a saas model include our eviti platform solutions and navinet . software and hardware related - software and hardware related revenue is generated from the license of our software , on a perpetual basis , the sale of hardware and professional services that are complementary to the software and may or may not be required for the software to function as desired by the customer . the services are generally provided in the form of implementation and training services and do not include maintenance revenue . the software is installed on the customer 's site or the customer 's designated vendor 's site and is not hosted by us or by a vendor contracted by us . we also generate revenue from the resale of third-party software and hardware to our clients . our software license and hardware solutions include dcx software and hbox . software and hardware related also includes revenue from professional services we provide that are generally complementary to our software solutions and may or may not be required for the solution to function as desired by the customer . maintenance - maintenance revenue includes ongoing post contract client support ( `` pcs '' ) or maintenance on software and hardware during the pcs term . additionally , pcs includes ongoing development of software updates and upgrades provided to the customer on a when-and-if-available basis . we sell our dcx solution with maintenance contracts . sequencing and molecular analysis - sequencing and molecular analysis revenue is generated by providing customers with reports of the results of performing sequencing and molecular analysis of dna and rna ( and previously proteomic testing ) under our reseller agreement with nantomics , and from blood samples via our liquid/blood-based tumor profiling platform through our subsidiary , nanthealth labs , inc. revenue is recognized at a point in time , when reports of results are transferred to the ordering physician or institution , or on a cash basis ; or ratably over time for the period of a stand-ready obligation to provide blood-based tumor profiling services . home health care services - home health care services revenue includes revenue related to nursing and therapy services provided to patients in a home care setting . on june 7 , 2019 , we completed the divestiture of our home health care services business . see note 4 discontinued operations and divestitures to the consolidated financial statements herein . cost of revenue cost of revenue includes associated salaries and fringe benefits , stock-based compensation , consultant costs , direct reimbursable travel expenses , depreciation related to software developed for internal use , depreciation related to lab equipment , and other direct engagement costs associated with the design , development , sale and installation of systems , including system support and maintenance services for customers . system support includes ongoing customer assistance for software updates and upgrades , installation , training and functionality . all service costs , except development of internal use software and deferred implementation costs , are expensed when incurred . amortization of deferred implementation costs are also included in cost of revenue . cost of revenue associated with each of our revenue sources consists of the following types of costs : software-as-a-service related - saas related cost of revenue includes personnel-related costs , amortization of deferred implementation costs , depreciation of internal use software , and other direct costs associated with the delivery and hosting of our subscription services . software and hardware related - software and hardware related cost of revenue includes third-party software and hardware costs directly associated with solutions , including purchasing and receiving costs , and includes direct costs associated with software implementation services provided to our customers . software and hardware related cost of revenue also includes hardware costs directly related to bringing manufactured products to their final selling destination .
| our software and hardware related revenue results experience fluctuations due to the timing of implementation completions for our dcx customers and our revenue recognition for those arrangements . maintenance revenue increased $ 0.7 million , or 7.0 % , from $ 9.8 million in the year ended december 31 , 2018 to $ 10.5 million for the year ended december 31 , 2019 . this increase was due to the timing of dcx customer contracts and post contract support maintenance services completed and recognized in the current year period . sequencing and molecular analysis revenue decreased $ 1.4 million , or 44.6 % from $ 3.1 million for the year ended december 31 , 2018 to $ 1.7 million for the year ended december 31 , 2019 . this decrease reflected lower volume of gps samples sequenced and recognized as revenue in the current year resulting from deliveries for patients covered by contract and non-contracted payers . currently , we recognize revenue from clients with executed contracts , and from clients without a contractual agreement where we recognize revenue on a cash basis given the uncertainty over reimbursement . as we gain additional insurance coverage , including coverage under government insurance programs , we expect to be able to reduce the portion of sequencing and molecular analysis revenue which is recognized on a cash basis . we continue to focus efforts to enhance reimbursement from plans when profiles are ordered and there is no payer contract in place . we are actively engaging plans with detail which supports a physician 's reason for ordering . our utilization of pre-authorizations and supporting documentation assists in the overall billing and appeal process , optimizing payment with payers , who do not have a formal agreement with us . in parallel with the private payer activities described above , we are also making extensive efforts to explore approval pathways for our test capabilities ( including the fda in-vitro medical device clearance we received in november 2019 ) , which we believe will facilitate
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the company 's products and services will generally continue to qualify as separate units of accounting under asu 2009-13. the company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting . a deliverable constitutes a separate unit of accounting when it has stand-alone value to the customers and if the arrangement includes a customer refund or return right relative to the delivered item , the delivery and performance of the undelivered item is considered probable and substantially in the company 's control . in instances where the aforementioned criteria are not met , the deliverable is combined with the undelivered items and revenue recognition is determined as one single unit . the company determines whether its selling price in a multi-element transaction meets the vsoe criteria by using the price charged for a deliverable when sold separately . in instances where the company is not able to establish vsoe for all deliverables in a multiple element arrangement , which may be due to the company infrequently selling each element separately , not selling products within a reasonably narrow price range , or only having a limited sales history , the company attempts to establish tpe for deliverables . the company determines whether tpe exists by evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers . however , due to the difficulty in obtaining third party pricing , possible differences in the company 's market strategy from that of its peers and the potential that products and services offered by the company may contain a significant level of differentiation and or customization such that the comparable pricing of products with similar functionality can not be obtained , the company generally is unable to reliably determine tpe . based on the selling price hierarchy established by asu 2009-13 , when the company is unable to establish selling price using vsoe or tpe , the company will establish an esp . esp is the price at which the company would transact a sale if the product or service were sold on a stand-alone basis . the company establishes its best estimate of esp considering internal factors relevant to its pricing practices such as costs and margin objectives , standalone sales prices of similar products , percentage of the fee charged for a primary product or service relative to a related product or service , and customer segment and geography . additional consideration is also given to market conditions such as competitor pricing strategies and market trend . the company reviews its determination of vsoe , tpe and esp on an annual basis or more frequently as needed . in the mis segment , revenue attributed to initial ratings of issued securities is recognized when the rating is issued . revenue attributed to monitoring of issuers or issued securities is recognized ratably over the period in which the monitoring is performed , generally one year . in the case of commercial mortgage-backed securities , derivatives , international residential mortgage-backed and asset-backed securities , issuers can elect to pay the monitoring fees upfront . these fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities , which ranged from two to 51 years at december 31 , 2011. at december 31 , 2011 , 2010 and 2009 , deferred revenue related to these securities was approximately $ 79 million , $ 76 million and $ 78 million , respectively . multiple element revenue arrangements in the mis segment are generally comprised of an initial rating and the related monitoring service . beginning january 1 , 2010 , in instances where monitoring fees are not charged for the first year monitoring effort , fees are allocated to the initial rating and monitoring services based on the relative selling price of each service to the total arrangement fees . the company generally uses esp in determining the selling price for its initial ratings as the company rarely sells initial ratings separately without providing related monitoring services and thus is unable to establish vsoe or tpe for initial ratings . prior to january 1 , 2010 and pursuant to the previous accounting standards , for these types of arrangements the initial rating fee was first allocated to the monitoring service determined based on the estimated fair market value of monitoring services , with the residual amount allocated to the initial rating . under asu 2009-13 this practice can no longer be used for non-software deliverables . mis estimates revenue for ratings of commercial paper for which , in addition to a fixed annual monitoring fee , issuers are billed quarterly based on amounts outstanding . revenue is accrued each quarter based on estimated amounts outstanding and is billed when actual data is available . the estimate is determined based on the issuers ' most recent reported quarterly data . at december 31 , 2011 , 2010 and 2009 , accounts receivable included approximately $ 24 million , $ 25 million and $ 27 million , respectively , related to accrued commercial paper revenue . historically , mis has not had material differences between the estimated revenue and the actual billings . furthermore , for certain annual monitoring services , fees are not invoiced until the end of the annual monitoring period and revenue is accrued ratably over the monitoring period . in the ma segment , products and services offered by the company include software licenses and related maintenance , subscriptions , and professional services . revenue from subscription based products , such as research and data subscriptions and certain software-based credit risk management subscription products , is recognized ratably over the related subscription period , which is principally one year . revenue from sale of perpetual licenses of credit processing software is generally recognized at the time the product master or 30 moody 's 2011 10-k first copy is delivered or transferred to and accepted by the customer . software maintenance revenue is recognized ratably over the annual maintenance period . story_separator_special_tag revenue from services rendered within the professional services line of business is generally recognized as the services are performed . if uncertainty exists regarding customer acceptance of the product or service , revenue is not recognized until acceptance occurs . a large portion of annual research and data subscriptions and annual software maintenance are invoiced in the months of november , december and january . products and services offered within the ma segment are sold either stand-alone or together in various combinations . in instances where a multiple element arrangement includes software and non-software deliverables , revenue is allocated to the non-software deliverables and to the software deliverables , as a group , using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy . revenue is recognized for each element based upon the conditions for revenue recognition noted above . if the arrangement contains more than one software deliverable , the arrangement consideration allocated to the software deliverables as a group is allocated to each software deliverable using vsoe . in the instances where the company is not able to determine vsoe for all of the deliverables of an arrangement , the company allocates the revenue to the undelivered elements equal to its vsoe and the residual revenue to the delivered elements . if the company is unable to determine vsoe for an undelivered element , the company defers all revenue allocated to the software deliverables until the company has delivered all of the elements or when vsoe has been determined for the undelivered elements . prior to january 1 , 2010 and pursuant to the previous accounting standards , the company allocated revenue in a multiple element arrangement to each deliverable based on its relative fair value , or for software elements , based on vsoe . if the fair value was not available for an undelivered element , the revenue for the entire arrangement was deferred . accounts receivable allowance moody 's records an allowance for estimated future adjustments to customer billings as a reduction of revenue , based on historical experience and current conditions . such amounts are reflected as additions to the accounts receivable allowance . additionally , estimates of uncollectible accounts are recorded as bad debt expense and are reflected as additions to the accounts receivable allowance . billing adjustments and uncollectible account write-offs are charged against the allowance . moody 's evaluates its accounts receivable allowance by reviewing and assessing historical collection and adjustment experience and the current aging status of customer accounts . moody 's also considers the economic environment of the customers , both from an industry and geographic perspective , in evaluating the need for allowances . based on its analysis , moody 's adjusts its allowance as considered appropriate in the circumstances . this process involves a high degree of judgment and estimation and could involve significant dollar amounts . accordingly , moody 's results of operations can be affected by adjustments to the allowance . management believes that the allowance for uncollectible accounts receivable is adequate to cover anticipated adjustments and write-offs under current conditions . however , significant changes in any of the above factors , or actual write-offs or adjustments that differ from the estimated amounts could impact the company 's consolidated results of operations . contingencies accounting for contingencies , including those matters described in the ยcontingenciesย section of this ยmd & aย , commencing on page 57 is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome . in many cases , the outcomes of such matters will be determined by third parties , including governmental or judicial bodies . the provisions made in the consolidated financial statements , as well as the related disclosures , represent management 's best estimates of the then current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate . the company would record a material loss contingency in its financial statements if the loss is both probable of occurring and the loss can be reasonably estimated . the company regularly reviews contingencies and as new information becomes available may , in the future , adjust its associated liabilities . goodwill and other acquired intangible assets moody 's evaluates its goodwill for impairment at the reporting unit level , defined as an operating segment or one level below an operating segment , annually as of november 30 or more frequently if impairment indicators arise in accordance with asc topic 350. these impairment indicators could include significant events or circumstances that would reduce the fair value of a reporting unit below its carrying value . these events or circumstances could include a significant change in the business climate , legal factors , operating performance indicators , competition or sale or disposition of a significant portion of a reporting unit . at november 30 , 2011 , the company had six primary reporting units : one in mis that encompasses all of moody 's ratings operations and five reporting units within ma : rd & a , rms , training , csi and copal . the rd & a reporting unit encompasses the distribution of investor-oriented research and data developed by mis as part of its ratings process , in-depth research on major debt issuers , industry studies , economic research and commentary on topical events and credit analytic tools . the rms reporting unit consists of credit risk management and compliance software that is sold on a license or subscription basis as well as related advisory services for moody 's 2011 10-k 31 implementation and maintenance . the training reporting unit consists of the portion of the ma business that offers both credit training as well as other professional development training .
| the growth in ma is due to higher revenue across all lobs . transaction revenue accounted for 44 % of global mco revenue in 2010 compared to 37 % in the same period of the prior year . u.s. revenue increased $ 168.7 million over 2009 reflecting growth in all ratings lobs , most notably in rated issuance volumes for bank loans and speculative-grade corporate bonds . there was also good growth over the prior year in u.s. public finance and cref rated issuance . additionally , there was growth in all lobs within the ma segment , most notably in rms . international revenue increased $ 66.1 million compared to the same period in 2009 primarily reflecting growth in cfg revenue , particularly in speculative-grade ratings in emea , coupled with higher banking related revenue across all regions . additionally , the growth reflects higher revenue across all ma lobs , primarily from within the asia and the americas regions . these increases were partially offset by declines in most asset classes within sfg as well as declines in investment-grade rated issuance within the emea region . operating expenses were $ 604.8 million in 2010 , an increase of $ 72.4 million from the same period in 2009 and were primarily due to both higher compensation and non-compensation costs . compensation costs increased approximately $ 63 million reflecting approximately $ 30 million higher incentive compensation primarily resulting from greater achievement against targeted results compared to achievement against targeted results in the prior year period , a $ 7 million global profit sharing contribution due to the company 's growth in diluted eps over 2009 and approximately $ 29 million higher salaries and related employee benefits primarily due to annual merit increases coupled with higher headcount in both operating segments to support business growth . non-compensation costs increased approximately $ 9 million reflecting higher professional service costs for ongoing investments in technology infrastructure as well as higher travel-related
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there was no interest income for the year ended december 31 , 2016. interest expense for the year ended december 31 story_separator_special_tag the management 's discussion and analysis of financial condition and results of operations should be read together with the more detailed business information and financial statements and related notes that appear elsewhere in this annual report on form 10-k. this annual report may contain certain โ forward-looking โ information within the meaning of the private securities litigation reform act of 1995. this information involves risks and uncertainties . actual results may differ materially from the results discussed in the forward-looking statements . factors that might cause such a difference include , but are not limited to , those discussed in item 1a โ risk factors . story_separator_special_tag style= '' font-size : 10pt ; text-indent : 15pt ; margin-top : 0pt ; margin-bottom : 0pt '' > gross profit : the increase in costs of revenue and decrease in gross profit was primarily due to higher costs associated with higher volume . gross profit was also adversely impacted by our strategic pricing initiatives in brazil noted above , including increased costs from brazilian sales taxes , which the company also incurred as a result of the establishment of a brazilian subsidiary in the second quarter of 2017. gross profit was also impacted by an increase in depreciation expense . general and administrative ( โ g & a โ ) expenses : the increase in g & a expenses related to additional costs associated with the brazil operations and higher legal and audit fees . as a percentage of revenue , g & a expenses represented 14.2 % in 2017 versus 12.7 % in 2016. marketing and selling expenses : the decrease in marketing and selling expenses was primarily a result of a temporary decrease in personnel and personnel related costs in 2017. total marketing and selling expenses represented 11.8 % and 12.7 % of revenue for 2017 and 2016 , respectively . research and development ( โ r & d โ ) : r & d expenses represented 3.4 % and 3.6 % of revenue for 2017 and 2016 , respectively . other income : other income primarily consisted of interest earned on cd 's which was partially offset by interest expense related to debt . the increase in income came from a reduction of interest expense from a lower loan balance and an increase in interest income from cd 's which did not exist in 2016. income taxes : during the year ended december 31 , 2017 , the company recorded a tax provision of $ 2.1 million representing a tax rate of 25 % , versus a tax rate of 33 % in 2016. there were two significant items impacting the rate in 2017. the larger item was the passing of the tax act in december 2017. while this law changed tax rates for 2018 , the lower tax rate required a remeasurement of the company 's deferred tax liability at december 31 , 2017. the law also allowed for additional depreciation for assets purchased and placed in service in the fourth quarter of 2017. the impact of this ( primarily from the remeasurement of the deferred tax liability ) was a reduction of tax liability and income tax benefit of $ 1.2 million for 2017. this benefit was partially offset by the imposition of income taxes in brazil incurred as a result of the company 's formation of a subsidiary in brazil in the second quarter of 2017. the impact of this was an increase in the tax provision of $ 0.6 million . liquidity and capital resources at december 31 , 2018 , the company had $ 8.0 million of cash and marketable securities , compared to $ 8.2 million at december 31 , 2017. the company 's operating activities generated net cash of $ 8.0 million in 2018 , $ 9.1 million in 2017 and $ 9.3 million in 2016. investing activities used $ 5.4 million in 2018 , $ 1.2 million in 2017 and $ 2.1 million in 2016. financing activities used $ 5.6 million in 2018 , used $ 3.5 million in 2017 and generated $ 5.9 million in 2016 . 15 operating cash flow of $ 7.9 million in 2018 primarily reflected net income of $ 4.6 million adjusted for depreciation and amortization of $ 3.1 million , stock compensation expense of $ 0.6 million , and a decrease in net deferred tax liabilities of $ 0.3 million . operating cash flow was affected by the following changes in assets and liabilities : an increase in accounts receivable of $ 0.4 million , an increase in accounts payable of $ 0.1 million , an increase in accrued expenses of $ 0.1 million , and a decrease in prepaid expenses ( and other current assets ) of $ 0.1 million . the operating cash flow was $ 1.2 million less than in 2017. operating cash flow of $ 9.1 million in 2017 primarily reflected net income of $ 6.1 million adjusted for depreciation and amortization of $ 2.8 million , stock compensation expense of $ 0.6 million , and a decrease in net deferred tax liabilities of $ 1.5 million . the net deferred tax liability was significantly different than in prior years due to change in the tax law . see income tax discussion above . story_separator_special_tag operating cash flow was affected by the following changes in assets and liabilities : a decrease in accounts receivable of $ 1.3 million , a decrease in accounts payable of $ 1.0 million , an increase in accrued expenses of $ 0.9 million , and an increase in prepaid expenses ( and other current assets ) of $ 0.1 million . the operating cash flow was $ 0.1 million less than in 2016. operating cash flow of $ 9.3 million in 2016 primarily reflected net income of $ 6.7 million adjusted for depreciation and amortization of $ 2.3 million , stock compensation expense of $ 0.7 million , and an increase in net deferred tax liabilities of $ 0.2 million . this was affected by the following changes in assets and liabilities : an increase in accounts receivable of $ 2.3 million , an increase in accounts payable of $ 0.1 million , an increase in accrued expenses of $ 0.8 million , and a decrease in prepaid expenses ( and other current assets ) of $ 0.8 million . the operating cash flow was $ 4.7 million greater than in 2015 , primarily driven by an increase in income from the brazilian opportunity . investing cash flow principally reflected investments in marketable securities and the purchase of capital expenditures . marketable securities consist of the purchase of one cd for $ 4.0 million in 2018 and no marketable securities in 2017 and 2016. capital expenditures were $ 1.2 million , $ 1.2 million , and $ 2.0 million in 2018 , 2017 and 2016 , respectively . in 2018 , the expenditures related principally to laboratory equipment and computer software . capitalized patent costs and an increase in long term assets were $ 133 thousand , $ 49 thousand , and $ 82 thousand in 2018 , 2017 , and 2016 , respectively . during 2018 , 2017 and 2016 , the company did not repurchase any shares of common stock for treasury . the company has authorized 750,000 shares for repurchase since june of 1998 , of which 250,000 shares of common stock were authorized in march of 2008 for repurchase . since 1998 , a total of 550,684 shares have been repurchased . the company also distributed cash dividends to its shareholders of $ 3.8 million in 2018 , $ 3.3 million in 2017 and $ 3.3 million in 2016. at december 31 , 2018 , the company 's principal sources of liquidity included approximately $ 8.0 million of cash , cash equivalents and marketable securities . management currently believes that such funds , together with future operating profits , should be adequate to fund anticipated working capital requirements , including debt obligations , and capital expenditures for at least the next 12 months . depending upon the company 's results of operations , its future capital needs and available marketing opportunities , the company may use various financing sources to raise additional funds . such sources could include , issuance of common stock or debt financing , lines of credit , or equipment leasing , although there is no assurance that such financings will be available to the company on terms it deems acceptable , if at all . at december 31 , 2018 , the company has paid dividends over the past eighty-nine quarters . it most recently declared a dividend on march 4 , 2019 with a payment date of march 25 , 2019 in the amount of $ 991 thousand . the company 's current intention is to continue to declare dividends to the extent funds are available and not required for operating purposes or capital requirements , and only then , upon approval by the board of directors . there can be no assurance that in the future the company will declare dividends . contractual obligations as of december 31 , 2018 ( including a lease extension executed in february 2019 ) were as follows ( in thousands ) : replace_table_token_8_th purchase commitment operating leases consist of rent obligations for the company 's facilities and data center . the company has no significant contractual obligation for supply agreements as of december 31 , 2018 . 16 critical accounting policies the company 's significant accounting policies are described in note 2 to the financial statements included in item 8 of this annual report . management believes the most critical accounting policies are as follows : revenue recognition the company is in the business of performing drug testing services and reporting the results thereof . the company 's services are primarily drug and alcohol testing for its customers for an agreed-upon fee per unit tested . the revenues are recognized when the drug test is performed and reported to the customer . the company records revenue for the shipping of samples from the customer or independent hair collection facility to the laboratory for customers that choose to use the company 's shipping account . the company also records revenue for the collection of the hair sample for customers that choose to have the company manage this process at the same time the sample test is completed and results reported to the customer . the associated costs incurred in connection with these services is recorded as costs of revenue . the company records revenue for these services on a gross basis as it has determined it is the principal under these arrangements . the company also provides expert testimony , when and if necessary , to support the results of the tests , which is generally billed separately and recognized as the services are provided .
| in addition , the company spent approximately $ 1.4 million on equipment , leasehold improvements and software development . as of december 31 , 2018 , the company has paid eighty-nine consecutive quarterly cash dividends . the following table sets forth , for the periods indicated , the selected statements of operations data as a percentage of total revenue : replace_table_token_4_th revenue by geographic region replace_table_token_5_th 13 results for the year ended december 31 , 2018 compared to results for the year ended december 31 , 2017 ( in thousands ) replace_table_token_6_th revenue : domestic revenue was up 11 % and international revenue was up 1 % from 2017 to 2018. see geographic breakdown of revenue above . total revenue growth of 7 % was primarily due to a 15 % increase in volume , offset by a 6 % negative impact from foreign currency exchange and a 2 % impact from decrease of average revenue per sample , primarily as a result of business mix . gross profit : the increase in costs of revenue was primarily due to higher costs associated with higher volume . gross profit was adversely impacted by foreign currency exchange as noted in revenue section above . without this impact , gross profit percentage would have been 51 % as compared to 50 % in 2017. general and administrative ( โ g & a โ ) expenses : the increase in g & a expenses primarily related to additional audit related costs associated with the company becoming an accelerated filer and implementing new accounting standards . these costs included external audit fees , internal control consultants and additional personnel . as a percentage of revenue , g & a expenses represented 15.1 % in 2018 versus 14.2 % in 2017. marketing and selling expenses : the increase in marketing and selling expenses was primarily a result of additional personnel and personnel related costs in 2018. total marketing and selling expenses represented 11.8 % of revenue for 2018 and 2017. research and development ( โ r & d โ ) : r & d expenses represented 3.6 % and 3.4 % of revenue for 2018 and 2017 ,
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nevertheless , consistent with our multi-faceted approach to property acquisitions , we were able to source transactions that provide value enhancement opportunities , including the acquisition of equity interests in 17 office , retail and multi-family properties during 2012 , representing total investments of $ 1.3 billion . we also took advantage of the improving market conditions and interest by institutions and individuals seeking ownership interests in properties to sell assets , disposing of properties with more limited growth opportunities , and raising efficiently priced capital for reinvestment . during the year , we sold our fee interest in 292 madison avenue and a 49.5 % partnership interest in 521 fifth avenue , as well as several other joint venture assets , including one court square , long island city , new york . debt and preferred equity beginning in 2010 , we saw an increase in opportunities to acquire existing debt and preferred equity positions in high quality manhattan office properties at discounts that enabled us to generate high risk adjusted yields , and offer off-market access to property acquisitions . as 2012 progressed , and the availability of discounted debt and preferred equity in high quality properties waned , we began to focus on the origination of financings , typically in the form of preferred equity and mezzanine debt , for owners or acquirers seeking higher leverage than has been available from traditional lending sources who are lending at modest leverage levels . traditional sources of junior financings have not yet materialized as a result of the dodd-frank act and other banking regulations . this provided us with an opportunity to fill this need by providing more modest amounts of leverage . the typical investments made by us during 2012 were to reputable owners or acquirers , and at leverage levels which are senior to sizable equity investments by the sponsors . during 2012 , our debt and preferred equity activities included purchases and originations of $ 637.1 million , redemptions and sales of $ 264.0 million and the conversion of a $ 25.0 million investment into equity ownership . property equity ownership resulting from this lending program during 2012 included a 4.5 million square foot west coast portfolio of office properties . outlook several factors introduced into the market during the second half of 2012 have modestly reduced expectations for the recovery of jobs and in demand for office space in 2013. those factors include increased ordinary and capital gains tax rates and additional cost cutting by the financial services sector . despite these factors , we continue to see a solid leasing market and the potential for improving leasing fundamentals as we progress through the year . highlights from 2012 our significant activities for 2012 included : directly acquired or consolidated joint venture interests in 12 properties for aggregate gross purchase prices of $ 641.3 million encompassing 1.1 million square feet . invested in five properties through joint ventures for aggregate gross purchase prices of $ 626.7 million and encompassing 0.6 million square feet . closed on a $ 1.6 billion 5-year credit facility . 40 sold 2.6 million shares of common stock through our `` at-the-market '' equity offering programs raising net proceeds of $ 201.3 million were used to repay certain of our existing indebtedness , make investments in additional properties and debt and preferred equity investments , and for general corporate purposes . issued $ 200.0 million principal amount of 4.50 % senior unsecured notes , due 2022 , at par . the net proceeds from the offering ( approximately $ 198.2 million ) were used to repay certain of our existing indebtedness , make investments in additional properties , and for general corporate purposes . issued 6.50 % series i cumulative redeemable preferred stock generating net proceeds to the company of $ 222.2 million , redeemed the entire $ 100.0 million , 7.875 % series d cumulative redeemable preferred stock and redeemed $ 100.0 million of the 7.625 % series c cumulative redeemable preferred stock . closed on a $ 175.0 million financing with a 1-year term and a 1-year extension option . closed on 5 mortgages totaling approximately $ 1.1 billion . signed 215 office leases totaling 3.7 million square feet in manhattan . signed 107 office leases totaling 0.6 million square feet in the suburbs . as of december 31 , 2012 , we owned the following interests in commercial office properties in the new york metropolitan area , primarily in midtown manhattan . our investments in the new york metropolitan area also include investments in brooklyn , long island , westchester county , connecticut and northern new jersey , which are collectively known as the suburban assets : replace_table_token_19_th ( 1 ) the weighted average occupancy represents the total leased square feet divided by total available rentable square feet . as of december 31 , 2012 , we also owned investments in 15 stand-alone retail properties encompassing approximately 473,764 square feet , 16 development properties encompassing approximately 2,617,491 square feet , two residential properties encompassing 385 units ( approximately 430,482 square feet ) , two land interests and 31 west coast office properties encompassing approximately 4,473,603 square feet . in addition , we manage two office properties owned by third parties and affiliated companies encompassing approximately 626,415 rentable square feet . as of december 31 , 2012 , we also held debt and preferred equity investments with a book value of $ 1.4 billion . critical accounting policies our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods . we evaluate our assumptions and estimates on an ongoing basis . story_separator_special_tag we base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following 41 critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . investment in commercial real estate properties on a periodic basis , we assess whether there are any indications that the value of our real estate properties may be impaired or that their carrying value may not be recoverable . a property 's value is considered impaired if management 's estimate of the aggregate future cash flows ( undiscounted and without interest charges for consolidated properties ) to be generated by the property are less than the carrying value of the property . to the extent impairment has occurred , the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property . in addition , we assess our investments in unconsolidated joint ventures for impairment , and if it is determined that a loss in value of the investment is other than temporary , we write down the investment to its fair value . we evaluate our equity investments for impairment based on the joint venture 's projected discounted cash flows . during 2010 , we recorded a $ 2.8 million impairment charge on one of our equity investments . during 2011 , we recorded a $ 5.8 million impairment charge in connection with the expected sale of one of our equity investments . these charges are included in depreciable real estate reserves . see note 6 , `` investments in unconsolidated joint ventures . '' we do not believe that the value of any of our consolidated properties or equity investments was impaired at december 31 , 2012 and 2011 , respectively . a variety of costs are incurred in the development and leasing of our properties . after determination is made to capitalize a cost , it is allocated to the specific component of a project that is benefited . determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment . the costs of land and building under development include specifically identifiable costs . the capitalized costs include pre-construction costs essential to the development of the property , development costs , construction costs , interest costs , real estate taxes , salaries and related costs and other costs incurred during the period of development . we consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements , but no later than one year from cessation of major construction activity . we cease capitalization on the portions substantially completed and occupied or held available for occupancy , and capitalize only those costs associated with the portions under construction . we allocate the purchase price of real estate to land and building and , if determined to be material , intangibles , such as the value of above- , below- , and at-market leases and origination costs associated with the in-place leases . we depreciate the amount allocated to building and other intangible assets over their estimated useful lives , which generally range from three to 40 years and from one to 14 years , respectively . the values of the above- and below-market leases are amortized and recorded as either an increase ( in the case of below-market leases ) or a decrease ( in the case of above-market leases ) to rental income over the remaining term of the associated lease , which generally range from one to 14 years . the value associated with in-place leases are amortized over the expected term of the associated lease , which generally range from one to 14 years . if a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease , any unamortized balance of the related intangible will be written off . the tenant improvements and origination costs are amortized as an expense over the remaining life of the lease ( or charged against earnings if the lease is terminated prior to its contractual expiration date ) . we assess fair value of the leases based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information . estimates of future cash flows are based on a number of factors including the historical operating results , known trends , and market/economic conditions that may affect the property . to the extent acquired leases contain fixed rate renewal options that are below market and determined to be material , we amortize such below market lease value into rental income over the renewal period . investment in unconsolidated joint ventures we account for our investments in unconsolidated joint ventures under the equity method of accounting in cases where we exercise significant influence over , but do not control , these entities and are not considered to be the primary beneficiary . we consolidate those joint ventures that we control or which are vies and where we are 42 considered to be the primary beneficiary . in all these joint ventures , the rights of the joint venture partner are both protective as well as participating . unless we are determined to be the primary beneficiary in a vie , these participating rights preclude us from consolidating these non-vie entities . these investments are recorded initially at cost , as investments in unconsolidated joint ventures , and subsequently adjusted for equity in net income ( loss ) and cash contributions and distributions .
| eighty leases totaling 697,710 square feet represented office leases that replaced previous vacancies , while 135 office leases comprising 2,962,532 square feet had average starting rents of $ 56.16 per rentable square foot , representing a 7.5 % increase over the previously fully escalated rents on the same office spaces . the average lease term on the manhattan office leases signed during the year ended december 31 , 2012 was 12.5 years and average tenant concessions were 6.2 months of free rent with a tenant improvement allowance and lease commissions of $ 58.92 per rentable square foot . of the 3,195,392 square feet of office leases which commenced during 2012 , 506,131 square feet represented office leases that replaced previous vacancies , while 2,689,261 million square feet represented office leases that had average starting rents of $ 54.84 per rentable square foot , representing a 6.9 % increase over the previously fully escalated rents on the same office spaces . occupancy for our suburban portfolio was 79.9 % at december 31 , 2012 as compared to 80.5 % for the same period in the previous year . during the year ended december 31 , 2012 , we signed 107 office leases in the suburban portfolio totaling 635,370 square feet . thirty-six leases and 117,188 square feet represented office leases that replaced previous vacancies , while 71 office leases comprising 518,182 square feet had average starting rents of $ 29.44 per rentable square foot , representing a 10.2 % decrease over the previously fully escalated rents on the same office spaces . the average lease term on the suburban office leases signed during the year ended december 31 , 2012 was 5.0 years and average tenant concessions were 4.9 months of free rent with a tenant improvement allowance and lease commissions of $ 17.71 per rentable square foot . of the 638,077 square feet of office leases which commenced during 2012 , 132,634 square feet represented office leases that replaced previous vacancies , while 505,443 square feet represented office leases that had average starting rents of $ 29.14 per rentable square foot , representing a 10.9 % decrease over the previously fully escalated rents on the same office spaces . at december 31 , 2012 , approximately 5.9 % and 10.3 % of the space leased at our consolidated manhattan
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we have significant international operations , and we earn revenues and incur expenses in multiple currencies . when important to management 's analysis , operating results are compared in โ constant currency terms โ , a non-gaap financial measure that excludes the effect of foreign currency exchange rate fluctuations . the effect of rate fluctuations is excluded by translating the current period 's revenues and expenses into u.s. dollars at the weighted average exchange rates of the prior period of comparison . see item 7a , โ quantitative and qualitative disclosures about market risk โ of this report for a discussion of our exposure to exchange rates . 30 effects of inflation economies in cis countries , particularly belarus , russia , kazakhstan and ukraine , have periodically experienced high rates of inflation . periods of higher inflation may slow economic growth in those countries and as a result decrease demand for our services and negatively impact the business of our existing clients . inflation is likely to increase some of our expenses , which may reduce our profitability , as we may not be able to pass these increases on to our clients . generally , our largest expense that could be impacted by inflation is wages . we do not rely on borrowed funds for operations in those locations ; therefore , increases in interest rates typical for inflationary environments do not currently pose a risk to our business . ukraine has been experiencing political and economic turmoil with no improvement as of the date of this report , severely impacting the ukrainian economy . the ukrainian currency has been weakened and the negative outlook in the ukrainian economy continues . we have not seen a significant impact from the inflation in ukraine . additionally , we do not have clients located in ukraine . inflation in russia increased late in 2014 due to weakening of the russian ruble and decreasing oil prices . during 2015 , inflation in russia remained steady with some decline observed in recent months . our operations in russia have not been affected directly by local inflation ; however , we have noted some decline in demand for our services by our clients in russia . belarus has been experiencing hyperinflation over the last several years . the measures currently used by the belarusian government to control this recent inflation include monetary policy and pricing instruments , including increasing interest rates and the use of anti-monopoly laws to prevent the increase in pricing of goods , as well as privatization and using foreign borrowings to replenish the budget and stabilize the local currency . inflation , government actions to combat inflation and public speculation about possible additional actions have also contributed to economic uncertainty in belarus . belarus may experience high levels of inflation in the future . we have not seen a significant impact from the inflation in belarus as our largest expense there , wages , is denominated in u.s. dollars in order to provide stability in our business and for our employees . additionally , we do not have significant clients located in belarus and for the year ended december 31 , 2015 , we had approximately $ 1.5 , or 0.2 % , of our revenues denominated in belarusian rubles . the functional currency for financial reporting purposes in belarus is us dollars . other locations where we have clients or perform services are not experiencing significant inflation and our business is not materially impacted by inflation in those locations . periods of higher inflation may slow economic growth in those countries . inflation also is likely to increase some of our costs and expenses , which we may not be able to pass on to our clients and , as a result , may reduce our profitability . inflationary pressures could also affect our ability to access financial markets and lead to counter-inflationary measures that may harm our financial condition , results of operations or adversely affect the market price of our securities . 31 story_separator_special_tag style= '' line-height:120 % ; padding-top:12px ; text-align : left ; text-indent:36px ; font-size:10pt ; '' > our subsidiary in belarus is a member of the belarus hi-tech park , in which member technology companies are 100 % exempt from the current belarusian income tax rate of 18 % . the โ on high-technologies park โ decree , which created the belarus hi-tech park , is in effect for a period of 15 years from july 1 , 2006 . 2015 compared to 2014 during 2015 , our revenues grew 25.2 % over 2014 , from $ 730.0 million to a record $ 914.1 million . the increase was attributable to a combination of factors , including deeper penetration to existing customers and attainment of new customers , both organically and through acquisitions . in 2015 , revenue from new customers was $ 45.7 million , primarily resulting from our acquisitions in 2015 , and does not include new clients that are affiliates of existing customers whom we consider an expansion of existing business . in addition , total revenues in 2015 and 2014 included $ 9.5 million and $ 8.4 million of reimbursable expenses and other revenues , respectively , which increased by 13.1 % in 2015 as compared to 2014 , but remained relatively flat as a percentage of revenues . during the year ended december 31 , 2015 , revenues in our largest geography , north america , grew $ 117.6 million , or 32.0 % , as compared with the year ended december 31 , 2014 . expressed as a percentage of consolidated revenues , the north america geography accounted for 53.1 % in 2015 , which represented an increase of 2.7 % over 2014 . the increase was primarily a result of growth in business from several of our top clients as well as new revenue from the acquisition of navigationarts . story_separator_special_tag revenues from all major verticals in north america grew during the year ended december 31 , 2015 as compared with the year ended december 31 , 2014 . the largest contributor to revenue growth in north america , was travel and consumer vertical , which increased $ 32.9 million , or 48.6 % , as compared with the year ended december 31 , 2014 . the increase in this vertical was primarily driven by the rapid expansion of our strategic relationship with a large retail chain , a relationship we acquired in 2012. our life sciences and healthcare vertical in north america continued its impressive growth since we acquired new clients in the healthcare , insurance and life sciences industries in one of our 2014 acquisitions and created synergies with existing customers in those markets . during the year ended december 31 , 2015 combined revenue growth from customers in this vertical accounted for $ 29.0 million , representing the largest percentage growth of all north america 's verticals at 75.9 % growth over prior year . during the year ended december 31 , 2015 , revenues from the media and entertainment vertical in north america increased by $ 25.3 million , or 36.2 % , as compared with the year ended december 31 , 2014 . the growth in this vertical in 2015 was attributable to resumed growth in revenues from certain long-time major customers who had decreased demand for our services in prior years . north america 's largest vertical , software and hi-tech , experienced growth of $ 24.5 million or 17.2 % during the year ended december 31 , 2015 as compared with the year ended december 31 , 2014 . 35 during the year ended december 31 , 2015 , our financial services vertical remained our dominant vertical in the european geography . in 2015 revenues from the financial services vertical increased by $ 28.3 million , or 19.0 % , respectively , over the corresponding period of 2014 . continued solid performance of the financial services vertical was attributable to an increased demand for our services and ongoing relationships with existing top customers located in europe . we experienced increased business from our top customer located in switzerland , who was responsible for majority of the revenue growth in the financial services vertical during 2015 as compared with the year ended december 31 , 2014 . furthermore , we continue to see growing demand for our services from european-based customers within the travel and consumer vertical . during the year ended december 31 , 2015 revenues from this vertical increased by $ 24.0 million as compared with the year ended december 31 , 2014 and accounted for 35.5 % of total growth in this geography during period indicated . europe 's software and hi-tech vertical experienced a significant increase of 66.5 % in 2015 compared to 2014 , in part due to business from a new significant customer in germany engaged in 2015 . revenues in the cis geography showed a decrease of $ 12.8 million or 22.9 % on a year-to-date bases compared to 2014 . the decrease in revenues was primarily attributable to a decline in the financial services vertical , which is significantly impacted by the microeconomic situation in the region . additionally , significant foreign currency fluctuations in russia and cis countries had a material negative impact on the revenues from those locations . cost of revenues ( exclusive of depreciation and amortization ) during the years ended december 31 , 2015 and 2014 , cost of revenues ( exclusive of depreciation and amortization ) was $ 566.9 million and $ 456.5 million , respectively , representing an increase of 24.2 % for the year ended december 31 , 2015 over the corresponding period of 2014 , mainly due to an increase in headcount of revenue producing personnel . as a percentage of revenues , cost of revenues ( exclusive of depreciation and amortization ) , decreased 0.5 % over the corresponding period of 2014 , to 62.0 % of consolidated revenues . the increase in cost of revenues ( exclusive of depreciation and amortization ) in 2015 was primarily driven by an increase $ 107.1 million in compensation costs for revenue producing personnel , including an increase in stock-based compensation expense of $ 5.0 million . the increases in all of these costs were the result of organic increase in headcount as well as personnel additions from acquisitions . selling , general and administrative expenses we continued to invest in key areas including sales , infrastructure , industry expertise , and other functions supporting global operations and our growth . during the year ended december 31 , 2015 , selling , general and administrative expenses totaled $ 222.8 million , representing an increase of 36.1 % from $ 163.7 million during 2014 . as a percentage of revenue , selling , general and administrative expenses represent 24.4 % of consolidated revenues , an increase of 2.0 % over last year . the increase in selling , general and administrative expenses in 2015 was primarily driven by a $ 48.5 million increase in personnel-related costs , which includes salaries and stock-based compensation expenses . of these personnel-related costs , stock-based compensation expenses increased $ 16.2 million during the year ended december 31 , 2015 . our selling , general and administrative expenses have increased primarily as a result of our expanding operations , acquisitions , and the hiring of a number of senior managers to support our growth . in addition , we have issued stock to the sellers and or personnel in connection with our business acquisitions and have been recognizing stock-based compensation expense in the periods after the closing of these acquisitions as part of the selling , general and administrative expenses . such stock based compensation expenses related to acquisitions comprised 58.2 % of total selling , general and administrative stock-based compensation expense for the year ended december 31 , 2015 compared to the same period in 2014 .
| the following table sets forth revenues by vertical by amount and as a percentage of our revenues for the periods indicated : replace_table_token_14_th revenues by client location our revenues are sourced from four geographic markets : north america , europe , cis and apac , which we established as a new geographic market in 2014 as a result of an acquisition . we present and discuss our revenues by client location based on the location of the specific client site that we serve , irrespective of the location of the headquarters of the client or the location of the delivery center where the work is performed . revenue by client location is different from the revenue by reportable segment in our consolidated financial statements included elsewhere in this annual report . segments are not based on the geographic location of the clients but are rather based on the geography of the management responsible for a particular client regardless of the client 's physical location . the following table sets forth revenues by client location by amount and as a percentage of our revenues for the periods indicated : replace_table_token_15_th revenues by contract type our services are performed under both time-and-material and fixed-price arrangements . our engagement models depend on the type of services provided to a client , the mix and locations of professionals involved and the business outcomes our clients are looking to achieve . historically , the vast majority of our revenues have been generated under time-and-material contracts . under time-and-material contracts , we are compensated for actual time incurred by our it professionals at negotiated hourly , daily or monthly rates . fixed-price contracts require us to perform services throughout the contractual period and we are paid in installments on pre-agreed intervals . we expect time-and-material arrangements to continue to comprise the majority of our revenues in the future . 33 the following table sets forth revenues by contract type by amount and as a percentage of our revenues for the periods indicated : replace_table_token_16_th revenues by client concentration
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we had a net loss of $ 33.2 million for the year ended december 31 , 2017 , compared to $ 52.8 million for the year ended december 31 , 2016 , and $ 37.5 million for the year ended december 31 , 2015. we expect to incur significant and increasing operating losses for the foreseeable future as we advance our drug candidates from discovery through preclinical testing and clinical trials and seek regulatory approval and eventual commercialization . in addition to these increasing research and development expenses , we expect general and administrative costs to increase as we continue to operate as a public company . we will need to generate significant revenues to achieve profitability , and we may never do so . as of december 31 , 2017 , we had 51 employees . revenues to date , we have not generated any revenue . our ability to generate revenue and become profitable depends on our ability to successfully commercialize our lead product candidate or any other product candidate we may advance in the future . research and development expenses research and development expense consists of expenses incurred in connection with identifying and developing our drug candidates . these expenses consist primarily of salaries and related expenses , stock-based compensation , the purchase of equipment , laboratory and manufacturing supplies , facility costs , costs for preclinical and clinical research , development of quality control systems , quality assurance programs and manufacturing processes . we charge all research and development expenses to operating expenses as incurred . clinical development timelines , likelihood of success and total costs vary widely . we do not currently track our internal research and development costs or our personnel and related costs on an individual drug candidate basis . we use our research and development resources , including employees and our drug discovery technology , across multiple drug development programs . as a result , we can not state precisely the costs incurred for each of our research and development programs or our clinical and preclinical drug candidates . from inception through december 31 , 2017 , we have recorded total research and development expenses , including share-based compensation , of $ 170.0 million . our total research and development expenses for the year ended december 31 , 2017 was $ 26.4 million , compared to $ 42.5 million the year ended december 31 , 2016 , and $ 31.3 million for the year ended december 31 , 2015. share-based compensation accounted for $ 0.4 million for the year ended december 31 , 2017 , $ 2.1 million for the year ended december 31 , 2016 and $ 2.2 million for the year ended december 31 , 2015 . 42 research and development expenses as a percentage of total operating expenses was 78 % for the year ended december 31 , 2017 , 81 % for the year ended december 31 , 2016 , and 83 % for the year ended december 31 , 2015. the percentages , excluding stock-based compensation , were 82 % for the year ended december 31 , 2017 , 86 % for the year ended december 31 , 2016 and 88 % for the year ended december 31 , 2015. our clinical development costs decreased with the completion and discontinuation of our phase iii colorectal cancer clinical trials under ema and fda jurisdictions , respectively . the clinical research and development costs may increase going forward as we evaluate our pipeline and plan potential new studies . based on the results of our preclinical studies , we anticipate that we will select drug candidates and research projects for further development on an ongoing basis in response to their preclinical and clinical success and commercial potential . for research and development candidates in early stages of development , it is premature to estimate when material net cash inflows from these projects might occur . general and administrative expenses general and administrative expense consists primarily of salaries and related expenses for personnel in administrative , finance , business development and human resource functions , as well as the legal costs of pursuing patent protection of our intellectual property and patent filing and maintenance expenses , shareโbased compensation , and professional fees for legal services . our total general and administration expenses was $ 7.6 million for the year ended december 31 , 2017 , $ 10.3 million for the year ended december 31 , 2016 and $ 6.2 million for the year ended december 31 , 2015. share-based compensation accounted for $ 2.1 million for the year ended december 31 , 2017 , $ 3.5 million for the year ended december 31 , 2016 and $ 2.2 million for the year ended december 31 , 2015. critical accounting policies our management 's discussion and analysis of financial condition and results of operations is based on our financial statements , which have been prepared in conformity with generally accepted accounting principles in the united states ( us gaap ) . the preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and expenses incurred during the reported periods . we base estimates on our historical experience , known trends and various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . story_separator_special_tag while our significant accounting policies are more fully described in the notes to our financial statements appearing in this annual report on form 10-k , we believe that the following accounting policies are the most critical to understanding and evaluating our reported financial results . stock-based compensation stock-based awards are measured at fair value at each grant date . we recognize stock-based compensation expenses ratably over the requisite service period of the option award . determination of the fair value of stock-based compensation grants the determination of the fair value of stock-based compensation arrangements is affected by a number of variables , including estimates of the expected stock price volatility , risk-free interest rate and the expected life of the award . we value stock options using the black-scholes option-pricing model , which was developed for use in estimating the fair value of traded options that are fully transferable and have no vesting restrictions . black-scholes option-pricing model and other option valuation models require the input of highly subjective assumptions , including the expected stock price volatility . if we made different assumptions , our stock-based compensation expenses , net loss , and net loss per common share could be significantly different . prior to our initial public offering in april 2015 , we issued common stock for cash consideration to investors . we believe that such transactions represent the best evidence of fair value of our common stock . therefore , we used the sales price of our common stock prior to our initial public offering ( ipo ) in april 2015 as the fair value of our common stock . after our ipo , we determine that the fair value of common stock is equal to the closing price of the company 's common stock as reported by nasdaq on the option grant date . 43 the following summarizes the assumptions used for estimating the fair value of stock options granted during the periods indicated : replace_table_token_5_th we have assumed no dividend yield because we do not expect to pay dividends in the foreseeable future , which is consistent with our past practice . the risk-free interest rate assumption is based on observed interest rates for u.s. treasury securities with maturities consistent with the expected life of our stock options . the expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method when the stock option includes โ plain vanilla โ terms . under the simplified method , the expected life of an option is presumed to be the midpoint between the vesting date and the end of the agreement term . we used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options . for stock options that did not include โ plain vanilla โ terms , we used the contractual life of the stock option as the expected life . such stock options consisted primarily of options issued to our board of directors that were immediately vested at issuance . expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options . due to the adoption of asu no . 2016-09 , โ stock compensation , โ effective january 1 , 2017 , the company accounts for forfeitures as they occur rather than on an estimated basis . story_separator_special_tag quence : 46 ; value : 2 -- > 46 during the years ended december 31 , 2017 , 2016 and 2015 , our operating activities used net cash of $ 33.6 million , $ 46.0 million and $ 33.3 million , respectively . the use of net cash in each of these periods primarily resulted from our net losses . the decrease in net loss from operations for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 was mainly due to the decrease in clinical trial and manufacturing activities , as well as , the reducing size of our workforce . the increase in net loss from operations for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 was mainly due to the increase in clinical trial and manufacturing activities , as well as , the growing size of our workforce . during the years ended december 31 , 2017 , 2016 and 2015 , our investing activities used net cash of $ 1.4 million , $ 13.9 million , and $ 10.4 million , respectively . the decrease for the year ended december 31 , 2017 as compared to the year ended december 31 , 2016 was principally due to the new manufacturing facility being completed in 2016. the increase for the year ended december 31 , 2016 as compared to the year ended december 31 , 2015 was primarily due to construction on the new manufacturing facility and equipment . during the years ended december 31 , 2017 , 2016 and 2015 , our financing activities provided net cash proceeds of $ 33.3 million , $ 2.9 million and $ 77.5 million , respectively . during the year ended december 31 , 2017 , we entered into subscription agreements with accredited investors , and sold 2.4 million common shares at $ 13 per share for approximately $ 31.6 million in net proceeds . also , we sold 87 thousand shares under a common stock sales agreement with h.c. wainwright & co. llc for net proceeds of approximately $ 1.0 million . employees exercised stock options to purchase a total of 290 thousand shares of common stock for a total of approximately $ 0.7 million in net proceeds . during the year ended december 31 , 2016 , employees exercised stock options to purchase a total of 204,159 shares of our common stock for approximately $
| research and development expenses increased by 36 % to $ 42.5 million for year ended december 31 , 2016 compared to $ 31.3 million for the year ended december 31 , 2015. the increase in research and development expenses for the year ended december 31 , 2016 compared to the year ended december 31 , 2015 was due to a $ 5.2 million increase of clinical trial activities and sponsored research expense , related to an expansion of clinical sites globally . in addition , there was a continued increase in laboratory and manufacturing supplies expense due to the increase of manufacturing processing development activities , research activities , quality control activities and the validation of equipment in the new manufacturing facility . the increase is also due to higher salaries and related expenses in 2016 due to the growing size of our workforce from 70 to 96. we also incurred increased allocated facility expense due to the facility expense incurred in the new manufacturing facility . stockโbased compensation increased due to the issuance of stock options to new employees . general and administrative general and administrative costs are summarized as follows ( in thousands ) : replace_table_token_7_th general and administrative expenses decreased 26 % to $ 7.6 million for the year ended december 31 , 2017 compared to $ 10.3 million for the year ended december 31 , 2016. the $ 1.4 million decrease in stock-based compensation is due to the grant of stock options to board members in the first quarter of 2016 that were immediately vested . professional fees also decreased $ 0.8 million due to the reduction of public relations activities . the decrease in labor costs was mainly due to the reduction of our general and administrative workforce from 10 to 7 . 45 general and administrative expenses increased 66 % to $ 10.3 million for the year ended december 31 , 2016 compared to $ 6.2 million for the year ended december 31 , 2015. the increase was principally due to a $ 0.6 million salary increase from the growth of our workforce and a $ 135 thousand bonus payment to an executive officer in march 2016. share-based compensation also increased by $ 1.3 million due to the grant of stock options to board members in march , september and december 2016. the increase
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we offer a variety of season pass products for all of our mountain resorts and urban ski areas , marketed towards both destination and in-state guests . our season pass product offerings range from providing access to one or a combination of our mountain resorts and urban ski areas to our epic season pass , which allows pass holders unlimited and unrestricted access to all of our mountain resorts and urban ski areas . our season pass program provides a compelling value proposition to our guests , which in turn assists us in developing a loyal base of customers who commit to ski at our mountain resorts and urban ski areas generally in advance of the ski season and typically ski more days each season at our mountain resorts and urban ski areas than those guests who do not buy season passes . as such , our season pass program drives strong customer loyalty ; mitigates exposure to more weather sensitive guests ; and generates additional ancillary spending . in addition , our season pass program attracts new guests to our mountain resorts and urban ski areas . all of our season pass products , including the epic pass , are predominately sold prior to the start of the ski season . season pass revenue , although primarily collected prior to the ski season , is recognized in the consolidated statement of operations ratably over the ski season . for the 2013/2014 , 2012/2013 and 2011/2012 ski seasons , approximately 40 % , 38 % and 40 % , respectively , of total lift revenue was derived from season pass revenue . the cost structure of our mountain resort operations has a significant fixed component with variable expenses including , but not limited to , forest service fees , credit card fees , retail/rental cost of sales and labor , ski school labor and dining operations ; as such , profit margins can fluctuate greatly based on the level of revenues . lodging segment operations within the lodging segment include ( i ) ownership/management of a group of luxury hotels through the rockresorts brand , the majority of which are proximate to our mountain resorts ; ( ii ) ownership/management of non-rockresorts branded hotels and condominiums proximate to our mountain resorts ; ( iii ) nps concessionaire properties including gtlc ; ( iv ) cme , a colorado resort ground transportation company ; and ( v ) mountain resort golf courses . the performance of lodging properties ( including managed condominium rooms ) proximate to our mountain resorts , and cme , is closely aligned with the performance of the mountain segment and generally experiences similar seasonal trends , particularly with respect to visitation by destination guests , and represented approximately 71 % , 67 % and 66 % of lodging segment net revenue ( excluding lodging segment revenue associated with reimbursement of payroll costs ) for fiscal 2014 , fiscal 2013 and fiscal 2012 , respectively . management primarily focuses on lodging net revenue excluding payroll cost reimbursements and lodging operating expense excluding reimbursed payroll costs ( which are not measures of financial performance under gaap ) as the reimbursements are made based upon the costs incurred with no added margin , as such the revenue and corresponding expense have no effect on our lodging reported ebitda which we use to evaluate lodging segment performance . revenue of the lodging segment during our first and fourth fiscal quarters is generated primarily by the operations of our nps concessionaire properties ( as their operating season generally occurs from mid-may to mid-october ) ; mountain resort golf operations and seasonally low operations from our other owned and managed properties and businesses . real estate segment the real estate segment owns and develops real estate in and around our resort communities and primarily engages in vertical development of projects , as well as occasional sales of land to third-party developers . currently , the principal activities of our real estate segment include the marketing and selling of remaining condominium units that are available for sale , which primarily relate to the ritz-carlton residences , vail , and one ski hill place in breckenridge ; planning for future real estate development projects , including zoning and acquisition of applicable permits ; and the occasional purchase of selected strategic land parcels for future development as well as the sale of land parcels to third-party developers . revenue from vertical development projects is not recognized until closing of individual units within a project , which occurs after substantial completion of the project . we attempt to mitigate the risk associated with vertical development by utilizing guaranteed maximum price construction contracts ( although certain construction costs may not be covered by contractual limitations ) , pre-selling a portion of the project , requiring significant non-refundable deposits from buyers , and potentially obtaining non-recourse financing for certain projects ( although our last two major vertical development projects have not incurred any such 39 direct third party financing ) . additionally , our real estate development projects most often result in the creation of certain resort assets that provide additional benefit to the mountain and lodging segments . although we continue to undertake preliminary planning and design work on future projects , we currently do not plan to undertake significant development activities on new projects until the current economic environment for real estate improves . we believe that , due to our low carrying cost of real estate land investments combined with the absence of third party debt associated with our real estate investments , we are well situated to evaluate the launch of future projects with a more favorable economic environment . our revenue from the real estate segment , and associated expense , can fluctuate significantly based upon the timing of closings and the type of real estate being sold , causing volatility in the real estate segment 's operating results from period to period . story_separator_special_tag recent trends , risks and uncertainties we have identified the following important factors ( as well as uncertainties associated with such factors ) that could impact our future financial performance : the timing and amount of snowfall can have an impact on mountain and lodging revenue particularly in regards to skier visits and the duration and frequency of guest visitation . to help mitigate this impact , we sell a variety of season pass products prior to the beginning of the ski season resulting in a more stabilized stream of lift revenue . additionally , our season pass products provide a compelling value proposition to our guests , which in turn creates a guest commitment predominantly prior to the start of the ski season . in march 2014 , we began our pre-season pass sales program for the 2014/2015 ski season . through september 21 , 2014 , pre-season pass sales for the upcoming 2014/2015 ski season ( including canyons for both the current and prior year , which prior year includes a portion of pass sales that occurred before the canyons transaction in may 2013 ) have increased approximately 14 % in units and increased approximately 18 % in sales dollars , compared to the prior year period ended september 22 , 2013. we can not predict if this favorable trend will continue through the fall 2014 pass sales campaign , nor can we predict the overall impact that season pass sales will have on lift revenue for the 2014/2015 ski season . in fiscal 2014 , our lift revenue was favorably impacted by price increases at our mountain resorts that were implemented for the 2013/2014 ski season . prices for the 2014/2015 ski season have not yet been finalized ; and as such , there can be no assurances as to the level of price increases , if any , which will occur and the impact that pricing may have on visitation or revenue . our fiscal 2014 results for our mountain and lodging segments showed strong improvement over fiscal 2013 largely due to strong pass sales growth for the 2013/2014 ski season , an increase in overall visitation at our colorado resorts which experienced improved snowfall conditions compared to the 2012/2013 ski season , and improved ancillary guest spend in our ski school , dining and retail/rental operations , as well as the addition of canyons . however , our fiscal 2014 results were negatively impacted by very poor conditions in the tahoe region during the 2013/2014 ski season . we can not predict whether snowfall levels will return to historical averages at our tahoe resorts or that our colorado and utah resorts will experience normal snowfall conditions for the upcoming 2014/2015 ski season nor can we estimate the impact there may be to advance bookings , guest travel , season pass sales , lift revenue ( excluding season passes ) , retail/rental sales or other ancillary services revenue next ski season as a result of past snowfall conditions . although many key economic indicators have improved recently including growth in the u.s. stock markets , improved consumer confidence and declines in the unemployment rate , the u.s. economy has struggled to gain momentum , particularly in the first quarter of calendar year 2014. additionally , many economies outside of the united states are challenged with political unrest and structural changes resulting in declining or slowing growth in key economic indicators . given these economic trends and uncertainties , we can not predict what the impact will be on overall travel and leisure or more specifically , on our guest visitation , guest spending or other related trends for the upcoming 2014/2015 ski season . in may 2013 , we entered into a long-term lease with talisker corporation ( โ talisker โ ) pursuant to which we assumed resort operations of canyons which includes the ski area and related amenities . in addition to the lease , we entered into ancillary transaction documents setting forth our rights related to , among other things , the ongoing litigation between the then current operator of pcmr and talisker concerning the validity of a lease of the talisker-owned land under the ski terrain of pcmr ( excluding the base area ) . on september 11 , 2014 , we entered into the purchase agreement providing for the acquisition of substantially all of the assets related to pcmr . pursuant to the purchase agreement and ancillary transaction documents dated the same date , we assumed resort operations of pcmr . in addition , the parties entered into ancillary 40 transaction documents , including an agreement that settled all ongoing litigation related to the validity of the lease of the talisker-owned land . we expect that pcmr will significantly contribute to our results of operations ; however , we can not predict whether we will realize all of the synergies expected from the operations of canyons and pcmr nor can we predict all the resources required to integrate pcmr operations and the ultimate impact canyons and pcmr will have on our future results of operations , including the impact that the addition of pcmr will have on the fair value of future participating contingent payments as provided for under the long-term lease , which may be material . as of july 31 , 2014 , we had $ 44.4 million in cash and cash equivalents , as well as $ 333.2 million available under the revolver component of our credit agreement ( which represents the total commitment of $ 400.0 million less certain letters of credit outstanding of $ 66.8 million ) , which was amended and restated in march 2014. however , the cash purchase price of $ 182.5 million for the acquisition of pcmr was funded through borrowings under the revolver portion of our credit agreement .
| the increase in season pass revenue was driven by a combination of both an increase in units sold and pricing and was favorably impacted by our entry into the utah ski market with the addition of canyons and the first full season of pass sales in our urban ski area markets . the increase in lift revenue excluding season pass revenue was driven by an increase in etp excluding season pass holders of 7.5 % , along with higher visitation excluding season pass holders at our colorado resorts combined with incremental revenue of $ 18.8 million from canyons . these increases were partially offset by lower lift revenue excluding season pass revenue at our tahoe resorts which was driven by a decline in visitation excluding season pass holders . total etp increased $ 2.16 , or 3.9 % , due primarily to price increases in both our lead/window lift ticket products and season pass products , partially offset by a higher mix of season pass revenue which has a lower associated etp . 43 ski school revenue increased $ 14.2 million , or 14.9 % , for fiscal 2014 compared to fiscal 2013 , with ski school revenue at our colorado resorts increasing $ 8.3 million , or 10.6 % , and incremental revenue of $ 7.1 million from canyons , partially offset by declines in ski school revenue of $ 1.5 million , or 8.6 % , at our tahoe resorts , driven by a decline in skier visitation as discussed above . dining revenue for fiscal 2014 increased $ 8.7 million , or 10.7 % , compared to fiscal 2013. this increase was primarily attributable to our colorado resorts generating a $ 6.6 million , or 11.6 % , increase in revenue due to increased skier visitation , higher yields per skier visit and improved summer visitation . additionally , dining revenue was favorably impacted by incremental dining revenue of $ 4.5 million at canyons . dining revenue at our tahoe resorts decreased $ 4.1 million , or 18.0 % , compared to fiscal 2013 driven by the decrease in skier visitation and fewer on-mountain locations being open during the first
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million backlog related to scc ) . the decrease is due to lower win rates and bidding opportunities . revenues from product sales currently represent a smaller portion of our total revenues , and , historically , we have derived most of these revenues from the sales of our sensing systems and products that make use of light-transmitting optical fibers , or fiber optics . we continue to invest in product development and commercialization , which we anticipate will lead to increased product sales growth . although we have been successful in licensing certain technology in past years , we do not expect license revenues to represent a significant portion of future revenues . over time , however , we do intend to gradually increase such revenues . in the near term , we expect revenues from product sales and product development to be primarily in areas associated with our fiber optic instrumentation , test and measurement and sensing platforms . in the long term , we expect that revenues from product sales will represent a larger portion of our total revenues and that as we develop and commercialize new products , these revenues will reflect a broader and more diversified mix of products . we incurred net losses attributable to common stockholders of approximately $ 3.0 million , $ 1.5 million and $ 1.5 million for the years ended december 31 , 2010 , 2011 and 2012 , respectively . we expect to continue to incur increasing expenses as we expand our business , including expenses for research and development , sales and marketing and manufacturing capabilities . we may also grow our business in part through acquisitions of additional companies and complementary technologies , which could cause us to incur transaction expenses , amortization or write-offs of intangible assets and other acquisition-related expenses . as a result , we expect to incur net losses for the foreseeable future , and these losses could be substantial . economic conditions have experienced a significant prolonged downturn and remain uncertain . this slowing of the economy has reduced the financial capacities of our customers and possibly our potential customers , thereby slowing spending on the products and services we provide . furthermore , pending reductions in government spending may impact the availability of new program awards in 2013. for example , the budget control act commits the u.s. government to reduce the federal deficit by $ 1.2 trillion over ten years through a combination of automatic , across-the-board spending cuts and caps on discretionary spending . this ยsequestrationย under the budget control act is split equally between defense and non-defense programs . originally scheduled to take effect on january 2 , 2013 , the deadline for averting ยsequestrationย was delayed until march 1 , 2013 by the by the american taxpayer relief act of 2012. congress and the administration 35 continue to debate these issues . any automatic across-the-board cuts required by ยsequestrationย could have a material adverse effect on our technology development revenue and , consequently , our results of operations . while the exact manner in which ยsequestrationย would impact our business is unclear , funding for programs in which we participate could be reduced , delayed or cancelled . our ability to obtain new contract awards also could be negatively affected . the outlook for the economy for 2013 and beyond remains uncertain . sale of secure computing and communications ( ยsccย ) group on march 1 , 2013 , we entered into an asset purchase agreement with mac-b , under which we sold scc to mac-b for $ 6.1 million in cash . of the purchase price , $ 0.1 million will be payable on december 31 , 2013 and an additional $ 0.6 million was placed in escrow to be released in tranches over 18 months , subject to certain events and dates and to any indemnification claims of mac-b . mac-b acquired all of the assets of scc , including scc 's intellectual property , in the transaction . we estimate that the net proceeds received upon the closing of the transaction , after the payment of our transaction expenses and assuming our receipt of the $ 0.7 million of aggregate purchase price payable in the future as described above , will be approximately $ 5.2 million . in connection with the transaction , mac-b also entered into a sublease with us that permits mac-b to continue operating the scc business in our roanoke , virginia headquarters through december 31 , 2013. during 2013 , we expect to collect approximately $ 0.3 million in sublease payments from mac-b . in light of the significance of scc to our business , we expect the sale of scc will have a significant impact on our financial results . scc accounted for 18.5 % of our revenues , and 20.7 % of our cost of revenues for the year ended december 31 , 2012. additionally , we expect the sale of scc to result in a reduction in annual operating expenses of approximately $ 0.8 million , including the effects of the sublease described above . chapter 11 reorganization and settlement with hansen on july 17 , 2009 , we filed for reorganization under chapter 11 of the united states bankruptcy code . during the period from the filing date until january 12 , 2010 , the date we emerged from bankruptcy , we operated as a debtor in possession . as a result of these chapter 11 filings , actions to collect pre-petition indebtedness and the pending hansen litigation were stayed . in addition , under the bankruptcy code we had the right to assume or reject executory contracts , including real estate leases , employment contracts , personal property leases , service contracts and other unexpired executory pre-petition contracts , subject to court approval . we did not reject any such contracts in our chapter 11 plan as confirmed by the court . story_separator_special_tag our plan of reorganization was confirmed by the bankruptcy court on january 12 , 2010 , and we emerged from bankruptcy on that date . in december 2009 , we entered into a settlement agreement with hansen which reduced our liability with respect to our outstanding litigation to $ 9.7 million . as part of the settlement , in january 2010 we issued to hansen a $ 5.0 million secured promissory note , referred to in this report as the hansen note , approximately 1.3 million shares of our common stock and a warrant entitling hansen to purchase , until january 12 , 2013 , a number of shares of our common stock as necessary for hansen to maintain a 9.9 % ownership interest in our common stock , at an exercise price of $ 0.01 per share , referred to in this report as the hansen warrant . we also entered into several related agreements described in this report . we repaid the hansen note in may 2011 , as described further below . although the hansen warrant was scheduled to expire in january 2013 , hansen may still have the ability to exercise it for 29,126 shares of common stock . the hansen litigation , including settlement efforts , resulted in significant legal expenses and related costs that are included in operating expenses for the year ended december 31 , 2009. the chapter 11 reorganization also resulted in significant legal expenses and related costs that are included in reorganization expenses for the year ended december 31 , 2009. while we incurred certain expenses for both our chapter 11 reorganization and the hansen litigation during the year ended december 31 , 2010 , these amounts were not material and we incurred no such costs during the year ended december 31 , 2011 . 36 description of our revenues , costs and expenses revenues we generate revenues from technology development , product sales and commercial product development and licensing activities . we derive technology development revenues from providing research and development services to third parties , including government entities , academic institutions and corporations , and from achieving milestones established by some of these contracts and in collaboration agreements . in general , we complete contracted research over periods ranging from six months to three years , and recognize these revenues over the life of the contract as costs are incurred or upon the achievement of certain milestones built into the contracts . our technology development revenues represented approximately 63 % and 65 % of our total revenues for the years ended december 31 , 2011 and 2012 , respectively . within technology development revenues , revenues from scc represented approximately 19.2 % and 18.5 % of our total revenues for the years ended december 31 , 2011 and 2012 , respectively . our product and license revenues reflect amounts that we receive from sales of our products or development of products for third parties , as well as fees paid to us in connection with licenses or sublicenses of certain patents and other intellectual property , and represented approximately 37 % and 35 % of our total revenues for the years ended december 31 , 2011 and 2012 , respectively . cost of revenues cost of revenues associated with technology development revenues consists of costs associated with performing the related research activities including direct labor , amounts paid to subcontractors and overhead allocated to technology development activities . cost of revenues associated with product sales and license revenues consists of license fees for use of certain technologies ; product manufacturing costs including all direct material and direct labor costs ; amounts paid to our contract manufacturers ; manufacturing , shipping and handling ; provisions for product warranties ; and inventory obsolescence , as well as overhead allocated to each of these activities . operating expense operating expense consists of selling , general and administrative expenses , as well as expenses related to research , development and engineering , depreciation of fixed assets and amortization of intangible assets . these expenses also include compensation for employees in executive and operational functions including : certain non-cash charges related to expenses from option grants , facilities costs , professional fees , salaries , commissions , travel expense and related benefits of personnel engaged in sales , product management and marketing activities ; costs of marketing programs and promotional materials ; salaries , bonuses and related benefits of personnel engaged in our own research and development beyond the scope and activities of our technology development segment ; product development activities not provided under contracts with third parties ; and overhead costs related to these activities . interest income/expense in february 2010 , we entered into a new line of credit facility with silicon valley bank , or svb , with a borrowing capacity of $ 5.0 million . in may 2011 , we entered into a loan modification agreement with svb under which we repaid the outstanding balance under the prior line of credit and obtained a term loan in the amount of $ 6.0 million , along with a new $ 1.0 million line of credit . in may 2012 , we entered into another loan modification agreement with svb under which we extended the maturity date of the line of credit to may 2014 and adjusted certain covenants . at december 31 , 2012 , we had $ 3.6 million outstanding on the term loan and no amounts outstanding on the line of credit . on march 21 , 2013 , we entered into another loan modification agreement with svb under which we replaced the previous financial covenants with a single covenant that we maintain a minimum cash balance of $ 5.0 million . 37 during 2011 and 2012 , interest expense included interest accrued on our outstanding bank credit facilities , interest incurred with respect to the hansen note until it was paid in full in may 2011 , and interest incurred with respect to our capital lease obligations .
| our products and licensing segment revenue decreased from $ 13.2 million to $ 11.3 million , a decrease of $ 1.9 million , for 2012 as compared to 2011. within our products and licensing segment , product sales revenue decreased by 7.4 % to $ 8.7 million during the year ended december 31 , 2012 as compared to $ 9.4 million for 2011. we experienced an increase of $ 2.2 million in sales of our sensing products , primarily our odisi product , which was offset by a decrease in our telecom industry sales products of $ 3.1 million , primarily our obr and 41 ova products . our product development revenue also decreased to $ 2.6 million for the year ended december 31 , 2012 as compared to $ 3.6 million for 2011 , a decrease of $ 1.0 million . this decrease was due to the decreased level of work performed under our development agreements for shape sensing in medical applications . cost of revenues replace_table_token_5_th our technology development segment costs decreased to $ 14.9 million for the year ended december 31 , 2012 from $ 15.8 million in 2011. within the technology development segment , scc 's cost of revenues decreased from $ 4.3 million for 2011 to $ 4.2 million for 2012 , a decrease of $ 0.1 million , due primarily to a decrease in costs , primarily for labor of $ 0.2 million , partially offset by an increase in overhead and materials of $ 0.1 million . our materials groups also saw a decline in their cost of revenues from $ 5.5 million for 2011 to $ 4.8 million for 2012 , a decline of $ 0.7 million , due to a decrease in direct labor and overhead . cost of revenues in our sensing groups increased from $ 4.6 million for 2011 to $ 5.0 million for 2012 , an increase of $ 0.4 million , with all areas of direct costs in our sensing groups showing increases , commensurate with their increases in revenue . our products and licensing segment costs decreased from $ 6.6 million for 2011 to $ 5.2 million for 2012 , a decrease of 20.5 % . within our products and licensing segment , product sales costs
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31 changes in our net interest income are a function of changes in both rates and volumes of interest-earning assets and interest-bearing liabilities . the following table sets forth information regarding changes in our interest income and expense for the years indicated . information is provided in each category with respect to ( i ) changes attributable to changes in volume ( changes in volume multiplied by prior rate ) , ( ii ) changes attributable to changes in rate ( changes in rate multiplied by prior volume ) , and ( iii ) the total change . the changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate . replace_table_token_19_th comparison of operating results for the years ended december 31 , 2012 and 2011 story_separator_special_tag $ 5.1 million and represented 72 % of charge-offs during 2012. charge-offs in church loans totaled $ 1.4 million and represented 19 % of charge-offs during 2012. charge-offs in commercial real estate loans totaled $ 544 thousand and represented 8 % of charge-offs during 2012. charge-offs in five or more unit residential real estate loans totaled $ 104 thousand and represented 1 % of charge-offs during 2012. of the $ 5.1 million of charge-offs in one-to-four family residential real estate loans , $ 3.4 million was attributable to the fair value write down of 30 classified loans that were transferred to loans held for sale in 2012 , and subsequently sold in february 2013. impaired loans at december 31 , 2012 were $ 44.4 million , compared to $ 56.3 million at december 31 , 2011. specific reserves for impaired loans were $ 2.7 million , or 6.16 % of the aggregate impaired loan amount at december 31 , 2012 , compared to $ 3.9 million , or 7.00 % , at december 31 , 2011. excluding specific reserves for impaired loans , our coverage ratio ( general allowance as a percentage of total non-impaired loans ) was 4.18 % at december 31 , 2012 , compared to 4.71 % at december 31 , 2011. we performed an impairment analysis for all non-performing and restructured loans , and established specific reserves for impaired loans of $ 2.7 million at december 31 , 2012. of the $ 2.7 million specific reserves at december 31 , 2012 , $ 368 thousand was related to $ 1.2 million of loans that are non-performing . additionally , we recorded $ 2.4 million of specific reserves for impairment related to $ 17.5 million of accruing loans that were modified in troubled debt restructurings . on $ 13.6 million of impaired loans , the fair value of collateral less estimated selling costs exceeded the recorded investment in the loan and did not require a specific reserve or charge-off . the remaining $ 12.1 million of impaired loans were written down to fair value after charge-offs of $ 10.0 million were recorded during 2012 and in prior periods . management believes that the allowance for loan losses is adequate to cover probable incurred losses in the loan portfolio as of december 31 , 2012 , but there can be no assurance that actual losses will not exceed the estimated amounts . in addition , the occ and the fdic periodically review the allowance for loan losses as an integral part of their examination process . these agencies may require an increase in the allowance for loan losses based on their judgments of the information available to them at the time of their examinations . the provisions for loan losses and corresponding allowance for loan losses in these financial statements contained in part 1 , item 8 of this form 10-k reflect judgments by the occ made during its supervisory examination of our bank completed in july 2012. non-interest income non-interest income for the year 2012 increased $ 2.4 million from $ 713 thousand in 2011 to $ 3.1 million in 2012. the increase primarily reflects a $ 2.5 million gain on the sale of our headquarters building and a $ 257 thousand increase in net gains on sales of reo . partially offsetting these increases were lower service charges , lower loan servicing fee income and higher losses on sales of loans for the year 2012. service charges decreased by $ 99 thousand in 2012 primarily due to the decrease in deposits . loan servicing fees decreased in 2012 primarily due to $ 51 thousand lower servicing fee income and $ 137 thousand higher amortization expense on our mortgage servicing rights asset resulting from payoffs and payments on loans sold to or serviced for investors . during 2012 , we sold certain delinquent and non-performing loans , primarily commercial real estate and church loans , totaling $ 2.9 million and recorded a loss of $ 253 thousand . 34 non-interest expense non-interest expense for the year 2012 decreased $ 4.0 million from $ 18.0 million in 2011 to $ 14.0 million in 2012. a large portion of the decrease was from lower provisions for losses on reo and loans held for sale , which decreased a total of $ 3.1 million from $ 4.2 million in 2011 to $ 1.1 million in 2012. the provisions for losses decreased as recent valuations of the underlying collateral securing our non-performing loans held for sale and reo properties reflected steady values or a slower rate of depreciation than in 2011. other significant decreases in non-interest expense include a $ 302 thousand decrease in compensation and benefits expense , a $ 270 thousand decrease in fdic insurance premium expense resulting from lower deposits , a $ 157 thousand decrease in professional services expense and a $ 148 thousand decrease in occupancy expense . story_separator_special_tag income taxes income tax expense totaled $ 829 thousand for 2012 and $ 1.8 million for 2011. in 2012 , the company reported income tax expense equal to an effective tax rate of 58.50 % , due to an increase in the valuation allowance related to the projected utilization of the company 's federal and state deferred tax assets . in 2011 , the company recorded a tax expense despite having a pre-tax loss . the tax expense in 2011 reflected the impact of tax provision true-ups and an increase in the valuation allowance related to the projected utilization of its federal and state deferred tax assets . the increases in the valuation allowance against our federal and state deferred tax assets during 2012 and 2011 were due to the company 's inability to project sufficient future taxable income . see note 1 ยsummary of significant accounting policiesย and note 13 ยincome taxesย of the notes to consolidated financial statements for a further discussion of income taxes and a reconciliation of income tax at the federal statutory tax rate to actual tax expense ( benefit ) . comparison of financial condition at december 31 , 2012 and 2011 total assets total assets were $ 373.7 million at december 31 , 2012 , which represented a decrease of $ 40.0 million , or 10 % , from december 31 , 2011. during 2012 , net loans held for investment decreased by $ 71.0 million , securities decreased by $ 5.6 million , office properties and equipment decreased by $ 2.0 million and deferred tax assets decreased by $ 850 thousand , while cash and cash equivalents increased by $ 32.8 million , loans held for sale increased by $ 6.1 million and reo increased by $ 1.5 million . the c & ds issued to us by the ots effective september 9 , 2010 , which are now administered by the occ with respect to the bank , limit the increase in the bank 's total assets during any quarter to an amount equal to the net interest credited on deposit liabilities during the prior quarter without the prior written notice to and receipt of notice of non-objection from the occ . loans receivable held for investment our gross loan portfolio decreased by $ 76.7 million to $ 263.1 million at december 31 , 2012 from $ 339.8 million at december 31 , 2011 , as loan repayments , foreclosures and charge-offs exceeded loan originations during 2012. the decrease in our loan portfolio consisted of a $ 24.8 million decrease in our five or more units residential real estate loan portfolio , an $ 18.9 million decrease in our one-to-four family residential real estate loan portfolio , a $ 13.1 million decrease in our commercial real estate loan portfolio , a $ 12.8 million decrease in our church loan portfolio , a $ 3.1 million decrease in our construction loan portfolio , a $ 3.1 million decrease in our commercial loan portfolio , and a $ 825 thousand decrease in our consumer loan portfolio . loan originations for the year ended december 31 , 2012 totaled $ 20.5 million , compared to $ 5.1 million for the year ended december 31 , 2011. loan repayments for the year ended december 31 , 2012 totaled $ 70.6 million , compared to $ 40.6 million for the comparable period in 2011. the increase in loan repayments was primarily attributable to a higher level of refinancings by borrowers who could take advantage of historically low interest rates and new 35 financing opportunities in the stabilized commercial and single family markets . loan charge-offs during 2012 totaled $ 7.1 million , compared to $ 15.4 million of charge-offs during 2011. loans transferred to reo during 2012 totaled $ 9.8 million , compared to $ 9.3 million during 2011. loans transferred to loans held for sale during 2012 totaled $ 9.7 million , compared to $ 2.5 million of loans transferred to loans held for sale during 2011. loans receivable held for sale loans held for sale increased from $ 13.0 million at december 31 , 2011 to $ 19.1 million at december 31 , 2012. the $ 6.1 million increase during 2012 was primarily due to the transfer of $ 9.7 million of classified loans from the held for investment loan portfolio to the held for sale portfolio . this transfer included substantially all of the bank 's non-performing single-family residential loans , which were subsequently sold in february 2013. during 2012 , nonperforming loans sales totaled $ 2.9 million , compared to $ 1.3 million during 2011. loan repayments during 2012 totaled $ 450 thousand , compared to $ 3.6 million during 2011. loans held for sale that were transferred to reo during 2012 totaled $ 334 thousand , compared to $ 1.5 million during 2011. real estate owned during 2012 , reo increased by $ 1.5 million to $ 8.2 million at december 31 , 2012 , from $ 6.7 million at december 31 , 2011. at december 31 , 2012 the bank 's reo consisted of thirteen commercial real estate properties , five of which are church buildings . during 2012 , fifteen loans totaling $ 10.2 million were foreclosed and transferred to reo . as part of our efforts to reduce non-performing assets , fifteen reo properties were sold for total proceeds of $ 7.8 million and a corresponding net gain of $ 292 thousand was recorded during 2012. deposits deposits totaled $ 257.1 million at december 31 , 2012 , down $ 37.6 million , or 13 % , from year-end 2011. this reflects our efforts to improve our net interest margin by reducing higher costing certificates of deposit .
| interest income decreased $ 5.2 million , or 21 % , to $ 19.9 million for the year 2012 from $ 25.1 million for the year 2011. the decrease in interest income was primarily due to a $ 72.4 million decrease in the average balance of loans receivable from $ 397.4 million for the year 2011 to $ 325.0 million for the year 2012 , which resulted in a $ 4.1 million reduction in interest income . additionally , the average yield on loans decreased from 6.13 % for the year 2011 to 5.93 % for the year 2012 , which resulted in a $ 950 thousand reduction in interest income . the decrease in the average yield on loans was primarily a result of continued high levels of non-performing loans , payoffs of loans with rates higher than the average yield on the loan portfolio , and lower rates on loan originations as a result of the low interest rate environment . interest expense decreased $ 1.6 million , or 20 % , to $ 6.4 million for the year 2012 from $ 8.1 million for the year 2011. the decrease in interest expense was primarily attributable to a $ 44.9 million decrease in the average balance of deposits from $ 320.1 million for the year 2011 to $ 275.2 million for the year 2012 , which resulted in a $ 642 thousand reduction in interest expense . additionally , the average cost of deposits decreased from 1.40 % for the year 2011 to 1.18 % for the year 2012 , which resulted in a $ 605 thousand reduction in interest expense . the decrease in the average cost of deposits reflects the impact of certificates of deposit at higher rates maturing and being replaced at lower interest rates . also contributing to the decrease in interest expense during 2012 was lower average balance and average cost of fhlb advances . the average balance of fhlb advances decreased $ 4.3 million , from $ 87.0 million for the year 2011 to $ 82.7 million for the year 2012 , which resulted in a $ 129 thousand decrease in interest expense . the
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through a series of transactions , berubicin was initially licensed to reata . reata conducted a phase i clinical trial on berubicin but subsequently allowed their ind with the fda to lapse for strategic reasons . this will require us to obtain a new ind for berubicin before beginning further clinical trials . we do not have manufacturing facilities and all manufacturing activities are contracted out to third parties . additionally , we do not have a sales organization . on november 21 , 2017 , we entered into a collaboration and asset purchase agreement with reata ( the โ reata agreement โ ) . pursuant to the reata agreement we purchased all of reata 's intellectual property and development data regarding berubicin , including all trade secrets , knowhow , confidential information and other intellectual property rights , which we refer to as the reata data . on december 28 , 2017 , we obtained the rights to a worldwide , exclusive royalty-bearing , license to the chemical compound commonly known as berubicin from hpi in an agreement we refer to as the hpi license . under the hpi license we obtained the exclusive right to develop certain patented chemical compounds for use in the treatment of cancer anywhere in the world . in the hpi license we agreed to pay hpi : ( i ) development fees of $ 750,000 over a three-year period beginning november 2019 ; ( ii ) a 2 % royalty on net sales ; ( iii ) a $ 50,000 per year license fee ; ( iv ) milestone payments of $ 100,000 upon the commencement of a phase ii trial and $ 1.0 million upon the approval of an nda for berubicin ; and ( v ) 200,000 shares of our common stock . with the reata agreement and the hpi license , we believe we have obtained all rights and intellectual property necessary to develop berubicin . as stated earlier , it is our plan to obtain additional intellectual property covering other compounds which , subject to the receipt of additional financing , may be developed into drugs for brain and other cancers . 41 on january 10 , 2020 , we entered into a patent and technology license agreement ( the โ 1244 agreement โ ) with the board of regents of the university of texas system , an agency of the state of texas , on behalf of the university of texas m. d. anderson cancer center ( โ utmdacc โ ) . pursuant to the 1244 agreement , we obtained a royalty-bearing , worldwide , exclusive license to certain intellectual property rights , including patent rights , related to our wp1244 drug technology . in consideration , we must make payments to utmdacc including an up-front license fee , annual maintenance fee , milestone payments and royalty payments ( including minimum annual royalties ) for sales of licensed products developed under the 1244 agreement . the term of the 1244 agreement expires on the last to occur of : ( a ) the expiration of all patents subject to the 1244 agreement , or ( b ) fifteen years after execution ; provided that utmdacc has the right to terminate the 1244 agreement in the event that we fail to meet certain commercial diligence milestones . on may 7 , 2020 , pursuant to the wp1244 portfolio license agreement described above , the company entered into a sponsored research agreement with utmdacc to perform research relating to novel anticancer agents targeting cns malignancies . the company agreed to fund approximately $ 1,134,000 over a two-year period . the company paid and recorded $ 334,000 in 2020 related to this agreement in research and development expenses in the company 's statements of operations . the remaining $ 720,000 will be paid in 2021 , of which $ 400,000 was accrued at december 31 , 2020. the principal investigator for this agreement is dr. priebe . results of operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 general and administrative expense general and administrative expense was $ 4,392,873 for the year ended december 31 , 2020 compared to $ 1,978,643 for 2019. the increase in general and administrative expense , was mainly the result of closing our ipo in november 2019 which allowed us to substantially increase our operations . the details of the change is attributable to an increase of approximately $ 480,000 for stock-based compensation , an increase of $ 667,000 in employee compensation and taxes , compensation to the board of directors of $ 180,000 , an increase of $ 302,000 in professional fees , an increase of $ 495,000 in insurance expenses , and an increase of $ 431,000 in other corporate expenses . these changes were offset by a decrease of $ 154,000 in recruiting fees in 2020. research and development expense research and development expense was $ 5,061,734 for the year ended december 31 , 2020 compared to $ 1,854,334 for 2019. the expenses incurred during the year were related to patent maintenance cost and contract labor related to the preparation of our phase ii study . we expect to incur increased research and development costs in the future as our product development activities expand . interest expense interest expense was $ 3,264 and $ 26,152 for the years ended december 31 , 2020 and 2019 , respectively . the decrease in interest expense was mainly the result of the payoff of our convertible notes payable issued in 2017 bearing interest at the rate of 10 % per annum . net loss the net loss for the year ended december 31 , 2020 was $ 9,457,871 compared to $ 3,877,211 for 2019. the change in net loss is attributable to increased personnel and activity associated with preparing for our clinical trials in 2020 . 42 liquidity and capital resources on december 31 , 2020 , story_separator_special_tag through a series of transactions , berubicin was initially licensed to reata . reata conducted a phase i clinical trial on berubicin but subsequently allowed their ind with the fda to lapse for strategic reasons . this will require us to obtain a new ind for berubicin before beginning further clinical trials . we do not have manufacturing facilities and all manufacturing activities are contracted out to third parties . additionally , we do not have a sales organization . on november 21 , 2017 , we entered into a collaboration and asset purchase agreement with reata ( the โ reata agreement โ ) . pursuant to the reata agreement we purchased all of reata 's intellectual property and development data regarding berubicin , including all trade secrets , knowhow , confidential information and other intellectual property rights , which we refer to as the reata data . on december 28 , 2017 , we obtained the rights to a worldwide , exclusive royalty-bearing , license to the chemical compound commonly known as berubicin from hpi in an agreement we refer to as the hpi license . under the hpi license we obtained the exclusive right to develop certain patented chemical compounds for use in the treatment of cancer anywhere in the world . in the hpi license we agreed to pay hpi : ( i ) development fees of $ 750,000 over a three-year period beginning november 2019 ; ( ii ) a 2 % royalty on net sales ; ( iii ) a $ 50,000 per year license fee ; ( iv ) milestone payments of $ 100,000 upon the commencement of a phase ii trial and $ 1.0 million upon the approval of an nda for berubicin ; and ( v ) 200,000 shares of our common stock . with the reata agreement and the hpi license , we believe we have obtained all rights and intellectual property necessary to develop berubicin . as stated earlier , it is our plan to obtain additional intellectual property covering other compounds which , subject to the receipt of additional financing , may be developed into drugs for brain and other cancers . 41 on january 10 , 2020 , we entered into a patent and technology license agreement ( the โ 1244 agreement โ ) with the board of regents of the university of texas system , an agency of the state of texas , on behalf of the university of texas m. d. anderson cancer center ( โ utmdacc โ ) . pursuant to the 1244 agreement , we obtained a royalty-bearing , worldwide , exclusive license to certain intellectual property rights , including patent rights , related to our wp1244 drug technology . in consideration , we must make payments to utmdacc including an up-front license fee , annual maintenance fee , milestone payments and royalty payments ( including minimum annual royalties ) for sales of licensed products developed under the 1244 agreement . the term of the 1244 agreement expires on the last to occur of : ( a ) the expiration of all patents subject to the 1244 agreement , or ( b ) fifteen years after execution ; provided that utmdacc has the right to terminate the 1244 agreement in the event that we fail to meet certain commercial diligence milestones . on may 7 , 2020 , pursuant to the wp1244 portfolio license agreement described above , the company entered into a sponsored research agreement with utmdacc to perform research relating to novel anticancer agents targeting cns malignancies . the company agreed to fund approximately $ 1,134,000 over a two-year period . the company paid and recorded $ 334,000 in 2020 related to this agreement in research and development expenses in the company 's statements of operations . the remaining $ 720,000 will be paid in 2021 , of which $ 400,000 was accrued at december 31 , 2020. the principal investigator for this agreement is dr. priebe . results of operations for the year ended december 31 , 2020 compared to the year ended december 31 , 2019 general and administrative expense general and administrative expense was $ 4,392,873 for the year ended december 31 , 2020 compared to $ 1,978,643 for 2019. the increase in general and administrative expense , was mainly the result of closing our ipo in november 2019 which allowed us to substantially increase our operations . the details of the change is attributable to an increase of approximately $ 480,000 for stock-based compensation , an increase of $ 667,000 in employee compensation and taxes , compensation to the board of directors of $ 180,000 , an increase of $ 302,000 in professional fees , an increase of $ 495,000 in insurance expenses , and an increase of $ 431,000 in other corporate expenses . these changes were offset by a decrease of $ 154,000 in recruiting fees in 2020. research and development expense research and development expense was $ 5,061,734 for the year ended december 31 , 2020 compared to $ 1,854,334 for 2019. the expenses incurred during the year were related to patent maintenance cost and contract labor related to the preparation of our phase ii study . we expect to incur increased research and development costs in the future as our product development activities expand . interest expense interest expense was $ 3,264 and $ 26,152 for the years ended december 31 , 2020 and 2019 , respectively . the decrease in interest expense was mainly the result of the payoff of our convertible notes payable issued in 2017 bearing interest at the rate of 10 % per annum . net loss the net loss for the year ended december 31 , 2020 was $ 9,457,871 compared to $ 3,877,211 for 2019. the change in net loss is attributable to increased personnel and activity associated with preparing for our clinical trials in 2020 . 42 liquidity and capital resources on december 31 , 2020 ,
| purchase commitments we do not have any material commitments for capital expenditures , although we are required to pay certain development fees to hpi as described in the section โ overview โ above . jobs act accounting election the jumpstart our business startups act of 2012 , or the jobs act , exempts an โ emerging growth company โ such as us from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards . the jobs act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable . we elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies , we , as an emerging growth company , can adopt the new or revised standard at the time private companies adopt the new or revised standard . this may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used . critical accounting policies and estimates the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america requires management to make estimates , assumptions and judgments that affect the amounts reported in the financial statements , including the notes thereto . we consider critical accounting policies to be those that require more significant judgments and estimates in the preparation of our financial statements , including the following : long lived assets ; intangible assets valuations ; and income tax valuations . management relies on historical experience and other assumptions believed to be reasonable in making
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โ critical accounting policies the company considers accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have , or could have , a material impact on the carrying value of certain assets or on income , to be critical accounting policies . the company considers the following to be its critical accounting policies . allowance for loan losses . the bank maintains an allowance for loan losses in an amount it believes is appropriate to absorb probable losses inherent in the portfolio at a balance sheet date . management 's periodic determination of the adequacy of the allowance is based on the size and current risk characteristics of the loan portfolio , an assessment of individual problem loans and actual loss experience , current economic events in relevant industries and other pertinent factors such as regulatory guidance and general economic conditions . however , this evaluation is inherently subjective , as it requires an estimate of the loss content for each risk rating and for each impaired loan , an estimate of the amounts and timing of expected future cash flows , and an appraisal or other estimate of the value of collateral on impaired loans and estimated losses on pools of homogenous loans based on the balance of loans in each loan category , changes in the inherent credit risk due to portfolio growth , historical loss experience and consideration of current economic trends . based on management 's estimate of the level of allowance for loan losses required , the bank records a provision for loan losses to maintain the allowance for loan losses at an appropriate level . the determination of the allowance for loan losses is based on management 's current judgments about the loan portfolio credit quality and management 's consideration of all known relevant internal and external factors that affect loan collectability , as of the reporting date . management can not predict with certainty the amount of loan charge-offs that will be incurred . management does not currently determine a range of loss with respect to the allowance for loan losses . in addition , various banking regulatory agencies , as an 29 integral part of their examination processes , periodically review the bank 's allowance for loan losses . such agencies may require that the bank recognize additions to the allowance for loan losses based on their judgments about information available to them at the time of their examination . accordingly , actual results could differ from those estimates . other-than-temporary impairment . in estimating other-than-temporary impairment of investment securities , securities are evaluated periodically , and at least quarterly , to determine whether a decline in their value is other than temporary . the company considers numerous factors when determining whether potential other-than-temporary impairment exists and the period over which a debt security is expected to recover . the principal factors considered are ( 1 ) the length of time and the extent to which the fair value has been less than the amortized cost basis , ( 2 ) the financial condition of the issuer ( and guarantor , if any ) and adverse conditions specifically related to the security , industry or geographic area , ( 3 ) failure of the issuer of the security to make scheduled interest or principal payments , ( 4 ) any changes to the rating of a security by a rating agency , and ( 5 ) the presence of credit enhancements , if any , including the guarantee of the federal government or any of its agencies . for debt securities , other-than-temporary impairment is considered to have occurred if ( 1 ) the company intends to sell the security , ( 2 ) it is more likely than not the company will be required to sell the security before recovery of its amortized cost basis , or ( 3 ) if the present value of expected cash flows is not sufficient to recover the entire amortized cost basis . in determining the present value of expected cash flows , the company discounts the expected cash flows at the effective interest rate implicit in the security at the date of acquisition or , for debt securities that are beneficial interests in securitized financial assets , at the current rate used to accrete the beneficial interest . in estimating cash flows expected to be collected , the company uses available information with respect to security prepayment speeds , expected deferral rates and severity , whether subordinated interests , if any , are capable of absorbing estimated losses and the value of any underlying collateral . deferred tax assets . the company uses an estimate of future earnings to support the position that the benefit of its deferred tax assets will be realized . if future income should prove non-existent or less than the amount of the deferred tax assets within the tax years to which they may be applied , the asset may not be realized and the company 's net income will be reduced . goodwill and other intangible assets . the company must assess goodwill and other intangible assets for impairment . this assessment involves estimating the fair value of its reporting units . if the fair value of the reporting unit is less than the carrying value including goodwill , the company would be required to take a charge against earnings to write down the assets to the lower value . pension plan . the bank maintains a noncontributory defined benefit pension plan covering employees whose benefits were frozen effective august 1 , 2005. no future benefits are accrued , however the plan calls for benefits to be paid to eligible employees at retirement based primarily upon years of service with the bank . balance sheet analysis : december 31 , 2019 and december 31 , 2018 general . story_separator_special_tag the company 's total assets as of december 31 , 2019 increased $ 12.6 million , or 1.3 % , to $ 984.4 million from $ 971.8 million at december 31 , 2018. the increase in total assets included an increase in cash and cash equivalents of $ 16.2 million , or 100.1 % , and an increase in investment and mortgage-backed securities of $ 13.4 million , or 9.1 % , partially offset by a decrease in loans receivable of $ 16.0 million , or 2.2 % , for the year ended december 31 , 2019. cash and cash equivalents . cash and cash equivalents increased $ 16.2 million , or 100.1 % , to $ 32.4 million at december 31 , 2019 from $ 16.2 million at december 31 , 2018. the increase primarily resulted from customer deposits and loan repayments , partially offset by purchases of investment and mortgage-backed securities and repayments of short-term and long-term borrowings during the period . investment securities . investment securities available for sale increased $ 3.7 million , or 5.6 % , to $ 69.9 million at december 31 , 2019 from $ 66.2 million at december 31 , 2018. purchases of investment securities totaled $ 13.9 million , partially offset by calls and maturities of $ 5.3 million and sales of $ 6.3 million during the year ended december 31 , 2019. additionally , there was a $ 1.5 million increase in the unrealized gain on investment securities during the period . 30 equity securities . equity securities were $ 3.0 million and $ 2.7 million at december 31 , 2019 and december 31 , 2018 , respectively . there were no purchases or sales of equity securities during the year ended december 31 , 2019. mortgage-backed securities . the company 's mortgage-backed securities available for sale increased $ 9.7 million , or 11.8 % , to $ 91.5 at december 31 , 2019 from $ 81.8 million at december 31 , 2018. purchases of mortgage-backed securities totaled $ 30.4 million , partially offset by repayments of $ 20.3 million and sales of $ 1.3 million during the year ended december 31 , 2019. additionally , there was a $ 1.7 million increase in the unrealized gain on mortgage-backed securities during the period . investment , equity and mortgage-backed securities composition . the composition of the investment , equity , and mortgage-backed securities portfolio is summarized in the following table ( dollars in thousands ) . at december 31 , 2019 and december 31 , 2018 , all of the company 's investment , equity , and mortgage-backed securities were classified as available for sale and recorded at current fair value . replace_table_token_4_th during the year ended december 31 , 2019 , $ 44.2 million of securities purchased were partially offset by $ 7.6 million of securities sales and $ 25.6 million of securities calls and repayments . for the year ended december 31 , 2019 , there was a net realized loss of $ 1,000 on the sale of securities . during the year ended december 31 , 2018 , $ 40.2 million of securities purchased were partially offset by $ 6.7 million of securities sales and $ 13.4 million of securities calls and repayments . for the year ended december 31 , 2018 , there was a net realized gain of $ 377,000 on the sale of securities . at december 31 , 2019 and december 31 , 2018 , the company held 42 securities and 118 securities in unrealized loss positions of $ 471,000 and $ 1.9 million , respectively . the decline in the fair value of these securities resulted primarily from interest rate fluctuations . the company does not intend to sell these securities nor is it more likely than not that the company would be required to sell these securities before their anticipated recovery and the company believes the collection of the investment and related interest is probable . based on this analysis , the company considers all of the unrealized losses to be temporary impairment losses . investment , equity and mortgage-backed securities maturities and yields . the maturities and weighted average yields of the investment , equity and mortgage-backed securities portfolio at december 31 , 2019 are summarized in the following table ( dollars in thousands ) . maturities are based on the final contractual payment dates , and do not reflect the impact of prepayments or early redemptions that may occur . state and municipal securities yields have not been adjusted to a tax- equivalent basis . 31 โ โ โ due 1 year or less โ โ due 1 โ 5 years โ โ due 5 โ 10 years โ โ due over 10 years โ โ total securities โ โ โ โ amortized cost โ โ weighted average yield โ โ amortized cost โ โ weighted average yield โ โ amortized cost โ โ weighted average yield โ โ amortized cost โ โ weighted average yield โ โ amortized cost โ โ weighted average yield โ municipal obligations โ โ โ $ 260 โ โ โ โ โ 2.96 % โ โ โ โ $ 5,085 โ โ โ โ โ 4.78 % โ โ โ โ $ 18,210 โ โ โ โ โ 2.89 % โ โ โ โ $ 33,951 โ โ โ โ โ 2.81 % โ โ โ โ $ 57,506 โ โ โ โ โ 3.01 % โ โ u.s. government and agency obligations โ โ โ โ 5,986 โ โ โ โ โ 2.08 % โ โ โ โ โ 1,470 โ โ โ โ โ 2.50 % โ โ โ โ โ 948 โ โ โ โ โ 2.92 % โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ 8,404 โ โ โ โ โ 2.25 % โ โ corporate bonds โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ โ 2,477 โ โ โ โ โ 3.63 % โ โ โ โ โ โ โ โ โ
| interest income on loans increased $ 454,000 , or 1.4 % , to $ 32.5 million for the year ended december 31 , 2019 compared to $ 32.0 million for the year ended december 31 , 2018. the increase was primarily the result 36 of a 16 basis point increase in the average yield on loans receivable to 4.41 % for the year ended december 31 , 2019 from 4.25 % for the prior year . the increase in the average yield was attributable to some adjustable rate loans resetting higher as a result of increases in general market rates earlier in the year and the continued repositioning of the loan portfolio to emphasize commercial real estate and business lending compared to the prior year . the increase in interest income resulting from the increase in the average yield was partially offset by a decrease in the average balance of loans receivable of $ 9.3 million , or 1.3 % , to $ 731.1 million for the year ended december 31 , 2019 compared to the prior year . interest income on investment and mortgage-backed securities increased by $ 377,000 , or 9.8 % , to $ 4.2 million for the year ended december 31 , 2019 from $ 3.9 million for the year ended december 31 , 2018. the increase was primarily the result of an increase in the average balance of investment and mortgage-backed securities of $ 14.5 million , or 9.9 % , to $ 160.4 million for year ended december 31 , 2019 compared to the prior year . in addition , the average yield earned on investment and mortgage-backed securities increased eight basis points to 2.63 % for the year ended december 31 , 2019 from 2.55 % for the prior year . the increase in the average yield was due to new security purchases made at higher interest rates during the period . interest income on fhlb stock and other restricted stock increased $ 28,000 or 4.8 % to $ 618,000 for the year ended december 31 , 2018 compared to $ 590,000 for the year ended december 31 , 2018. the increase was primarily the result of an increase in the average yield to 8.05 % for
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general and administrative expenses include the executive department , accounting department , information services department , general office management and building facilities management . general and administrative expenses as a percentage of gross sales were 5.2 % for fiscal year 2014 and 5.8 % for fiscal year 2013. the tax provision for fiscal year 2014 was $ 515,900. the effective rate for fiscal year 2014 was 59.1 % and for fiscal year 2013 was 37.4 % . our effective tax rate is higher than the federal statutory rate due to state income and franchise taxes and a fully-reserved capital loss carry forward , which we do not reasonably expect to deduct for income tax purposes . contractual obligations we are a smaller reporting company and are not required to provide this information . critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to our valuation of inventory , allowance for uncollectable accounts receivable , allowance for sales returns , long-lived assets and deferred income taxes . 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 values of assets and liabilities that are not readily apparent from other sources . actual results may materially differ from these estimates under different assumptions or conditions . historically , however , actual results have not differed materially from those determined using required estimates . our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report . however , we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions . stock-based compensation we account for stock-based compensation whereby share-based payment transactions with employees , such as stock options and restricted stock , are measured at estimated fair value at date of grant and recognized as compensation expense . 13 revenue recognition sales are recognized and recorded when products are shipped . products are shipped fob shipping point . ubam 's sales are paid at the time the product is shipped . these sales accounted for 58 % of net revenues in both fiscal years 2014 and 2013. estimated allowances for sales returns are recorded as sales are recognized and recorded . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily from the retail stores . the damages occur in the stores , not in shipping to the stores . it is industry practice to accept returns from wholesale customers . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . management has estimated and included a reserve for sales returns of $ 100,000 for the years ended february 28 , 2014 and 2013. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 233,900 and $ 471,900 as of february 28 , 2014 and 2013 , respectively . inventory management continually estimates and calculates the amount of noncurrent inventory . the inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier . noncurrent inventory was estimated by management using the current year turnover ratio by title . all inventory in excess of 2 ยฝ years of anticipated sales was classified as noncurrent inventory . noncurrent inventory balances were $ 824,000 and $ 934,000 at february 28 , 2014 and 2013 , respectively . inventories are presented net of a valuation allowance . management has estimated and included a valuation allowance for both current and noncurrent inventory . this allowance is based on management 's identification of slow moving inventory on hand . management has estimated a valuation allowance for both current and noncurrent inventory of $ 378,800 and $ 400,000 as of february 28 , 2014 and 2013 , respectively . our product line contains approximately 1,500 titles , each with different rates of sale , depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in europe , china , singapore , india , malaysia and dubai resulting in a three to four-month lead-time to have a title reprinted and delivered to us . our principal supplier , based in england , generally requires a minimum reorder of 6,500 or more of a title in order to get a solo print run . smaller orders would require a shared print run with the supplier 's other customers , which can result in more lengthy delays to receive the ordered title . anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series . we then place the initial order or re-order based upon this analysis . these factors and historical analysis have led management story_separator_special_tag general and administrative expenses include the executive department , accounting department , information services department , general office management and building facilities management . general and administrative expenses as a percentage of gross sales were 5.2 % for fiscal year 2014 and 5.8 % for fiscal year 2013. the tax provision for fiscal year 2014 was $ 515,900. the effective rate for fiscal year 2014 was 59.1 % and for fiscal year 2013 was 37.4 % . our effective tax rate is higher than the federal statutory rate due to state income and franchise taxes and a fully-reserved capital loss carry forward , which we do not reasonably expect to deduct for income tax purposes . contractual obligations we are a smaller reporting company and are not required to provide this information . critical accounting policies our discussion and analysis of our financial condition and results of operations are based upon our financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities . on an on-going basis , we evaluate our estimates , including those related to our valuation of inventory , allowance for uncollectable accounts receivable , allowance for sales returns , long-lived assets and deferred income taxes . 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 values of assets and liabilities that are not readily apparent from other sources . actual results may materially differ from these estimates under different assumptions or conditions . historically , however , actual results have not differed materially from those determined using required estimates . our significant accounting policies are described in the notes accompanying the financial statements included elsewhere in this report . however , we consider the following accounting policies to be more significantly dependent on the use of estimates and assumptions . stock-based compensation we account for stock-based compensation whereby share-based payment transactions with employees , such as stock options and restricted stock , are measured at estimated fair value at date of grant and recognized as compensation expense . 13 revenue recognition sales are recognized and recorded when products are shipped . products are shipped fob shipping point . ubam 's sales are paid at the time the product is shipped . these sales accounted for 58 % of net revenues in both fiscal years 2014 and 2013. estimated allowances for sales returns are recorded as sales are recognized and recorded . management uses a moving average calculation to estimate the allowance for sales returns . we are not responsible for product damaged in transit . damaged returns are primarily from the retail stores . the damages occur in the stores , not in shipping to the stores . it is industry practice to accept returns from wholesale customers . transportation revenue represents the amount billed to the customer for shipping the product and is recorded when the product is shipped . management has estimated and included a reserve for sales returns of $ 100,000 for the years ended february 28 , 2014 and 2013. allowance for doubtful accounts we maintain an allowance for estimated losses resulting from the inability of our customers to make required payments . an estimate of uncollectible amounts is made by management based upon historical bad debts , current customer receivable balances , age of customer receivable balances , customers ' financial conditions and current economic trends . management has estimated an allowance for doubtful accounts of $ 233,900 and $ 471,900 as of february 28 , 2014 and 2013 , respectively . inventory management continually estimates and calculates the amount of noncurrent inventory . the inventory arises due to occasional purchases of book inventory in quantities in excess of what will be sold within the normal operating cycle due to minimum order requirements of our primary supplier . noncurrent inventory was estimated by management using the current year turnover ratio by title . all inventory in excess of 2 ยฝ years of anticipated sales was classified as noncurrent inventory . noncurrent inventory balances were $ 824,000 and $ 934,000 at february 28 , 2014 and 2013 , respectively . inventories are presented net of a valuation allowance . management has estimated and included a valuation allowance for both current and noncurrent inventory . this allowance is based on management 's identification of slow moving inventory on hand . management has estimated a valuation allowance for both current and noncurrent inventory of $ 378,800 and $ 400,000 as of february 28 , 2014 and 2013 , respectively . our product line contains approximately 1,500 titles , each with different rates of sale , depending upon the nature and popularity of the title . almost all of our product line is saleable as the books are not topical in nature and remain current in content today as well as in the future . most of our products are printed in europe , china , singapore , india , malaysia and dubai resulting in a three to four-month lead-time to have a title reprinted and delivered to us . our principal supplier , based in england , generally requires a minimum reorder of 6,500 or more of a title in order to get a solo print run . smaller orders would require a shared print run with the supplier 's other customers , which can result in more lengthy delays to receive the ordered title . anticipating customer preferences and purchasing habits requires historical analysis of similar titles in the same series . we then place the initial order or re-order based upon this analysis . these factors and historical analysis have led management
| we may also acquire , for a fee , an end cap position in a bookstore ( our products are placed on the end of a shelf ) , which in the publishing industry is considered an advantageous location in the bookstore . edc publishing 's in-house telesales group targets the smaller independent book and gift store market . our semi-annual , full-color , 160-page catalogs , are mailed to over 5,000 customers and potential customers . we also offer two display racks to assist stores in displaying our products . fy 2014 fy 2013 net revenues $ 10,968,400 $ 10,811,600 publishing division 's net revenues increased $ 156,800 in fiscal year 2014 from fiscal year 2013 , or 1.5 % . net revenues were up 10.2 % for smaller retail stores and 3.0 % for inside sales , offset by a decrease of 5.3 % for national chain stores . 8 usborne books & more ( โ ubam โ ) division ubam is a multi-level direct selling organization that markets its products through independent sales representatives ( โ consultants โ ) located throughout the united states . the customer base of ubam consists of individual purchasers , as well as school and public libraries . revenues are generated through home shows , direct sales , internet sales , book fairs and contracts with school and public libraries . an important factor in the continued growth of the ubam division is the addition of new sales consultants and the retention of existing consultants . current active consultants recruit new sales consultants . ubam makes it easy to recruit by providing low-cost signing kits . ubam provides an extensive handbook that is a valuable tool in explaining the various programs to the new recruit . consultants during year fy 2014 fy 2013 new sales representatives 4,000 2,700 active sales representatives end of fiscal year 5,900 4,700 the ubam division presently has six levels of sales representatives : ยท consultants ยท team leaders ยท senior team leaders ยท executive team leaders
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in calendar year 2011 , we reported what we believe is promising median os of 9.3 months in patients with glioblastoma multiforme ( โ gbm โ ) at first relapse following a single dose of cotara in a phase ii clinical trial . based on these data and data from earlier clinical studies , we have entered into active discussion with the fda regarding a registration pathway for cotara to further advance the program . cotara has been granted orphan drug status and fast track designation for the treatment of gbm and anaplastic astrocytoma by the fda . in addition to our clinical research and development efforts , we operate a wholly-owned cgmp ( current good manufacturing practices ) contract manufacturing subsidiary , avid bioservices , inc. ( โ avid โ ) . avid is a contract manufacturing organization that provides fully integrated services from cell line development to commercial cgmp biomanufacturing for peregrine and avid 's third-party clients . in addition to generating revenue from providing a broad range of biomanufacturing services to third-party clients , avid is strategically integrated with peregrine to manufacture all clinical products to support our clinical trials while also preparing for potential commercial launch . going concern our consolidated financial statements have been prepared on a going concern basis , which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business . the financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should it be determined that we are unable to continue as a going concern . 42 at april 30 , 2012 , we had $ 18,033,000 in cash and cash equivalents . we have expended substantial funds on the research , development and clinical trials of our product candidates , and funding the operations of avid . as a result , we have historically experienced negative cash flows from operations since our inception and we expect the negative cash flows from operations to continue for the foreseeable future . our net losses incurred during the past three fiscal years ended april 30 , 2012 , 2011 and 2010 amounted to $ 42,119,000 , $ 34,151,000 , and $ 14,494,000 , respectively . unless and until we are able to generate sufficient revenues from avid 's contract manufacturing services and or from the sale and or licensing of our products under development , we expect such losses to continue for the foreseeable future . therefore , our ability to continue our clinical trials and development efforts is highly dependent on the amount of cash and cash equivalents on hand combined with our ability to raise additional capital to support our future operations through one or more methods , including but not limited to , issuing additional equity or debt . historically , we have funded a significant portion of our operations through the issuance of equity . during fiscal year 2012 , we raised $ 34,330,000 in gross proceeds ( as described in note 7 to the accompanying consolidated financial statements ) . subsequent to april 30 , 2012 and through june 30 , 2012 we raised an additional $ 1,496,000 in gross proceeds under an at market issuance agreement ( as described in note 7 to the accompanying consolidated financial statements ) . as of june 30 , 2012 , additional shares of our common stock for aggregate gross proceeds of up to $ 185,886,000 may be available under our current effective shelf registration statements on form s-3 . although we believe we can raise sufficient capital to meet our obligations through fiscal year 2013 , our ability to raise additional capital in the equity markets is also dependent on a number of factors , including , but not limited to , the market demand for our common stock . the market demand or liquidity of our common stock is subject to a number of risks and uncertainties , including but not limited to , negative economic conditions , adverse market conditions , adverse clinical trials results , and significant delays in one or more clinical trials . if our ability to access the capital markets becomes severely restricted , it could have a negative impact on our business plans , including our clinical trial programs and other research and development activities . in addition , even if we are able to raise additional capital , it may not be at a price or on terms that are favorable to us . in addition , although we have historically financed our operations through the issuance of equity , we may also raise additional capital through the issuance of debt , licensing or partnering our products in development , or increasing revenue from our wholly-owned subsidiary , avid . while we will continue to explore these potential opportunities , there can be no assurances that we will be successful in securing debt financing , license or partner our products in development , or generate additional revenue from avid to complete the research , development , and clinical testing of our product candidates . based on our current projections , which include projected revenues under signed contracts with existing customers of avid , and assuming we do not generate any additional revenues or raise any additional capital from the capital markets or other potential sources , we believe we have sufficient cash on hand combined with amounts expected to be received from avid customers to meet our obligations as they become due through at least the third quarter of our fiscal year 2013 ending january 31 , 2013. there are a number of uncertainties associated with our financial projections , including but not limited to , termination of third party contracts , technical challenges , the rate at which patients are enrolled into any current or future clinical trials , any of which could reduce , delay or accelerate our future projected cash inflows and outflows . story_separator_special_tag in addition , in the event our projected cash-inflows are reduced or delayed we might not have sufficient capital to operate our business through the third quarter of our fiscal year 2013 unless we raise additional capital . the uncertainties surrounding our future cash inflows have raised substantial doubt regarding our ability to continue as a going concern . 43 story_separator_special_tag in cost of contract manufacturing of $ 2,857,000 ( or 39 % ) during the year ended april 30 , 2012 compared to the prior year was primarily related to the current year increase in contract manufacturing revenue . cost of contract manufacturing as a percentage of contract manufacturing revenue fluctuates from year to year based on the mix of services provided and the gross margins associated with these services . during fiscal year 2012 , the cost of contract manufacturing as a percentage of contract manufacturing revenue improved to 69 % compared to 86 % in fiscal year 2011. the current year improvement was primarily attributed to the increase in revenue associated with the increased number of completed manufacturing runs . year ended april 30 , 2011 compared to the year ended april 30 , 2010 : the decrease in cost of contract manufacturing of $ 1,420,000 ( or 16 % ) during the year ended april 30 , 2011 compared to fiscal year 2010 was primarily related to the fiscal year 2011 decrease in contract manufacturing revenue . in addition , the cost of contract manufacturing as a percentage of contract manufacturing revenue increased from 66 % in fiscal year 2010 to 86 % in fiscal year 2011 , which was primarily due to ( i ) the fiscal year 2011 decrease in the level of manufacturing services provided to third-party customers due to the decrease in the number of completed manufacturing runs , and ( ii ) the write-off of certain material manufactured for a third-party customer that did not meet certain specifications for product release . 45 research and development expenses year ended april 30 , 2012 compared to the year ended april 30 , 2011 : the increase in research and development ( โ r & d โ ) expenses of $ 6,226,000 ( or 21 % ) during the year ended april 30 , 2012 compared to the prior year was due to the following changes associated with each of our following technologies under development : replace_table_token_8_th o ps-targeting technology platform โ the increase in ps-targeting program expenses of $ 5,943,000 during the year ended april 30 , 2012 compared to the prior year was primarily due to increases in clinical trial and related expenses , payroll and related expenses , and manufacturing costs to support the advancement of our later-stage clinical program for bavituximab . during the current fiscal year , we continued to treat patients in three separate randomized multi-center phase ii clinical trials using bavituximab in combination with chemotherapy for the treatment of patients with ( i ) front-line non-small cell lung cancer ( โ nsclc โ ) , ( ii ) second-line nsclc , and ( iii ) pancreatic cancer , and announced the completion of patient enrollment of the front and second-line nsclc trials during september and october 2011 , respectively . we also continued to enroll and treat patients in a randomized phase ii clinical trial using bavituximab for the treatment of patients with previously untreated genotype-1 hepatitis c virus ( hcv ) infection and announced the completion of patient enrollment during september 2011. these increases in ps-targeting clinical program expenses were further supplemented by increases in preclinical r & d expenses associated with exploring our ps-targeting antibodies potential to image tumors , which supported our recent filing of an investigational new drug application with the united states food and drug administration during april 2012 to advance our lead imaging candidate 124i-pgn650 into clinical development . these increases in ps-targeting program expenses were offset with a decrease in r & d expenses directly related to our former government contract with the tmt , which expired on april 15 , 2011 , and a decrease in expenses associated with the development of additional ps-targeting antibodies under a research agreement with an unrelated entity . o tumor necrosis therapy ( โ tnt โ ) technology platform ( cotara ) โ the increase in tnt program expenses of $ 337,000 during the year ended april 30 , 2012 compared to the prior year was primarily related to increased development costs associated with preparing cotara for potential later-stage clinical trials for the treatment of recurrent glioblastoma multiforme ( or brain cancer ) . these increases in tnt program expenses were offset by current year decreases in clinical trial expenses primarily associated with our phase ii trial for recurrent glioblastoma multiforme ( โ gbm โ ) , which completed patient enrollment during fiscal year 2011 . 46 based on our current projections , we expect research and development expenses in fiscal year 2013 to decrease in comparison to fiscal year 2012. this anticipated decrease in research and development expenses in fiscal year 2013 is primarily related to lower anticipated clinical trials costs since we completed patient enrollment in three of the four company-sponsored phase ii bavituximab studies in fiscal year 2012. these projections include a number of uncertainties , including but not limited to , ( i ) the uncertainty of obtaining regulatory approval to advance our current phase ii clinical programs to phase iii or to commence any future trials , ( ii ) the uncertainty of the rate at which patients will be enrolled into any current or future clinical trials , ( iii ) the uncertainty of terms related to any potential future partnering or licensing arrangement , and , ( iv ) the uncertainty of our ability to raise additional capital to support our future research and development efforts beyond the third quarter of our fiscal year 2013. during fiscal year 2013 , we expect to continue to direct the majority of our research and development expenses towards our ps-targeting technology platform .
| in addition , the timing of services provided to third-party customers also attributed to the decrease in contract manufacturing revenue as we initiated several third-party manufacturing runs during the fourth quarter of fiscal year 2011 , all of which were subsequently reported as revenue in fiscal year 2012. government contract revenue year ended april 30 , 2012 compared to the year ended april 30 , 2011 : government contract revenue was derived from a former government contract ( the โ government contract โ ) awarded to us in june 2008 , through the transformational medical technologies of the u.s. department of defense 's defense threat reduction agency . the purpose of the government contract , which expired on april 15 , 2011 , was to test and develop bavituximab and an equivalent fully human antibody as potential broad-spectrum treatments for viral hemorrhagic fever infections . the current year decrease in government contract revenue was directly related to the expiration of the government contract on april 15 , 2011. year ended april 30 , 2011 compared to the year ended april 30 , 2010 : the decrease in government contract revenue of $ 9,856,000 ( or 68 % ) during the year ended april 30 , 2011 compared to fiscal year 2010 was due to a decrease in the level of research and development services performed during fiscal year 2011 under the government contract in accordance with the contract 's project plan . license revenue years ended april 30 , 2012 and 2011 compared to the years ended april 30 , 2011 and 2010 : the increases in license revenue of $ 100,000 and $ 107,000 during the years ended april 30 , 2012 and 2011 , respectively , compared to fiscal years 2011 and 2010 , respectively , was directly related to revenue recognized in accordance with the terms of an assignment agreement associated with our tumor necrosis therapy technologies and a license agreement associated with our anti-vegf antibody technology , respectively . although we expect to continue to recognize license revenue under our existing license agreements with unrelated entities during fiscal year 2013 , we
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changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings . such changes could impact future results . for further information related to our allowance for loan losses , see note 1 ( f ) of the notes to the consolidated financial statements . 29 valuation of investment securities . our investment securities are classified as either held-to-maturity or available-for-sale . held-to-maturity securities are carried at amortized cost , while available-for-sale securities are carried at fair value . unrealized gains or losses on available-for-sale securities , net of deferred taxes , are reported in other comprehensive income . fair values are determined as described in note 15 of the notes to the consolidated financial statements . semi-annually ( at may 31 and november 30 ) , we validate the prices received from third parties by comparing them to prices provided by a different independent pricing service . we have reviewed the detailed valuation methodologies provided to us by our pricing services . additional information related to our investment securities can be found in note 1 ( d ) of the notes to the consolidated financial statements . we conduct a quarterly review of all investment securities to determine if any declines in fair value are other than temporary . in making this determination , we consider the period of time the securities have been in an unrealized loss position , the percentage decline in comparison to the securities ' amortized cost , the financial condition of the issuer , if applicable , and the delinquency or default rates of underlying collateral . we consider our intent to sell the investment securities evaluated and the likelihood that we will not have to sell the investment securities before recovery of their cost basis . if impairment exists , credit related impairment losses are recorded in earnings while noncredit related impairment losses are recorded in accumulated other comprehensive income , net of income taxes . any future deterioration in the fair value of an investment security , or the determination that the existing unrealized loss of an investment security is other-than-temporary , may have a material adverse affect on future earnings . goodwill . goodwill is not subject to amortization but is tested for impairment at least annually and possibly more frequently if certain events occur or changes in circumstances arise . in testing goodwill for impairment , we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value . if , after assessing the totality of events and circumstances , we determine if it is not more likely than not that the fair value of a reporting unit is less than its carrying value , then performing the two-step impairment test would be unnecessary . however , if we conclude otherwise , it would then be required to perform the first step of the goodwill impairment test , and continue to the second step , if necessary . step 1 requires the fair value of each reporting unit be compared to its carrying amount , including goodwill . determining the fair value of a reporting unit requires a high degree of subjective judgment , including developing cash flow projections , selecting appropriate discount rates , identifying relevant market comparables , incorporating general economic and market conditions and selecting an appropriate control premium . future changes in the economic environment or the operations of the reporting units could cause changes to these variables , which could give rise to declines in the estimated fair value of goodwill . declines in fair value could result in impairment being identified . we have established june 30 of each year as the date for conducting our annual goodwill impairment assessment . quarterly , we evaluate if there are any triggering events that would require an update to our previous assessment . the variables are selected as of june 30 and the valuation model is run to determine the fair value of the reporting unit . we have determined that goodwill was not impaired as of june 30 , 2017. deferred income taxes . we use the asset and liability method of accounting for income taxes . using this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets . these judgments require us to make projections of future taxable income . the judgments and estimates we make in determining our deferred tax assets , which are inherently subjective , are reviewed on an ongoing basis as regulatory and business factors change . a reduction in estimated future taxable income could require us to record a valuation allowance . changes in levels of valuation allowances could result in increased income tax expense , and could negatively affect earnings . pension benefits . pension expense and obligations depend on assumptions used in calculating such amounts . these assumptions include discount rates , anticipated salary increases , interest costs , expected return on plan assets , mortality rates , and other factors . in accordance with u.s. generally accepted accounting principles , actual results that differ from the assumptions are amortized over average future service and , therefore , generally affect recognized expense . while management believes that the assumptions used are appropriate , differences in actual experience or changes in assumptions may affect our pension obligations and future expense . story_separator_special_tag in determining the projected benefit obligations for pension benefits at december 31 , 2017 and 2016 , we used a discount rate of 3.53 % and 4.06 % , respectively . we use the citigroup pension liability index rates matching the duration of our benefit payments as of the measurement date , december 31 , to determine the discount rate . 30 balance sheet analysis assets . total assets at december 31 , 2017 were $ 9.364 billion , a decrease of $ 259.7 million , or 2.7 % , from $ 9.624 billion at december 31 , 2016 . this decrease in assets was due primarily to the sale of our maryland offices , which included $ 215.7 million of deposits and a decrease in cash and cash equivalents . a discussion of significant changes follows . cash and cash equivalents . cash and cash equivalents decreased by $ 312.2 million , or 80.1 % , to $ 77.7 million at december 31 , 2017 , from $ 389.9 million at december 31 , 2016 . this decrease was a result of funding loan growth of $ 236.1 million , a decrease in deposits of $ 55.3 million and the cash payment to fund the maryland office sale of $ 45.9 million . investment securities . investment securities decreased by $ 24.0 million , or 2.8 % , to $ 822.2 million at december 31 , 2017 , from $ 846.2 million at december 31 , 2016 . this decrease was a result of using the cash flow generated from these portfolios to fund loan growth . the following table sets forth certain information regarding the amortized cost and fair value of our available-for-sale investment securities portfolio and mortgage-backed securities portfolio at the dates indicated . replace_table_token_8_th 31 the following table sets forth certain information regarding the amortized cost and fair value of our held-to-maturity investment securities portfolio and mortgage-backed securities portfolio at the dates indicated . replace_table_token_9_th the following table sets forth information regarding the issuers and the carrying value of our mortgage-backed securities at the dates indicated . replace_table_token_10_th 32 investment portfolio maturities and yields . the following table sets forth the scheduled maturities , carrying values , amortized cost , market values and weighted average yields for our investment securities and mortgage-backed securities portfolios at december 31 , 2017 . adjustable-rate mortgage-backed securities are included in the period in which interest rates are next scheduled to adjust . replace_table_token_11_th further information and analysis of our investment portfolio , including tables with information related to gross unrealized gains and losses on available-for sale and held-to-maturity investment securities and tables showing the fair value and gross unrealized losses on investment securities aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position are located in note 3 of the notes to the consolidated financial statements . 33 loans receivable . net loans receivable increased by $ 240.2 million , or 3.2 % , to $ 7.793 billion at december 31 , 2017 , from $ 7.496 billion at december 31 , 2016 . this increase was due primarily to success in growing our commercial banking and indirect automobile portfolios as well as , decreased sales of residential mortgage loans . set forth below are selected data related to the composition of our loan portfolio by type of loan as of the dates indicated . replace_table_token_12_th ( 1 ) consists primarily of secured and unsecured personal loans . 34 the following table sets forth the maturity of our loan portfolio at december 31 , 2017 . demand loans and loans having no stated schedule of repayments and no stated maturity are reported as due in one year or less . adjustable and floating-rate loans are included in the period in which they contractually mature , and fixed-rate loans are included in the period in which the contractual repayment is due . replace_table_token_13_th the following table sets forth at december 31 , 2017 , the dollar amount of all fixed-rate and adjustable-rate loans due one year or more after december 31 , 2017 . adjustable and floating-rate loans are included in the table based on the contractual due date of the loan . replace_table_token_14_th deposits . total deposits decreased by $ 55.3 million , or 0.7 % , to $ 7.827 billion at december 31 , 2017 from $ 7.882 billion at december 31 , 2016 , due to decreases in time deposits and money market deposit accounts as customers continue to prefer more liquid accounts despite recent rate increases . time deposits decreased by $ 128.0 million , or 8.3 % , to $ 1.413 billion at december 31 , 2017 from $ 1.541 billion at december 31 , 2016 and money market deposit accounts decreased by $ 134.1 million , or 7.3 % , to $ 1.707 billion at december 31 , 2017 from $ 1.842 billion at december 31 , 2016 . as a result of our efforts to procure new checking account customers and increase low-cost deposits , demand deposits increased by $ 176.0 million , or 6.1 % , to $ 3.053 billion at december 31 , 2017 from $ 2.877 billion at december 31 , 2016 . additionally , savings deposits increased by $ 30.7 million , or 1.9 % , to $ 1.654 billion at december 31 , 2017 from $ 1.623 billion at december 31 , 2016 . 35 the following table sets forth the dollar amount of deposits in each state indicated as of december 31 , 2017 . replace_table_token_15_th the following table indicates the amount of our certificates of deposit of $ 100,000 or more by time remaining until maturity at december 31 , 2017 . maturity period certificates of deposit ( in thousands ) three months or less $ 74,973 over three months through six months 61,466 over six months through twelve months 87,801 over twelve months 212,156 total $ 436,396 the following table sets forth the dollar amount of deposits in the various types of accounts we offered at the dates indicated .
| for the year ended december 31 , 2015. this increase can be attributed to an increase in the average balance of loans receivable of $ 931.4 million , or 14.4 % , to $ 7.391 billion for the year ended december 31 , 2016 from $ 6.460 billion for the year ended december 31 , 2015. this increase is due primarily to the addition of $ 928.1 million and $ 455.9 million of loan balances , at fair value , from the lnb and fnfg acquisitions , on december 9 , 2016 and august 14 , 2015 , respectively . also contributing to this increase was internal loan growth of $ 170.5 million during the past year due to continued success in growing our commercial and indirect automobile loan portfolios . partially offsetting this increase was a decrease in the average yield on loans receivable to 4.45 % for the year ended december 31 , 2016 from 4.62 % for the year ended december 31 , 2015. the decrease in average yield is due primarily to the continued low interest rate environment , as well as the overall lower yield on the loans acquired in the lnb acquisition . interest income on mortgage-backed securities decreased by $ 283,000 , or 3.2 % , to $ 8.5 million for the year ended december 31 , 2016 and from $ 8.8 million for the year ended december 31 , 2015. the average balance of mortgage-backed securities decreased by $ 33.2 million , or 6.6 % , to $ 467.6 million for the year ended december 31 , 2016 from $ 500.8 million for the year ended december 31 , 2015. the cash flow from these securities was used to pay off fhlb advances and fund loan growth . partially offsetting this decrease was an increase in the average yield on mortgage-backed securities to 1.83 % for the year ended december 31 , 2016 from 1.77 % for the year ended december 31 , 2015 due to the acquisition of the higher yielding lnb portfolio . interest income
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we believe that demand for fuel by trucking companies and motorists for a constant level of miles driven will continue to decline over time because of technological innovations that improve fuel efficiency of motor vehicle engines , other fuel conservation practices and alternative fuels . we believe these factors , combined with competitive pressures , were contributors to the slight decreases in the level of fuel sales volumes we realized on a same site basis for 2018 as compared to 2017 . although fuel sales volume declined on a same site basis , the decrease was offset by increases from recently acquired locations and a development property that opened in 2017 . although , as of the date of this report , the u.s. government has not yet retroactively reinstated the biodiesel blenders ' tax credit for 2018 , we believe the u.s. government may do so within the first or second quarter of 2019. retroactive reinstatement of the tax credit provides us with the right to refunds of amounts paid to suppliers or the federal government in connection with biodiesel purchases during 2018 that totaled approximately $ 35,000. if the biodiesel blenders ' tax credit is reinstated , we will recognize the refund in fuel cost of goods sold in the period the u.s. government adopts the tax credit reinstatement . although we believe reinstatement is likely , we can not be certain that the u.s. government will choose to do so . for 2018 we had a loss before income taxes and discontinued operations of $ 4,347 as compared to $ 60,348 for 2017. the $ 56,001 improvement was primarily due to the following factors : a $ 50,737 increase in site level gross margin in excess of site level operating expenses , which included a $ 23,251 benefit from the federal biodiesel tax credit that was retroactively reinstated for 2017 and recognized in february 2018 ; and a $ 9,632 reduction in selling , general and administrative expenses , primarily attributable to reimbursed litigation costs collected in 2018. our benefit for income taxes decreased by $ 78,676 from 2017 to 2018 as a result of a $ 58,602 benefit recognized in september 2017 in connection with the resolution of a previously uncertain tax position , as well as from the reduction in the statutory federal income tax rate from 35 % to 21 % effective in 2018 and a higher pretax loss from continuing operations experienced in 2017 than in 2018. factors affecting comparability acquired and developed sites we believe that travel centers we acquire or develop generally require a three year period after they open under our operation , and any related renovations are completed , to reach our expected stabilized financial results . during 2018 , we acquired three travel centers , one from a franchisee who owned the site and two from franchisees who previously leased the sites from us , for a total investment ( including the planned costs of initial improvements ) of $ 21,890 . these three sites were operated by us for a partial year in 2018 , and generated site level gross margin in excess of site level operating expenses of $ 1,290 since their acquisitions . prior to acquiring these travel centers , we collected rent and royalties from these franchisees totaling $ 2,179 and $ 2,617 during the years ended december 31 , 2018 and 2017 , respectively . during 2017 , we acquired operation of two travel centers , one from a franchisee who owned the site and one from a franchisee who previously leased the site from us , and developed one travel center for a total aggregate investment ( including the cost of initial improvements ) of $ 48,197 . the newly developed travel center was built on land we owned and subsequently sold by us to , and leased back from , hpt for an increase in our annual minimum rent of $ 2,346 . these three sites generated site level gross margin in excess of site level operating expenses , excluding the rent to hpt , of $ 4,390 during the year ended december 31 , 2018 . prior to acquiring the two travel centers from franchisees , we collected rent and royalties from these franchisees totaling $ 873 and $ 1,621 during the years ended december 31 , 2017 and 2016 , respectively . 38 during 2016 , we developed three travel centers for a total investment of $ 65,804 . these three travel centers were built on land we owned and subsequently sold by us to , and leased back from , hpt for an increase in our annual minimum rent of $ 4,975 . these three sites generated site level gross margin in excess of site level operating expenses , excluding the rent to hpt , of $ 7,258 during the year ended december 31 , 2018 . results of operations as part of this discussion and analysis of our operating results , we refer to increases and decreases in results on a same site basis . we include a location in the same site comparisons only if we continuously operated it since the beginning of the earliest comparative period presented , except we do not include locations we operate that are owned by an unconsolidated joint venture in which we own a noncontrolling interest . same site data also excludes revenues and expenses at locations not operated by us , such as rent and royalties from franchisees and corporate level selling , general , and administrative expenses , as well as the revenues and expenses associated with our discontinued operations . we do not exclude locations from the same site comparisons as a result of capital improvements to the site or changes in the services offered . story_separator_special_tag t ; '' > . story_separator_special_tag this decrease primarily resulted from $ 6,773 of write offs of certain assets recognized during 2017 , partially offset by the growth since 2017 in our amount of depreciable assets as the result of the locations we acquired and other capital investments we completed ( and did not subsequently sell to hpt ) . benefit for income taxes . we had an income tax benefit of $ 1,574 and $ 80,250 for 2018 and 2017 , respectively . the decrease in the income tax benefit was primarily due to a $ 58,602 income tax benefit recognized in 2017 as a result of the resolution of certain previously uncertain tax positions and the related recognition of the affected deferred tax assets and reversal of the related accrued liability . the decrease was also due to a lower effective tax rate as a result of the tax cuts and jobs act enacted in december 2017 , which reduced the federal corporate income tax rate from 35 % to 21 % , and as a result of a higher pretax loss from continuing operations experienced in 2017 than in 2018 . see note 11 to the notes to consolidated financial statements included in item 15 of this annual report for more information about our income taxes . loss from discontinued operations , net of taxes . the loss from discontinued operations , net of taxes for 2018 was $ 107,012 larger than 2017 , primarily as a result of the $ 79,623 loss on disposal and $ 69,340 of goodwill impairment charges recognized in 2018 . see note 1 and note 4 to the notes to consolidated financial statements included in item 15 of this annual report for more information about the goodwill impairment charges and our discontinued operations , respectively . liquidity and capital resources our principal liquidity requirements are to meet our operating and financing costs and to fund our capital expenditures , acquisitions and working capital requirements . our principal sources of liquidity to meet these requirements are our : cash balance ; operating cash flow ; our revolving credit facility with a current maximum availability of $ 200,000 subject to limits based on our qualified collateral ; sales to hpt of improvements we make to the sites we lease from hpt ; potential issuances of new debt and equity securities ; and potential financing or selling of unencumbered real estate that we own . 41 we believe that the primary risks we currently face with respect to our operating cash flow are : continuing decreased demand for our fuel products resulting from regulatory and market efforts for improved engine fuel efficiency , fuel conservation and alternative fuels and technologies ; decreased demand for our products and services that we may experience as a result of competition or otherwise ; the fixed nature of a significant portion of our expenses , which may restrict our ability to realize a sufficient reduction in our expenses to offset a reduction in our revenues ; the costs and funding that may be required to execute our growth initiatives ; the possible inability of acquired or developed properties to generate the stabilized financial results we expected at the time of acquisition or development ; increasing labor cost inflation ; increasing market interest rates that may increase our cost of capital ; the risk of an economic slowdown or recession in the u.s. economy ; and the negative impacts on our gross margins and working capital requirements if there were a return to the higher level of prices for petroleum products we experienced in prior years or due to increases in the cost of our fuel or nonfuel products resulting from inflation generally . our business requires substantial amounts of working capital , including cash liquidity , and our working capital requirements can be especially large because of the volatility of fuel prices . our growth strategy of selectively acquiring additional properties and businesses and developing new sites requires us to expend substantial capital for any such properties , businesses or developments . in addition , our properties are high traffic sites with many customers and large trucks entering and exiting our properties daily , requiring us to expend capital to maintain , repair and improve our properties . although we had net cash provided by operating activities of continuing operations of $ 73,258 in 2018 , we can not be sure that we will maintain sufficient amounts of cash , that we will generate future profits or positive cash flows or that we will be able to obtain additional financing , if and when it becomes necessary or desirable to pursue business opportunities . proceeds from sale of convenience stores business in december 2018 , we sold our convenience stores business for an aggregate sales price of $ 330,609 . this sale generated net cash proceeds of approximately $ 319,853 . lease amendments and travel center purchases in january 2019 , we acquired from hpt 20 travel centers we previously leased from hpt for $ 308,200 and amended the hpt leases , providing for , among other things , a $ 43,148 reduction in our annual minimum rent payments and payment of 16 equal quarterly installments of deferred rent that aggregate to $ 70,458 to fully satisfy and discharge our previous $ 150,000 deferred rent obligation . these lease amendments are further described in note 9 to the notes to consolidated financial statements included in item 15 of this annual report . revolving credit facility we have a credit facility with a group of commercial banks that matures on december 19 , 2019. under the credit facility , a maximum of $ 200,000 may be drawn , repaid and redrawn until maturity . the availability of this maximum amount is subject to limits based on qualified collateral . subject to available collateral and lender participation , the maximum amount of this credit facility may be increased to $ 300,000 . the credit facility may be used for general business purposes and allows for the issuance of letters of credit .
| partially offsetting these reductions was an 11.3 % increase in franchise royalties from sites that were franchises for all of 2018 and 2017 . 40 fuel gross margin . fuel gross margin for 2018 increase d by $ 39,101 , or 13.9 % , as compared to 2017 , primarily as a result of the $ 23,251 benefit recognized in the first quarter of 2018 in connection with the february 2018 reinstatement for 2017 of the federal biodiesel tax credit , an increase in fuel sales volumes and a more favorable purchasing environment in 2018 than in 2017 . nonfuel gross margin . nonfuel gross margin for 2018 increase d by $ 55,577 , or 5.3 % , as compared to 2017 , due to the increase in nonfuel revenues and an increase in the nonfuel gross margin percentage . nonfuel gross margin percentage was 60.9 % and 60.5 % for 2018 and 2017 , respectively . nonfuel gross margin percentage for 2018 increase d as compared to 2017 primarily due to a change in the mix of products and services sold , particularly the increased truck service sales . site level operating expenses . site level operating expenses for 2018 increase d by $ 42,063 , or 4.8 % , as compared to 2017 , primarily due to increased costs to support the increase in nonfuel sales at same sites and new sites . for same sites , site level operating expenses increased $ 32,110 , or 3.8 % . site level operating expenses as a percentage of nonfuel revenues on a same site basis for 2018 increase d slightly to 49.9 % from 49.8 % in 2017. selling , general and administrative expenses . selling , general and administrative expenses for 2018 decrease d by $ 9,632 , or 6.6 % , as compared to 2017 . this decrease was primarily attributable to $ 9,967 of net reimbursed litigation costs collected from comdata during 2018 as compared
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the net gain in 2016 was largely due to the gain on sale of assets from two of the company 's partnerships . the net gain in 2015 was mainly the result of a lawsuit settlement related to participation rights on some of the company 's mineral acreage in arkansas . ( 35 ) interest expense interest expense decreased $ 205,864 in 2016 , as compared to 2015. the decrease was due to a lower outstanding debt balance in 2016. general and administrative costs ( g & a ) g & a decreased $ 199,592 in 2016 , as compared to 2015. this decrease was primarily the result of lower legal and technical consulting fees in 2016. provision ( benefit ) for income taxes the 2016 benefit for income taxes of $ 7,711,000 was based on a pre-tax loss of $ 17,997,884 , as compared to a provision for income taxes of $ 4,836,000 in 2015 , based on a pre-tax income of $ 14,157,341. the effective tax rate for 2016 was 43 % , compared to an effective tax rate for 2015 of 34 % . when a provision for income taxes is recorded , federal and oklahoma excess percentage depletion decreases the effective tax rate , while the effect is to increase the effective tax rate when a benefit for income taxes is recorded , as was the case in 2016. fiscal year 2015 compared to fiscal year 2014 overview the company recorded net income of $ 9,321,341 , or $ 0.56 per share , in 2015 , compared to net income of $ 25,001,462 , or $ 1.49 per share , in 2014. revenues decreased in 2015 primarily due to lower oil , ngl and natural gas sales , partially offset by increased gains on derivative contracts and increased lease bonuses received . expenses increased in 2015 due mainly to higher loe , dd & a , interest expense and provision for impairment , partially offset by a decrease in production taxes and an increase in other miscellaneous income . oil , ngl and natural gas sales oil , ngl and natural gas sales decreased $ 28,312,614 , or 34 % , for 2015 , as compared to 2014. the decrease was due to decreased oil , ngl and natural gas prices of 43 % , 44 % and 33 % , respectively coupled with lower gas volumes of 10 % , offset by increased oil and ngl volumes of 31 % and 2 % , respectively , in 2015. the oil production volume increase was primarily the result of the company 's acquisition of producing properties in the eagle ford shale in south texas in june 2014 and the associated horizontal drilling on that leasehold . to a lesser extent , woodford shale drilling in the anadarko basin in western and southern oklahoma and drilling in the bakken shale in north dakota contributed to the increase . the increase in oil production volumes during 2015 was partially offset by naturally declining oil production from the company 's properties in oklahoma and the texas panhandle . ( 36 ) the ngl production volume increase wa s primarily the result of woodford shale drilling in the anadarko basin in western and southern oklahoma , the eagle fo rd shale acquisition and subsequent drilling and drilling in the bakken shale in north dakota . the increase in ngl production volumes during 2015 was largely offset by naturally declining ngl production from the company 's properties in oklahoma and the tex as panhandle . the natural gas production volume decrease was largely the result of naturally declining production in the fayetteville shale , which was not offset by new production in the play due to significantly reduced drilling activity . declining production from several of the company 's properties in western oklahoma and the texas panhandle , as well as from the southeastern oklahoma woodford , also contributed to the decrease . lower production volumes were partially offset by production increases in the anadarko basin woodford in western and southern oklahoma and the eagle ford shale in south texas . production by quarter for 2015 and 2014 was as follows ( mcfe ) : replace_table_token_15_th lease bonus and rentals lease bonuses and rentals increased $ 1,587,067 in 2015 . the increase was mainly due to the company leasing 2,407 net mineral acres in andrews and winkler counties , texas , for $ 1.2 million . there were no significant leases of the company 's mineral acreage in 2014. gains ( losses ) on derivative contracts gains on derivative contracts increased $ 13,575,092 in 2015. the increase in gains was mainly due to the oil and natural gas collars and fixed price swaps being more beneficial in 2015 , as nymex oil and natural gas futures had fallen further below the floor of the collars and the fixed prices of the swaps . as of september 30 , 2015 , the company 's natural gas costless collar contracts have expiration dates of october and december 2015 ; the oil costless collar contracts and the oil fixed price swaps have an expiration date of december 2015. lease operating expenses ( loe ) loe increased $ 3,559,616 or 26 % in 2015. loe costs per mcfe of production increased from $ 0.99 in 2014 to $ 1.27 in 2015. the total loe increase was primarily due to increased field operating costs of $ 3,598,103 in 2015 , compared to 2014. field operating costs increased mainly due to the acquisition of the eagle ford shale properties and additional wells drilled in late 2014 and during 2015. field operating costs were $ .78 per mcfe in 2015 , compared to $ .50 per mcfe in 2014 , a 56 % increase . this increase in rate was principally the result of the significant number ( 37 ) of oil and ngl rich wells drilled i n recent years . these wells have higher lifting costs than our overall well population , which is and has been heavily gas weighted for several years . story_separator_special_tag the increase in loe related to field operating costs was partially offset by a decrease in handling fees ( primarily gathering , transportation and marketing costs ) on natural gas of $ 38,487 in 2015 , as compared to 2014. on a per mcfe basis , these fees increased $ .01 due to increased fees in areas that are currently being drilled . natural gas sales bear the large majority of the handling fees . handling fees are charged either as a percent of sales or based on production volumes . production taxes production taxes decreased $ 991,816 or 37 % in 2015 , as compared to 2014. the decrease in amount was primarily the result of decreased oil , ngl and natural gas sales of $ 28,312,614 during 2015. production taxes as a percentage of oil , ngl and natural gas sales decreased slightly from 3.3 % in 2014 to 3.1 % in 2015. the low overall production tax rate was due to a large proportion of the company 's oil and natural gas revenues coming from horizontally drilled wells , which are eligible for reduced oklahoma and arkansas production tax rates . depreciation , depletion and amortization ( dd & a ) dd & a increased $ 1,924,237 in 2015. dd & a per mcfe was $ 1.74 in 2015 , compared to $ 1.55 in 2014. dd & a increased $ 2,496,240 as the result of a $ .19 increase in the dd & a rate . this rate increase was principally due to higher per mcfe finding costs experienced in oil and liquids rich areas where the company has added production , as well as much lower oil , ngl and natural gas prices utilized in the reserve calculations during 2015 , as compared to 2014 , resulting in lower projected remaining reserves on a significant number of wells . an offsetting decrease of $ 572,003 was due to oil , ngl and natural gas production volumes decreasing 3 % collectively in 2015 , compared to 2014. provision for impairment provision for impairment increased $ 3,913,115 in 2015 , as compared to 2014. during 2015 , impairment of $ 5,009,191 was recorded on 27 fields primarily in oklahoma , kansas and texas . one oil field in hemphill county , texas , accounted for $ 1,846,488 of the impairment due mainly to declining oil prices . during 2014 , impairment of $ 1,096,076 was primarily recorded on 10 small fields in oklahoma and texas . loss ( gain ) on asset sales and other loss ( gain ) on asset sales and other was a net gain of $ 398,994 in 2015 , as compared to a net loss of $ 8,378 in 2014. the net gain in 2015 was mainly the result of a lawsuit settlement of approximately $ 331,000 related to participation rights on some of the company 's mineral acreage in arkansas . the net loss in 2014 was primarily the result of a loss on the sale of marginal properties partially offset by higher interest income from operators . ( 38 ) interest expense interest expense increased $ 1,088,187 in 2015 , as compared to 2014. the increase was primarily due to a larger average outstanding debt balance in 2015. the debt was used to purchase the eagle ford shale properties on june 17 , 2014. provision ( benefit ) for income taxes the 2015 provision for income taxes of $ 4,836,000 was based on a pre-tax income of $ 14,157,341 , as compared to a provision for income taxes of $ 11,820,000 in 2014 , based on a pre-tax income of $ 36,821,462. the effective tax rate for 2015 was 34 % , compared to an effective tax rate for 2014 of 32 % . the company 's utilization of excess percentage depletion , which is a permanent tax benefit , decreased the provision for income taxes and reduced the effective tax rate below the statutory rate for both years . liquidity and capital resources at september 30 , 2016 , the company had positive working capital of $ 2,098,460 , as compared to positive working capital of $ 8,907,437 at september 30 , 2015. liquidity cash and cash equivalents were $ 471,213 as of september 30 , 2016 , compared to $ 603,915 at september 30 , 2015 , a decrease of $ 132,702. cash flows for the 12 months ended september 30 are summarized as follows : replace_table_token_16_th operating activities : net cash provided by operating activities decreased $ 30,981,297 during 2016 , as compared to 2015 , the result of the following : receipts of oil , ngl and natural gas sales ( net of production taxes and gathering , transportation and marketing costs ) and other decreased $ 27,788,295. decreased income tax payments of $ 979,962. decreased net receipts on derivative contracts of $ 6,960,904 . ( 39 ) decreased payments for interest expense of $ 193,411 . decreased payments for g & a and other expense of $ 367,436. decreased payments for field operating expenses of $ 2,228,093. investing activities : net cash used in investing activities decreased $ 38,203,536 during 2016 , as compared to 2015 , due to : lower drilling and completion activity during 2016 decreased capital expenditures by $ 26,814,390. higher proceeds from mineral leasing of $ 5,995,534. higher proceeds from sale of assets of $ 4,501,726. financing activities : net cash used in financing activities increased $ 7,449,101 during 2016 , as compared to 2015 , the result of the following : during 2016 , net borrowings decreased $ 20,500,000. during 2015 , net borrowings decreased $ 13,000,000. capital resources capital expenditures to drill and complete wells decreased $ 26,814,390 ( 87 % ) in 2016 , as compared to 2015. in the eagle ford shale oil play in south texas and in the arkansas fayetteville shale natural gas play there was very limited drilling activity on the company 's acreage in 2016. the company received 58 well proposals in fiscal 2016 , and working interest participation decisions were as follows : 20 wells met
| production by quarter for 2016 and 2015 was as follows ( mcfe ) : replace_table_token_14_th lease bonus and rentals lease bonuses and rentals increased $ 5,725,390 in 2016 . the increase was mainly due to the company leasing 4,057 net mineral acres in cochran county , texas , 663 net mineral acres in blaine , canadian , custer and dewey counties , oklahoma , and 706 net mineral acres in grady and mcclain counties , oklahoma , in 2016. in 2015 , the company leased 2,407 net mineral acres in andrews and winkler counties , texas . gains ( losses ) on derivative contracts gains on derivative contracts decreased $ 13,908,861 in 2016. the decrease was mainly due to the oil and , to a lesser extent , natural gas collars and fixed price swaps being more beneficial in 2015 , as nymex oil and natural gas futures had fallen further below the floor of the collars and the fixed prices of the swaps . as of september 30 , 2016 , the company 's natural gas costless collar contracts and natural gas fixed price swaps have expiration dates of october 2016 through december 2017 ; the oil costless collar contracts have expiration dates of october 2016 through march 2017. income from partnerships income from partnerships decreased $ 512,878 in 2016. this change was primarily due to the company selling the assets from some of its partnerships in 2016. this was also coupled with lower oil , ngl and natural gas pricing during 2016 , as compared to 2015. lease operating expenses ( loe ) loe decreased $ 3,882,319 or 22 % in 2016. loe costs per mcfe of production decreased from $ 1.27 in 2015 to $ 1.18 in 2016. the total loe decrease was largely due to decreased field operating costs of $ 2,604,510 in 2016 , compared to 2015. field operating costs were $ .70 per mcfe in 2016 , compared to $ .78 per mcfe in 2015 , a 10 % decrease . this
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beginning in the fourth quarter of 2019 , the main operating income metric used by management to measure the financial performance of each segment was earnings before interest , taxes , depreciation and amortization ( `` ebitda '' ) . the company made this change because recent acquisitions have resulted in an increased amount of purchase accounting amortization expense that affects comparability of results across periods and versus other companies . the primary measurement used by management to measure the financial performance of each segment prior to the fourth quarter of 2019 was earnings before interest and taxes ( `` ebit '' ) . segment results have been revised for all periods presented to be consistent with new measure of segment performance . refer to note 4 - segment information in the notes to the consolidated financial statements for the reconciliation of ebitda by segment to consolidated income before income taxes . the presentation of segment results below includes a reconciliation of the changes in net sales for each segment reported in accordance with u.s. gaap to net sales adjusted to remove the effects of acquisitions and divestitures completed in 2019 and 2018 and foreign currency exchange rate changes . the effects of acquisitions , divestitures and foreign currency exchange rate changes on net sales are removed to allow investors and the company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period . the following items highlight the company ' s acquisitions completed in 2019 and 2018 by segment based on the customers and underlying markets served : the company acquired beka during the fourth quarter of 2019. the majority of the results for beka are reported in the mobile industries segment . the company acquired diamond chain during the second quarter of 2019. the majority of the results for diamond chain are reported in the process industries segment . the company acquired abc bearings limited ( `` abc bearings '' ) , apiary investments holding limited ( `` cone drive '' ) , and rollon s.p.a. ( `` rollon '' ) during the third quarter of 2018. substantially all of the results for abc bearings are reported in the mobile industries segment . results for cone drive and rollon are reported in the mobile industries and process industries segments based on customers and underlying market sectors served . the company divested groeneveld information technology holding b.v. ( the `` ict business '' ) on september 19 , 2018. the company acquired the ict business in july 2017 as part of the groeneveld group ( `` groeneveld '' ) acquisition . the ict business is separate from the groeneveld lubrication solutions business and was considered non-core to the operations . results for the ict business were reported in the mobile industries segment . 24 mobile industries segment : replace_table_token_13_th the mobile industries segment 's net sales , excluding the effects of acquisitions , divestitures and foreign currency exchange rate changes , decreased $ 47.8 million or 2.5 % in 2019 compared with 2018 , reflecting lower shipments in the off highway and heavy truck sectors , partially offset by growth in the aerospace and rail sectors , as well as higher pricing . ebitda increased in 2019 by $ 12.7 million or 4.7 % compared with 2018 , primarily due to favorable price/mix , lower material and logistics costs , the net benefit of acquisitions , and lower sg & a expenses . these factors were partially offset by the impact of lower volume and related manufacturing utilization , as well as property losses and related expenses from flood damage at a company facility in tennessee and fire damage at a facility in china . full-year sales for the mobile industries segment are expected to be roughly flat to down 4 % in 2020 compared with 2019 . this reflects a decrease of organic revenue in the off-highway , heavy truck and automotive sectors , partially offset by the impact of acquisitions . ebitda for the mobile industries segment is expected to decrease in 2020 compared with 2019 primarily due to lower shipments and higher manufacturing costs , partially offset by favorable price/mix , lower material and logistics costs and the impact of acquisitions . 25 process industries segment : replace_table_token_14_th the process industries segment 's net sales , excluding the effects of acquisitions and foreign currency exchange rate changes , increased $ 59.0 million or 3.5 % in 2019 compared with 2018 . the increase was primarily driven by growth in the renewable energy sector , as well as positive pricing . ebitda increased $ 60.9 million or 15.0 % in 2019 compared with 2018 primarily due to the net benefit of acquisitions , favorable price/mix and the impact of higher volume , partially offset by higher sg & a expenses . full-year sales for the process industries segment are expected to be flat to up 4 % in 2020 compared with 2019 . this reflects expected growth in the renewable energy and industrial services sectors , as well as the benefit of acquisitions , partially offset by a decline in revenue in the industrial distribution sector . ebitda for the process industries segment is expected to increase in 2020 compared with 2019 primarily due to favorable price/mix , lower material costs and the impact of acquisitions , partially offset by higher manufacturing costs and sg & a expenses . corporate : replace_table_token_15_th corporate expenses decreased in 2019 compared with 2018 primarily due to higher transaction costs related to acquisitions in 2018 . 26 results of operations : 2018 vs. 2017 overview : replace_table_token_16_th the increase in net sales was primarily due to organic revenue growth driven by higher end-market demand , the benefit of acquisitions and the impact of higher pricing . story_separator_special_tag the increase in net income in 2018 compared with 2017 was primarily due to improved performance across the business , driven by the impact of higher volume , favorable price/mix , the net benefit of acquisitions and improved manufacturing performance , as well as lower mark-to-market charges due to the remeasurement of pension and other postretirement assets and obligations , restructuring charges , and interest expense . these factors were partially offset by the impact of higher sg & a expenses , higher income tax expenses and higher material and logistics costs ( including tariffs ) . the statements of income sales : replace_table_token_17_th net sales increased in 2018 compared with 2017 primarily due to higher organic revenue of $ 396 million and the benefit of acquisitions of $ 177 million . the increase in organic revenue was driven by higher demand across all of the company 's end-market sectors , as well as the impact of higher pricing . gross profit : replace_table_token_18_th gross profit increased in 2018 compared with 2017 primarily due to the impact of higher volume of $ 133 million , the favorable price/mix of $ 66 million , the benefit of acquisitions of $ 54 million , improved manufacturing performance of $ 12 million and lower restructuring costs of $ 6 million . these factors were partially offset by higher material and logistics costs of $ 44 million ( including tariffs ) . selling , general and administrative expenses : replace_table_token_19_th the increased in sg & a expenses in 2018 compared with 2017 was primarily due to the impact of acquisitions of $ 39 million , higher compensation expense and other spending increases to support the higher sales levels . 27 interest expense and income : replace_table_token_20_th interest expense increased in 2018 compared to 2017 primarily due to an increase in outstanding debt to fund the acquisitions of groeneveld , rollon and cone drive . other income ( expense ) : replace_table_token_21_th the decrease in non-service pension and other postretirement expense for 2018 compared to 2017 was primarily due to lower mark-to-market charges of $ 8.8 million . the mark-to-market charges resulted from the remeasurement of pension and postretirement plan obligations and assets due to changes in actuarial assumptions , partially offset by the benefit of curtailments for two of the u.s. pension plans . income tax expense : replace_table_token_22_th the effective tax rate for 2018 was 25.1 % , which was unfavorable compared to the u.s. federal statutory rate of 21 % primarily due to earnings in certain foreign jurisdictions where the effective rate was higher than 21 % , unfavorable u.s. permanent differences and u.s. state and local income tax expenses . these impacts were partially offset by reductions to the one-time net charge related to the taxation of unremitted foreign earnings and the remeasurement of u.s. deferred tax balances to reflect the new u.s. corporate income tax rate enacted under u.s. tax reform . the effective tax rate for 2017 was 22 % , which was favorable compared to the u.s. federal statutory rate of 35 % primarily due to earnings in certain foreign jurisdictions where the effective tax rate was less than 35 % , u.s. foreign tax credits realized on earnings distributed to the united states , and favorable u.s. permanent deductions and tax credits . the effective tax rate was also favorably impacted by the net reversal of accruals for prior year uncertain tax positions , a valuation allowance release and other discrete items . these favorable impacts were partially offset by provisional amounts for the one-time net charge related to the taxation of unremitted foreign earnings and the remeasurement of u.s. deferred tax balances to reflect the new u.s. corporate income tax rate enacted under u.s. tax reform . u.s. tax reform included a number of changes to existing u.s. tax laws that impact the company , most notably a reduction of the u.s. corporate income tax rate from 35 % to 21 % for tax years beginning after december 31 , 2017. u.s. tax reform also requires companies to pay a one-time net charge related to the taxation of unremitted foreign earnings , created new taxes on certain foreign sourced earnings and allowed for immediate expensing of certain depreciable assets after september 27 , 2017. the change in the effective rate for 2018 compared with 2017 was an increase of 2.9 % . the increase was primarily due to the net reversal of accruals for prior year uncertain tax positions in 2017. the effective tax rate also increased due to earnings in certain foreign jurisdictions where the effective rate was higher than 21 % , unfavorable u.s. permanent differences and the release of valuations allowances in 2017. these impacts were partially offset by reductions to the one-time net charge related to the taxation of unremitted foreign earnings and the remeasurement of u.s. deferred tax balances to reflect the new u.s. corporate income tax rate . 28 business segments the presentation of segment results below includes a reconciliation of the changes in net sales for each segment reported in accordance with u.s. gaap to net sales adjusted to remove the effects of acquisitions completed in 2018 and 2017 and foreign currency exchange rate changes . the effects of acquisitions and foreign currency exchange rate changes on net sales are removed to allow investors and the company to meaningfully evaluate the percentage change in net sales on a comparable basis from period to period . the following items highlight the company ' s acquisitions and divestitures completed in 2018 and 2017 : the company acquired abc bearings , cone drive and rollon during the third quarter of 2018. substantially all of the results for abc bearings are reported in the mobile industries segment . results for cone drive and rollon are reported in the mobile industries and process industries segments based on customers and underlying market sectors served . the company acquired groeneveld during the third quarter of 2017. substantially all of the results for groeneveld are reported in the mobile industries segment .
| 21 the statements of income sales : replace_table_token_7_th net sales increased in 2019 compared with 2018 , primarily due to the benefit of acquisitions of $ 270 million and higher organic revenue of $ 11 million , partially offset by the unfavorable impact of foreign currency exchange rate changes of $ 72 million . the increase in organic revenue was driven primarily by improved demand in the process industries segment and the impact of positive pricing , partially offset by lower shipments in the mobile industries segment . gross profit : replace_table_token_8_th gross profit increased in 2019 compared with 2018 , primarily due to the benefit of acquisitions of $ 86 million , favorable price/mix of $ 51 million and lower material and logistics costs ( including tariffs ) of $ 5 million . these factors were partially offset by the impact of lower volume of $ 19 million , the unfavorable impact of foreign currency exchange rate changes of $ 15 million and property losses of $ 8 million . selling , general and administrative expenses : replace_table_token_9_th the increase in selling , general and administrative ( `` sg & a '' ) expenses in 2019 compared with 2018 was primarily due to sg & a expense from acquisitions of $ 45 million , partially offset by the favorable impact from changes in foreign currency exchange rates of $ 10 million . interest expense and income : replace_table_token_10_th interest expense increased in 2019 compared to 2018 primarily due to higher average outstanding debt during the year , which was primarily used to fund acquisitions . refer to note 11 - financing arrangements in the notes to the consolidated financial statements for further discussion . 22 other income ( expense ) : replace_table_token_11_th the increase in non-service pension and other postretirement income ( expense ) for 2019 compared with 2018 was primarily due to the recognition of net actuarial gains ( `` mark-to-market charges '' ) of $ 4.2 million in 2019 compared to actuarial losses of $ 22.1 million in 2018. the mark-to-market charges were the result of higher than expected returns on plan assets and the impact
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approximately 60 % of the net revenues of our television stations for the year ended december 31 , 2013 were generated from local advertising ( including political advertising revenues ) , which is sold primarily by a station 's sales staff directly to local accounts , and the remainder was represented primarily by national advertising , which is sold by a station 's national advertising sales representative . the stations generally pay commissions to advertising agencies on local , regional and national advertising and the stations also pay commissions to the national sales representative on national advertising , including certain political advertising . broadcast advertising revenue is generally highest in the second and fourth quarters each year . this seasonality results partly from increases in advertising in the spring and in the period leading up to and including the holiday season . broadcast advertising revenue is also generally higher in even-numbered years , due to spending by political candidates , political parties and special interest groups during the โ on year โ of the two-year political advertising cycle . this political spending typically is heaviest during the fourth quarter of such years . our primary broadcasting operating expenses are employee compensation , related benefits and programming costs . in addition , the broadcasting operations incur overhead expenses , such as maintenance , supplies , insurance , rent and utilities . a large portion of the operating expenses of our broadcasting operations is fixed . although our total revenue for 2013 decreased from 2012 , this decrease was expected due primarily to a substantial decrease in the number of national , state and local elections in the โ off year โ of the two-year political advertising cycle and therefore political advertising revenue . our retransmission consent revenue increased in 2013 compared to 2012 due to improved terms of our retransmission consent contracts . our 2013 local and internet advertising revenue increased over 2012 amounts due primarily to an improvement in the economy in 2013 as compared to 2012. our local and national advertising revenue also benefited from an improving economy , as well as increased advertising revenue earned during the super bowl . however , local and national advertising revenue did not have the benefit of any olympic games in 2013 , as compared to 2012. in addition , in 2013 we recorded certain incentive consulting revenue under a consulting agreement that expired on december 31 , 2012 as a result of our receipt in 2013 of the final incentive compensation under that agreement . 38 automotive advertisers have traditionally accounted for a significant portion of our revenue . for the years ended december 31 , 2013 and 2012 , we derived approximately 25 % and 18 % , respectively , of our total broadcast advertising revenue from customers in the automotive industry . such amounts represented a higher percentage of total revenue in odd-numbered years due to , among other things , the increased availability of advertising time and lower overall revenue , as a result of such years being the โ off year โ of the two year political advertising cycle . in addition to general economic challenges in recent years , our revenue has come under pressure from the internet as a competitor for advertising spending . we continue to enhance and market our internet websites in an effort to generate additional revenue . our aggregate internet revenue is derived from two sources . the first is advertising or sponsorship opportunities directly on our websites , referred to as โ direct internet revenue. โ the other source is television advertising time purchased by our clients to directly promote their involvement in our websites , referred to as โ internet-related commercial time sales. โ we believe increased page views will result in increased internet revenue . we continue to monitor our operating expenses and reduce them where possible . our total operating expenses for the years ended december 31 , 2013 increased over 2012 amounts primarily due to increases in salaries , transaction expenses , non-cash compensation , severance , healthcare expense , pension expense and payroll taxes offset , in part , by a decrease in third party sales representation expenses resulting from decreased political advertising revenue . during the year ended december 31 , 2013 , we completed the offer and sale of an additional $ 375.0 million aggregate principal amount of our 7 ยฝ % senior notes due 2020 , and used those proceeds to repay a portion of the principal outstanding under the 2012 senior credit facility . please see our โ results of operations โ and โ liquidity and capital resources โ sections below for further discussion of our operating results and refinancing activities . 39 revenue highlights set forth below are the principal types of revenue , less agency commissions , earned by us for the periods indicated and the percentage contribution of each to our total revenue ( dollars in thousands ) : replace_table_token_9_th risk factors the broadcast television industry is reliant primarily on advertising revenue and faces significant competition . for a discussion of certain other presently known , significant factors that may affect our business , see โ item 1a . risk factors โ included elsewhere in this annual report . story_separator_special_tag left ; line-height : 1.25 ; margin : 0pt '' > depreciation depreciation of property and equipment totaled $ 24.1 million and $ 23.1 million for 2013 and 2012 , respectively . depreciation expense increased in 2013 compared to 2012 due to purchases of property and equipment at our existing stations and additional property and equipment at acquired stations . 41 ( loss ) gain on disposal of assets loss on disposal of assets was $ 0.8 million during 2013 as compared to a gain of $ 0.0 million during 2012. the increase in the loss was due primarily to the termination of a capital lease and the retirement of a building . story_separator_special_tag we did not have similar events in 2012. interest expense interest expense decreased $ 7.0 million , or 12 % , to $ 52.4 million for 2013 compared to 2012. interest expense decreased due to a decrease in our average interest rate offset , in part , by an increase in our average principal outstanding . in 2012 , we issued $ 300.0 million of our 2020 notes , amended the 2012 senior credit facility , repurchased all outstanding 10ยฝ % senior secured second lien notes due 2015 ( the โ 2015 notes โ ) and repurchased the outstanding shares of our series d perpetual preferred stock . in 2013 , we issued $ 375.0 million of additional 2020 notes and used the proceeds to repay a portion of the 2012 senior credit facility balance . as a result of these transactions , the average interest rates on our total debt balances were 6.0 % and 6.7 % for 2013 and 2012 , respectively . the average principal balance of indebtedness for the duration of each period was $ 835.7 million and $ 833.1 million for 2013 and 2012 , respectively . loss from early extinguishment of debt in 2012 , we amended the 2012 senior credit facility and repurchased our then-outstanding 2015 notes . as a result , we incurred costs of approximately $ 48.5 million , including tender offer premiums , bank fees and legal fees . in connection with these transactions , we reported a loss on early extinguishment of debt of $ 46.7 million for 2012. we did not incur any losses from early extinguishment of debt in 2013. income tax expense our effective income tax rate increased to 41.8 % for 2013 from 40.6 % for 2012. our effective income tax rates differed from the statutory rate due to the following items : replace_table_token_10_th preferred stock dividends in 2012 , we repurchased all then-outstanding shares of our series d perpetual preferred stock . as a result , preferred stock dividends decreased $ 4.1 million , or 100 % , to $ 0.0 million in 2013 compared to 2012 . 42 year ended december 31 , 2012 compared to year ended december 31 , 2011 ( โ 2011 โ ) revenue total revenue increased $ 97.7 million , or 32 % , to $ 404.8 million for 2012 compared to 2011 reflecting increased revenue from all sources . political advertising revenue increased $ 72.5 million , or 537 % , to $ 86.0 million reflecting increased advertising from political candidates and special interest groups during the โ on year โ of the two-year political advertising cycle . our political advertising revenue also increased due to additional advertising related to a special election to recall the governor of wisconsin , a state in which we have three television stations . retransmission consent revenue increased $ 13.5 million , or 67 % , to $ 33.8 million due to the improved terms of our retransmission contracts in 2012 compared to 2011. a significant portion of our retransmission consent contracts expired in 2011 and we were able to renew substantially all of these contracts on terms more favorable to gray , which resulted in increased revenue in 2012 compared to 2011. local advertising revenue , excluding political advertising revenue , increased $ 4.3 million , or 2 % , to $ 191.3 million . national advertising revenue , excluding political advertising revenue , increased $ 0.4 million , or 1 % , to $ 56.8 million . internet advertising revenue increased $ 4.9 million , or 24 % , to $ 25.0 million . revenue increased due to increased spending by advertisers in a gradually improving economic environment and our broadcast of the 2012 summer olympics . during 2012 , we earned approximately $ 4.0 million of revenue from local and national advertisers and $ 1.1 million of revenue from political advertisers during the broadcast of the 2012 summer olympics on our then ten primary nbc stations . there were no olympic games during 2011. in addition , local and national advertising revenue was positively influenced by the broadcast of the 2012 super bowl on our then ten primary nbc channels , earning us approximately $ 0.8 million , an increase of approximately $ 0.6 million compared to the broadcast of the 2011 super bowl on our then one primary fox-affiliated channel and then four secondary digital fox-affiliated channels , which earned us approximately $ 0.2 million . our five largest nonpolitical advertising categories on a combined local and national basis by customer type for 2012 demonstrated the following changes in revenue during 2012 compared to 2011 : automotive increased 16 % ; medical increased 7 % ; restaurant decreased 4 % ; communications increased 2 % ; and furniture and appliances increased 8 % . while our internet advertising revenue has also benefited from an improved economy , we continue to focus on and invest resources into our internet sales efforts , which have also resulted in increased internet revenue . other revenue increased $ 1.8 million , or 23 % , to $ 9.5 million in 2012 compared to 2011 due primarily to the receipt of certain copyright royalty payments . if any similar copyright royalty payments are received in future periods , they are likely to recur in lower amounts . we continued to earn consulting revenue from our agreement with young . our consulting revenue from this agreement , which expired on december 31 , 2012 , included a fixed base component and an incentive component that was based upon young 's actual results . we recorded base consulting revenue of $ 2.2 million for each of 2012 and 2011. pursuant to the terms of the consulting agreement , we recorded incentive consulting revenue of $ 0.2 million and $ 0.0 million in 2012 and 2011 , respectively .
| 40 in 2013 , our five largest nonpolitical advertising customer categories on a combined local and national basis , by customer type , demonstrated the following changes in revenue compared to 2012 : automotive increased 8 % ; medical decreased 1 % ; restaurant decreased less than 1 % ; communications increased 3 % ; and furniture and appliances increased 3 % . broadcast expenses broadcast expenses ( before depreciation , amortization and loss ( gain ) on disposal of assets ) increased $ 5.1 million , or 2 % , to $ 217.4 million for 2013 compared to 2012 due primarily to an increase in compensation expense of $ 5.7 million offset , in part , by a decrease in non-compensation expense of $ 0.6 million . compensation expense increased primarily due to increases in salaries , healthcare expense , pension expense and payroll taxes , offset in part by a decrease in incentive compensation . salary expense , including related payroll taxes , increased primarily due to routine increases in base compensation . health care expense increased due to increased claims activity . pension expense increased primarily due to a decrease in the discount rate used to calculate pension expense . incentive compensation decreased as our stations ' operating income decreased due primarily to the decrease in political advertising in 2013. non-compensation expense decreased primarily due to decreases in national sales commissions , legal expense and repairs and maintenance expense offset , in part , by increased programming costs , software license fees , data circuit fees and bad debt expense . national sales commission expense decreased primarily due to decreased political advertising revenue . we pay a percentage of certain national advertising revenue to third parties as a commission . as this revenue increases or decreases so does our national sales commission expense . legal fees decreased due to lower levels of litigation at certain of our stations . programming costs increased primarily due to an increase in affiliation fees charged by certain networks . consulting fees increased due to increased use of consultants as well as increased market research . software license fees and data circuit
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while we disclose estimated revenue expected to be recognized in the future related to unsatisfied performance obligations in note 16 to the accompanying consolidated financial statements , we believe bookings amount is still a meaningful measure of our business as it includes estimated revenues omitted from note 16 , such as sales- or usage-based royalties derived from our software licenses , among others . we estimate bookings as of the end of the period in which a contract is signed and initial booking estimates are not updated in future periods for changes between estimated and actual results . our calculations have varying degrees of certainty depending on the revenue type and individual contract terms . they are subject to a number of risks and uncertainties concerning timing and contingencies affecting product delivery and performance , and estimates consider contract terms , knowledge of the marketplace and experience with our customers , among other factors . actual revenue and the timing thereof could differ materially from our initial estimates . although many of our contracts contain non-cancelable terms , most of our bookings are transactional or service related that depend upon estimates such as volume of transactions , number of active accounts , or number of hours incurred . since these estimates can not be considered fixed or firm , we do not believe it is appropriate to characterize bookings as backlog . the following paragraphs discuss the key assumptions used to calculate bookings and the susceptibility of these assumptions to variability for each revenue type . transactional and maintenance bookings we calculate transactional bookings as the total estimated volume of transactions or number of accounts under contract , multiplied by the contractual rate . transactional contracts generally span multiple years and require estimates of future transaction volumes or number of active accounts . we develop estimates from discussions with our customers and examinations of historical data from similar products and customer arrangements . differences between estimated bookings and actual results occur due to variability in the volume of transactions or number of active accounts estimated . this variability is primarily caused by the economic trends in our customers ' industries ; individual performance of our customers relative to their competitors ; and regulatory and other factors that affect the business environment in which our customers operate . we calculate maintenance bookings directly from the terms stated in the contract . professional services bookings we calculate professional services bookings as the estimated number of hours to complete a project multiplied by the rate per hour . we estimate the number of hours based on our understanding of the project scope , conversations with customer personnel and our experience in estimating professional services projects . estimated bookings may differ from actual results primarily due to differences in the actual number of hours incurred . license bookings licenses are sold on a perpetual or term basis and bookings generally equal the fixed amount stated in the contract . 30 bookings trend analysis replace_table_token_3_th ( 1 ) bookings yield represents the percentage of revenue recognized from bookings for the periods indicated . ( 2 ) weighted-average term of bookings measures the average term over which bookings are expected to be recognized as revenue . ( a ) nm - measure is not meaningful as our estimate of bookings is as of the end of the period in which a contract is signed , and we do not update our initial booking estimates in future periods for changes between estimated and actual results . transactional and maintenance bookings were 48 % and 46 % of total bookings for the years ended september 30 , 2019 and 2018 , respectively . professional services bookings were 39 % and 43 % of total bookings for the years ended september 30 , 2019 and 2018 , respectively . license bookings were 13 % and 11 % of total bookings for the years ended september 30 , 2019 and 2018 , respectively . results of operations we are organized into the following three reportable segments : applications , scores and decision management software . although we sell solutions and services into a large number of end user product and industry markets , our reportable business segments reflect the primary method in which management organizes and evaluates internal financial information to make operating decisions and assess performance . segment revenues , operating income , and related financial information , including disaggregation of revenue , for the years ended september 30 , 2019 , 2018 and 2017 are set forth in note 15 to the accompanying consolidated financial statements . revenues the following tables set forth certain summary information on a segment basis related to our revenues for fiscal 2019 , 2018 and 2017 : replace_table_token_4_th replace_table_token_5_th 31 applications replace_table_token_6_th applications segment revenues increased $ 40.7 million in fiscal 2019 from 2018 primarily due to a $ 50.6 million increase in our fraud solutions and a $ 7.3 million increase in our customer communication services , partially offset by an $ 8.7 million decrease in our customer management solutions and a $ 7.6 million decrease in our originations solutions . the increase in fraud solutions was primarily attributable to an increase in license and transactional revenues . the increase in customer communication services was primarily attributable to an increase in transactional revenue . the decrease in customer management solutions was primarily attributable to a decrease in license and services revenues . the decrease in originations solutions was primarily attributable to a decrease in services revenues . applications segment revenues increased $ 3.7 million in fiscal 2018 from 2017 primarily due to an $ 11.5 million increase in our customer communication services , a $ 6.6 million increase in our customer management solutions , a $ 6.3 million increase in our originations solutions , a $ 6.0 million increase in our compliance solutions , and a $ 3.2 million increase in our collections & recovery solutions , partially offset by a $ 29.9 million decrease in our fraud solutions . story_separator_special_tag the increase in customer communication services was primarily attributable to an increase in transactional revenue . the increase in customer management solutions was primarily attributable to an increase in license and transactional revenues . the increase in originations solutions was primarily attributable to an increase in transactional and services revenues from our saas products . the increase in collections & recovery solutions was primarily attributable to an increase in license revenue . the increase in compliance solutions was attributable to an increase in all revenue types . the decrease in fraud solutions was primarily attributable to a decrease in license revenue . scores replace_table_token_7_th scores segment revenues increased $ 85.3 million in fiscal 2019 from 2018 due to an increase of $ 77.4 million in our business-to-business scores revenue and $ 7.9 million in our business-to-consumer services revenue . the increase in business-to-business scores was primarily attributable to a higher unit price in mortgage and auto activities . the increase in business-to-consumer services was primarily attributable to an increase in royalties derived from scores sold indirectly to consumers through credit reporting agencies . 32 scores segment revenues increased $ 76.3 million in fiscal 2018 from 2017 due to an increase of $ 60.8 million in our business-to-business scores revenue and $ 15.5 million in our business-to-consumer services revenue . the increase in business-to-business scores was primarily attributable to a $ 48.1 million increase in transactional scores in originations , primarily driven by a higher unit price in mortgage activities ; in addition , transactional scores in account management and prescreen increased $ 13.1 million driven by higher transactional volume . the increase in business-to-consumer services was primarily attributable to an increase in royalties derived from scores sold indirectly to consumers through credit reporting agencies . during fiscal 2019 , 2018 and 2017 , revenues generated from our agreements with experian accounted for 13 % , 11 % and 9 % , respectively , of our total revenues , and revenues generated from our agreements with equifax and transunion together accounted for 16 % , 14 % and 11 % , respectively , of our total revenues . revenues from these customers included amounts recorded in our other segments . decision management software replace_table_token_8_th decision management software segment revenues increased $ 34.0 million primarily attributable to an increase in both of our license sales and saas subscription revenue , as well as an increase in services revenues related to our decision management platform product . decision management software segment revenues decreased $ 14.9 million in fiscal 2018 from 2017 primarily attributable to a decrease in license revenue related to our fico ยฎ blaze advisor ยฎ . 33 operating expenses and other income ( expense ) , net the following tables set forth certain summary information related to our consolidated statements of income and comprehensive income for the fiscal 2019 , 2018 and 2017 : replace_table_token_9_th replace_table_token_10_th 34 cost of revenues cost of revenues consists primarily of employee salaries and benefits for personnel directly involved in developing , installing and supporting revenue products ; travel costs ; overhead costs ; outside services ; internal network hosting costs ; software royalty fees ; and credit bureau data and processing services . the fiscal 2019 over 2018 increase of $ 23.9 million in cost of revenues expenses was primarily attributable to a $ 13.9 million increase in personnel and labor costs and a $ 6.7 million increase in facilities and infrastructure costs . the increase in personnel and labor costs was primarily attributable to an increase in headcount . the increase in facilities and infrastructure costs was primarily attributable to increased resource requirement due to expansion in our cloud infrastructure operations . cost of revenues as a percentage of revenues decreased to 29 % during fiscal 2019 from 31 % during fiscal 2018 primarily due to increased sales of our high-margin scores and software products . the fiscal 2018 over 2017 increase of $ 25.3 million in cost of revenues expenses was primarily attributable to a $ 13.4 million increase in facilities and infrastructure costs and a $ 9.4 million increase in personnel and labor costs . the increase in facilities and infrastructure costs was primarily attributable to increased resource requirement due to expansion in our cloud infrastructure operations . the increase in personnel and labor costs was primarily attributable to an increase in incentive cost and share-based compensation costs . cost of revenues as a percentage of revenues was 31 % during fiscal 2018 , consistent with that incurred during fiscal 2017. research and development research and development expenses include the personnel and related overhead costs incurred in the development of new products and services , including the research of mathematical and statistical models and the development of new versions of our products . the fiscal 2019 over 2018 increase of $ 21.1 million in research and development expenses was primarily attributable to a $ 15.6 million increase in personnel and labor costs as a result of increased headcount , and a $ 3.5 million increase in facilities and infrastructure cost . research and development expenses as a percentage of revenues was 13 % during fiscal 2019 , consistent with that incurred during fiscal 2018. the fiscal 2018 over 2017 increase of $ 17.5 million in research and development expenses was primarily attributable to a $ 14.8 million increase in personnel and labor costs as a result of our continued investment in the areas of cloud computing and saas , as well as new products . research and development expenses as a percentage of revenues was 13 % during fiscal 2018 , materially consistent with those incurred during fiscal 2017. selling , general and administrative selling , general and administrative expenses consist principally of employee salaries and benefits ; travel costs ; overhead costs ; advertising and other promotional expenses ; corporate facilities expenses ; legal expenses ; business development expenses and the cost of operating computer systems .
| net cash used in investing activities totaled $ 14.1 million in fiscal 2018 compared to $ 20.6 million in fiscal 2017. the $ 6.5 million decrease was primarily attributable to a $ 20.0 million increase in proceeds from the sale of cost method investment , partially offset by an $ 11.5 million increase in net cash used for purchases of property and equipment as well as a $ 2.8 million increase in purchases , net of proceeds from sale , of marketable securities . 39 cash flows from financing activities net cash used in financing activities totaled $ 200.0 million in fiscal 2019 compared to $ 218.6 million in fiscal 2018. the $ 18.6 million decrease was primarily due to a $ 192.0 million decrease in payments , net of proceeds , on our revolving line of credit , a $ 113.7 million decrease in net cash used for repurchases of common stock and an $ 11.8 million increase in proceeds from issuance of treasury stock under employee stock plans , partially offset by a $ 297.0 million decrease in proceeds , net of payments , from our senior notes . net cash used in financing activities totaled $ 218.6 million in fiscal 2018 compared to $ 180.6 million in fiscal 2017. the $ 38.0 million increase was primarily due to a $ 210.0 million increase in payments , net of proceeds , on our revolving line of credit , a $ 155.0 million increase in net cash used for repurchases of common stock and a $ 7.8 million increase in debt issuance cost , partially offset by a $ 341.0 million increase in proceeds , net of payments , from our senior notes . repurchases of common stock in july 2018 , our board of directors approved a stock repurchase program following the completion of the previously authorized program . this program was open-ended and authorizes repurchases of shares of our common stock up to an aggregate cost of $ 250.0 million in the open market or in negotiated transactions . in july 2019 , our board of directors approved a new stock repurchase program following the completion of the july 2018 program . this program is open-ended and authorizes repurchases of shares of our common stock up to
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natural disasters of 2018 the year ended december 31 , 2018 was the fourth costliest year since 1980 in terms of insured losses due an accumulation of severe and costly natural disasters particularly in the second half of 2018. when compared with the record losses of 2017 due to hurricanes harvey , irma and maria , the indications at the start of 2018 were that it would be a more moderate year . however , the second half of the year saw an accumulation of billion-dollar losses from floods , tropical cyclones in the us and japan , wildfires and earthquakes . the overall economic impact is estimated to be us $ 160bn , of which us $ 80bn was insured . hurricanes michael and florence in the atlantic , and typhoons jebi , mangkhut and trami in asia , all left their mark . overall losses from tropical cyclones in 2018 came to roughly us $ 57 billion , of which us $ 29 billion was insured . there was also an extremely high impact from wildfires in california that produced overall losses of us $ 24 billion and insured losses of us $ 18 billion . over the course of the year , 29 events each resulted in an overall loss of us $ 1 billion or more . due to these natural disasters , some of which were reinsured by the company , we suffered limit losses on all of our contracts . 30 principal revenue and expense items revenues we derive our most significant revenues from two principal sources : โ premiums assumed from reinsurance on property and casualty business ; and โ income from investments , including industry loss warranties โ other fee income from management and underwriting performance of the reinsurance side-car premiums assumed include all premiums received by a reinsurance company during a specified accounting period , even if the policy provides coverage beyond the end of the period . premiums are earned over the term of the related policies . at the end of each accounting period , the portion of the premiums that are not yet earned are included in the unearned premiums reserve and are realized as revenue in subsequent periods over the remaining term of the policy . our policies typically have a term of twelve months . thus , for example , for a policy that is written on july 1 , 2018 , typically one-half of the premiums will be earned in 2018 and the other half will be earned during 2019. however , in the event of limit losses on our policies , premium recognition will be accelerated to match losses incurred in the period , when there is no possibility of any future treaty-year losses under the contracts . premiums from reinsurance on property and casualty business assumed are directly related to the number , type and pricing of contracts we write . premiums assumed are recorded net of change in loss experience refund , which consists of changes in amounts due to the cedants under two of our reinsurance contracts . these contracts contain retrospective provisions that adjust premiums in the event losses are minimal or zero . we recognize a liability pro-rata over the period in which the absence of loss experience obligates us to refund premiums under the contracts , and we will derecognize such liability in the period in which a loss experience arises . the change in loss experience refund is negatively correlated to loss and loss adjustment expenses described below . income from our investments is primarily comprised of interest income , dividends and net realized and unrealized gains ( losses ) on investment securities . such income is primarily from the company 's investments , which includes investments held in trust accounts that collateralize the reinsurance policies that we write . the investment parameters for trust accounts are generally be established by the cedant for the relevant policy . industry loss warranties the company may buy and sell industry loss warranties as a way to access certain risks . an industry loss warranty is a financial instrument designed to protect insurers or reinsurers from severe losses due to natural and man-made catastrophes and can take the form of either an insurance contract or a swap agreement . under both forms , a premium is paid at the inception of the contract and , in return , a payout is made if a catastrophic event causes loss to the insurance industry in excess of a predetermined trigger amount . industry loss warranties may also be triggered by other parametric measurements defined in the contract such as observed wind speeds , measured seismic activity or other factors . industry loss warranties in the form of an insurance contract ( also referred to as the `` indemnity form '' ) are typically dual-trigger instruments and , in addition to requiring a loss to the industry , require that the buyer of the protection actually suffer a loss from the triggering event . the company may buy and sell industry loss warranties in the form of an insurance contract or in the form of a derivative contract . 31 fee income the company earns management fee income from providing administrative and management services for the reinsurance side-car operations . the company is also entitled to a performance fee should the side-car underwriting results be profitable for a specific treaty period . expenses our expenses consist primarily of the following : โ losses and loss adjustment expenses ; โ policy acquisition costs and underwriting expenses ; and โ general and administrative expenses . loss and loss adjustment expenses are a function of the amount and type of reinsurance contracts we write and of the loss experience of the underlying coverage . as described below , loss and loss adjustment expenses are based on the claims reported by our company 's ceding insurers , and may include an actuarial analysis of the estimated losses , including losses incurred during the period and changes in estimates from prior periods . story_separator_special_tag depending on the nature of the contract , loss and loss adjustment expenses may be paid over a period of years . policy acquisition costs and underwriting expenses consist primarily of brokerage fees , ceding commissions , premium taxes and other direct expenses that relate to our writing of reinsurance contracts . we amortize deferred acquisition costs over the related contract term . general and administrative expenses consist of salaries and benefits and related costs , including costs associated with our professional fees , rent and other general operating expenses consistent with operating as a public company . 32 results of operations the following table summarizes our results of operations for the years ended december 31 , 2018 and 2017 ( dollars in thousands , except per share amounts ) : replace_table_token_3_th 33 comparison of the year ended december 31 , 2018 to year ended december 31 , 2017 general . net loss for the year ended december 31 , 2018 was $ 5.7 million or ( $ 1.00 ) per basic and diluted loss per share compared to a net loss of $ 20.6 million or ( $ 3.55 ) per basic and diluted earnings per share for the year ended december 31 , 2017. the significant decrease in net loss is wholly due to limit losses being suffered on a smaller sized reinsurance portfolio during the year ended december 31 , 2018 , when compared with the reinsurance portfolio that suffered limit losses during the year ended december 31 , 2017. premium income . net premiums earned typically reflects the pro-rata inclusion into income of premiums assumed ( net of loss experience refund and premiums ceded ) over the life of the reinsurance contracts . however , given the limit losses experienced on all our reinsurance contracts during the years ended december 31 , 2018 and 2017 , premiums recognition has not been deferred through the remaining lives of those respective contracts and have been accelerated into the respective years , due to the fact that there is no possibility of any future treaty-year losses under such contracts . net premiums earned for the year ended december 31 , 2018 decreased $ 20.8 million , to $ 2.7 million , from $ 23.5 million for the year ended december 31 , 2017. the decrease is primarily due to the limit losses suffered in 2017 resulting in a significantly lower deployment of capital during 2018 , and consequentially lower premiums , when compared with the prior fiscal year . losses incurred . losses incurred for the year ended december 31 , 2018 decreased $ 32.4 million to $ 10 million , from $ 42.4 million for the year ended december 31 , 2017. the decrease is primarily due to limit losses being suffered on a smaller sized reinsurance portfolio during the year ended december 31 , 2018 , when compared with the reinsurance portfolio that suffered limit losses during the year ended december 31 , 2017. policy acquisition costs and underwriting expenses . acquisition costs represent the amortization of the brokerage fees and federal excise taxes incurred on reinsurance contracts placed . policy acquisition costs and underwriting expenses for the year ended december 31 , 2018 decreased by $ 418 thousand , to $ 263 thousand from $ 681 thousand for the year ended december 31 , 2017. the decrease is primarily due to the limit losses suffered in 2017 resulting in a significantly lower deployment of capital during 2018 , and consequentially lower premiums and policy acquisitions costs , when compared with the prior fiscal year . general and administrative expenses . general and administrative expenses for the year ended december 31 , 2017 decreased marginally by $ 43 thousand . the decrease is not considered material . story_separator_special_tag 0px ; text-indent : 0px '' > 35 liquidity and capital resources general we are organized as a holding company with substantially no operations at the holding company level . our operations are conducted through our reinsurance subsidiaries , oxbridge reinsurance limited and oxbridge re ns which underwrites risks associated with our property and casualty reinsurance programs . we have minimal continuing cash needs at the holding company level , with such expenses principally being related to the payment of administrative expenses , and shareholder dividends , if any . there are restrictions on oxbridge reinsurance limited 's and oxbridge re ns ' ability to pay dividends which are described in more detail below . sources and uses of funds our sources of funds primarily consist of premium receipts ( net of brokerage fees and federal excise taxes , where applicable ) and investment income , including interest , dividends and realized gains . we use cash to pay losses and loss adjustment expenses , other underwriting expenses , dividends , and general and administrative expenses . substantially all of our surplus funds , net of funds required for cash liquidity purposes , are invested in accordance with our investment guidelines . our investment portfolio is primarily comprised of cash and highly liquid securities , which can be liquidated , if necessary , to meet current liabilities . we believe that we have sufficient flexibility to liquidate any long-term securities that we own in a rising market to generate liquidity . as of december 31 , 2018 , we believe we had sufficient cash flows from operations to meet our liquidity requirements . we expect that our operational needs for liquidity will be met by cash , investment income and funds generated from underwriting activities . we have no plans to issue debt and expect to fund our operations for the foreseeable future from operating cash flows , as well as from potential future equity offerings . however , we can not provide assurances that in the future we will not incur indebtedness to implement our business strategy , pay claims or make acquisitions .
| the expense ratio is the ratio of policy acquisition costs , other underwriting expenses and general and administrative expenses to net premiums and ilw income earned . we use the expense ratio to measure our operating performance . the expense ratio increased from 8.5 % for the year ended december 31 , 2017 to 41.5 % for the year ended december 31 , 2018. the increase is due to the more significant reduction in net premiums than the decrease in policy acquisition costs as recorded during the year ended december 31 , 2018 , when compared with the prior fiscal year . combined ratio . we use the combined ratio to measure our underwriting performance . the combined ratio is the sum of the loss ratio and the expense ratio . if the combined ratio is at or above 100 % , we are not underwriting profitably and may not be profitable . the combined ratio increased from 188.5 % for the year ended december 31 , 2017 to 310.1 % ( 256.6 % when taking series 2018-1 notes into consideration ) for the year ended december 31 , 2018. the increase in the combined ratio is due to a significantly higher loss ratio during year ended december 31 , 2018 as mentioned above , when compared with the prior fiscal year . financial condition โ december 31 , 2018 compared to december 31 , 2017 restricted cash and cash equivalents . as of december 31 , 2018 , our restricted cash and cash equivalents increased marginally by $ 100 thousand , or 3 % , to $ 3.2 million , from $ 3.1 million as of december 31 , 2017. the increase is the net result of withdrawals by the cedants for settlement of losses under the reinsurance contracts during the year ended december 31 , 2018 more than offset by premium receipts and collateral deposits . investments . as of december 31 , 2018 , our available for sale securities decreased marginally by $ 5.4 million , or 82 % , to $ 1 million , from $ 6.4 million as of december 31 , 2017. the decrease is primarily a result
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beyond these general observations , we are unable to predict when , how , or with what magnitude covid-19 events , in combination with the cyclical downturn , will negatively impact our business due to numerous uncertainties , including the duration of the covid-19 pandemic , the duration of the global decline in economic activity , the impact of those events to our customers , suppliers and employees , and actions that may be taken by governmental authorities , including potentially preventing or curtailing the operations of our plants and or shops , and other consequences . 30 overview revenue , cost of revenue , margin and earnings from operations presented below , include amounts from external parties and exclude intersegment activity that is eliminated in consolidation . replace_table_token_4_th performance for our segments is evaluated based on earnings from operations ( operating profit ) . corporate includes selling and administrative costs not directly related to goods and services and certain costs that are intertwined among segments due to our integrated business model . management does not allocate interest and foreign exchange or income tax expense for either external or internal reporting purposes . replace_table_token_5_th 31 story_separator_special_tag style= '' text-align : justify ; margin-top:10pt ; margin-bottom:0pt ; text-indent:0 % ; font-size:10pt ; font-family : times new roman ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > manufacturing revenue decreased $ 81.5 million or 3.4 % in 2020 compared to 2019 primarily attributed to an 11.6 % decrease in the volume of railcar deliveries . the decrease in revenue was partially offset by a change in product mix and the additional revenue in 2020 associated with the acquired manufacturing business of ari . manufacturing revenue increased $ 386.9 million or 18.9 % in 2019 compared to 2018 , of which $ 43.5 million related to the addition of the manufacturing business of ari . the increase in revenue was primarily attributed to an 18.4 % increase in the volume of railcar deliveries and a change in product mix . manufacturing cost of revenue decreased $ 72.5 million or 3.4 % in 2020 compared to 2019 primarily attributed to an 11.6 % decrease in the volume of railcar deliveries . the decrease in cost of revenue was partially offset by the additional cost of revenue in 2020 associated with the acquired manufacturing business of ari and a change in product mix . manufacturing cost of revenue increased $ 410.2 million or 23.7 % in 2019 compared to 2018. the increase in cost of revenue was primarily attributed to an 18.4 % increase in the volume of railcar deliveries and operating inefficiencies at some of our manufacturing facilities . manufacturing margin as a percentage of revenue was 12.1 % for both 2020 and 2019. manufacturing margin was positively impacted by synergies in 2020 resulting from the integration of the manufacturing business of ari . this was partially offset by an increase in severance expense , ari integration costs and increased costs associated with operating our manufacturing facilities during the covid-19 pandemic in 2020. manufacturing margin as a percentage of revenue decreased 3.4 % in 2019 compared to 2018. the decrease was primarily attributed to a change in product mix and operating inefficiencies at some of our manufacturing facilities . these were partially offset by higher volumes of new railcar sales with leases attached which typically result in enhanced sales prices and margins . manufacturing operating profit decreased $ 20.2 million or 9.3 % in 2020 compared to 2019. the decrease was primarily attributed to a reduction in the volume of railcar deliveries , severance expense , ari integration costs and increased costs associated with operating our manufacturing facilities during the covid-19 pandemic in 2020. this was partially offset by synergies in 2020 resulting from the integration of the manufacturing business of ari . manufacturing operating profit decreased $ 23.3 million or 9.7 % in 2019 compared to 2018. the decrease was primarily attributed to a lower margin percentage from a change in product mix and operating inefficiencies at some of our manufacturing facilities . 33 wheels , repair & parts segment replace_table_token_8_th * not meaningful on august 20 , 2018 , 12 repair shops were returned to us as a result of discontinuing our gbw railcar repair joint venture . beginning on august 20 , 2018 , the results of operations from these repair shops were included in the wheels , repair & parts segment as they are now consolidated for financial reporting purposes . wheels , repair & parts revenue decreased $ 119.8 million or 27.0 % in 2020 compared to 2019. the decrease was primarily due to lower wheelset , component and parts volumes due to lower demand , a decrease in scrap metal pricing and lower repair revenue primarily from five fewer shops in 2020. wheels , repair & parts revenue increased $ 97.5 million or 28.1 % in 2019 compared to 2018. the increase was primarily due to 2019 including $ 87.5 million in revenue associated with the repair shops returned to us after discontinuing the gbw joint venture in august 2018. the increase was also due to higher parts revenue due to an increase in demand . wheels , repair & parts cost of revenue decreased $ 118.7 million or 28.2 % in 2020 compared to 2019. the decrease was primarily due to lower costs associated with a reduction in wheelset , component and parts volumes and five fewer repair shops in 2020. wheels , repair & parts cost of revenue increased $ 102.6 million or 32.2 % in 2019 compared to 2018. the increase was primarily due to 2019 including $ 97.3 million in cost of revenue associated with the repair shops returned to us after discontinuing the gbw joint venture in august 2018. the increase was also due to increased parts volumes and costs associated with closing sites in our repair network . story_separator_special_tag wheels , repair & parts margin as a percentage of revenue increased 1.6 % in 2020 compared to 2019. the increase was primarily attributed to efficiencies at our repair shops in 2020. in addition , 2019 was negatively impacted by costs associated with closing sites in our repair network . these factors which had a positive impact to wheels , repair & parts margin as a percentage of revenue in 2020 compared to 2019 , were partially offset by a decrease in scrap metal pricing and increased costs associated with operating our facilities during the covid-19 pandemic in 2020. wheels , repair & parts margin as a percentage of revenue decreased 3.0 % in 2019 compared to 2018. the decrease was primarily attributed to inefficiencies at our repair operations and costs associated with closing sites in our repair network in 2019. this was partially offset by a favorable parts product mix . wheels , repair & parts operating profit increased $ 12.0 million in 2020 compared to 2019. the increase was due to 2019 being negatively impacted by a $ 10.0 million goodwill impairment and costs associated with closing sites in our repair network . wheels , repair & parts operating profit decreased $ 19.7 million in 2019 compared to 2018. the decrease was primarily attributed to a $ 10.0 million goodwill impairment charge recognized in 2019 due to challenges at our repair operations and costs associated with closing sites in our repair network . this was partially offset by higher parts revenue and a more favorable parts product mix . 34 leasing & services segment replace_table_token_9_th * not meaningful the leasing & services segment generates revenue from leasing railcars from its lease fleet , providing various management services , interim rent on leased railcars for syndication , and the sale of railcars purchased from third parties with the intent to resell . the gross proceeds from the sale of these railcars are recorded in revenue and the costs of purchasing these railcars are recorded in cost of revenue . leasing & services revenue decreased $ 40.0 million or 25.4 % in 2020 compared to 2019. the decrease was primarily attributed to a decrease in the sale of railcars which we had purchased from third parties with the intent to resell . this was partially offset by higher interim rent on leased railcars for syndication . leasing & services revenue increased $ 29.7 million or 23.3 % in 2019 compared to 2018. the increase was primarily attributed to an increase in the sale of railcars which we had purchased from third parties with the intent to resell . this was partially offset by lower interim rent on leased railcars for syndication . leasing & services cost of revenue decreased $ 36.9 million or 34.0 % in 2020 compared to 2019. the decrease was primarily due to a decrease in the volume of railcars sold that we purchased from third parties partially offset by higher storage costs . leasing & services cost of revenue increased $ 43.9 million or 67.9 % in 2019 compared to 2018. the increase was primarily due to an increase in the volume of railcars sold that we purchased from third parties and higher transportation costs . leasing & services margin as a percentage of revenue increased 7.9 % in 2020 compared to 2019. margin as a percentage of revenue for 2020 benefited from fewer sales of railcars that we purchased from third parties which have lower margin percentages . the increase in margin in 2020 as a percentage of revenue was also due to higher interim rent on leased railcars for syndication . leasing & services margin as a percentage of revenue decreased 18.3 % in 2019 compared to 2018. margin for 2019 was negatively impacted from higher sales of railcars that we purchased from third parties which have lower margin percentages . the decrease in margin was also due to higher transportation costs . leasing & services operating profit decreased $ 23.8 million or 36.8 % in 2020 compared to 2019. the decrease was primarily attributed to an $ 18.4 million decrease in net gain on disposition of equipment . leasing & services operating profit decreased $ 23.7 million or 26.8 % in 2019 compared to 2018. the decrease was attributed to a $ 14.2 million decrease in margin primarily due to higher transportation costs and lower interim rent on leased railcars for syndication . the decrease was also attributed to a $ 6.8 million decrease in net gain on disposition of equipment . the percentage of owned units on lease was 90.4 % , 93.3 % and 94.4 % at august 31 , 2020 , 2019 and 2018 , respectively . 35 selling and administrative replace_table_token_10_th selling and administrative expense was $ 204.7 million or 7.3 % of revenue for the year ended august 31 , 2020 , $ 213.3 million or 7.0 % of revenue for the year ended august 31 , 2019 and $ 200.4 million or 8.0 % of revenue for the year ended august 31 , 2018. the $ 8.6 million decrease in 2020 compared to 2019 was primarily attributed to $ 18.7 million in costs incurred in 2019 associated with the acquisition of the manufacturing business of ari . this was partially offset by $ 9.6 million from the addition of the manufacturing business of ari selling and administrative costs in 2020. the $ 12.9 million increase in 2019 compared to 2018 was primarily attributed to $ 18.7 million in costs associated with the acquisition of the manufacturing business of ari and the addition of the selling and administrative costs from the repair shops returned to us after discontinuing the gbw joint venture and the manufacturing business of ari . these increases in selling and administrative costs were partially offset by a $ 7.6 million decrease in employee costs primarily related to a decrease in incentive compensation .
| the decrease in wheels , repair & parts cost of revenue was primarily a result of lower costs associated with a reduction in wheelset , component and parts volumes and five fewer repair shops in 2020. the decrease in 2020 cost of revenue was also due to a 3.4 % decrease in manufacturing cost of revenue from an 11.6 % decrease in the volume of railcar deliveries . the 26.4 % increase in cost of revenue in 2019 compared to 2018 was primarily due to a 23.7 % increase in manufacturing cost of revenue . the increase in manufacturing cost of revenue was primarily attributed to an 18.4 % increase in the volume of railcar deliveries and operating inefficiencies at some of our manufacturing facilities . the increase in cost of revenue was also due to a 32.2 % increase in wheels , repair & parts cost of revenue primarily due to 2019 including $ 97.3 million in costs associated with the repair shops returned to us after discontinuing the gbw joint venture in august 2018. margin as a percentage of revenue was 12.6 % in 2020 compared to 12.1 % in 2019. the overall margin as a percentage of revenue was positively impacted in 2020 by an increase in leasing & services margin from 31.1 % to 39.0 % as a result of fewer sales of railcars that we purchased from third parties which have lower margin percentages and higher interim rent on leased railcars for syndication . margin as a percentage of revenue was 12.1 % in 2019 compared to 16.2 % in 2018. the overall margin as a percentage of revenue was negatively impacted in 2019 by a decrease in manufacturing margin to 12.1 % from 15.5 % primarily attributed to a change in product mix and operating inefficiencies at some of our manufacturing facilities . the decrease was also due to a decrease in leasing & services margin to 31.1 % from 49.4 % . margin for 2019 was negatively
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in order to become profitable , our revenues from existing client programs will need to increase at a rate faster than the expenses we will incur in connection with the launch of new client programs . we believe our business strategy will continue to offer significant opportunities for growth , but it also presents a number of risks and challenges . in particular , to remain competitive , we will need to continue to innovate in a rapidly changing landscape for the application of technology like ours to the delivery of higher education . as described above , we have added , and we intend to continue to add , degree programs in a number of new academic disciplines each year , as well as to expand the delivery of existing degree programs to new clients and to add new offerings to current programs . to do so , we will need to convince new clients as to the quality and value of our platform , cost-effectively identify qualified students for our clients ' programs and help our clients retain those students once enrolled . we must also be able to successfully execute our business strategy while navigating constantly changing higher education laws and regulations applicable to our clients and , in some cases to ourselves , particularly the incentive compensation rule that generally prohibits making incentive payments related to student acquisition . we seek to ensure that addressing all of these risks and challenges does not divert our management 's attention from continuing to build on the strengths that we believe have driven the growth of our business over the last several years . we believe our focus on delivering a differentiated platform , maintaining the integrity of our clients ' educational brands and enabling strong student outcomes will contribute to the success of our business . however , we may not be successful in addressing and managing the many challenges and risks that we face . our business model the key elements of our business model are described below . 49 revenue drivers substantially all of our revenue is derived from revenue-share arrangements with our clients under which we receive a contractually specified percentage of the amounts students pay them in tuition and other fees . accordingly , the primary driver of our revenue growth is the number of student course enrollments in our clients ' programs . this in turn is influenced primarily by three factors : our ability to increase the number of programs offered by our clients , either by adding new clients or by expanding the number of client programs ; our ability to identify and acquire prospective students for our clients ' programs ; and our ability , and that of our clients , to retain the students who enroll in their programs . in the near term , we expect the primary drivers of our financial results to continue to be our two programs with the university of southern california , which are our longest running programs , launched in 2009 and 2010. for the years ended december 31 , 2014 , 2013 and 2012 , 55 % , 69 % and 78 % , respectively , of our revenue was derived from these two programs . we expect the university of southern california will continue to account for a large portion of our revenue until our other client programs become more mature and achieve significantly higher enrollment levels . program marketing and sales expense our most significant expense in each fiscal period has been program marketing and sales expense , which relates primarily to student acquisition activities . we do not spend significant amounts on new client or program acquisition and we do not maintain a sales force targeted at potential new clients or programs since our model is not dependent on launching a large number of new programs per year , either with new or existing clients . instead , our new clients and programs are largely generated through a direct approach by our senior management to selected colleges and universities . we have primary responsibility for identifying qualified students for our clients ' programs , generating potential student interest in the programs and driving applications to the programs . while our clients make all admissions decisions , the number of students who enroll in our clients ' programs in any given period is significantly dependent on the amount we have spent on these student acquisition activities in prior periods . accordingly , although most of our clients ' programs span multiple semesters and , therefore , generate continued revenue beyond the term in which initial enrollments occur , we expect that we will need to continue to incur significant program marketing and sales expense for existing programs going forward to generate a continuous pipeline of new enrollments . for new programs , we begin incurring program marketing and sales costs as early as nine months prior to the start of a new client program . we typically identify prospective students for our clients ' programs between three months and two or more years before they ultimately enroll . for the students currently enrolled in our clients ' programs and those who have graduated , the average time from our initial prospective student acquisition to initial enrollment was seven months . for the students who have graduated from these programs , the average time from initial enrollment to graduation was 21 months . however , because our clients ' programs are relatively new , they have only graduated a limited number of students to date , with many early enrollees still enrolled . based on the student retention rates and patterns we have observed in our clients ' programs , we estimate that , for our current programs , the average time from a student 's initial enrollment to graduation will be approximately 2.5 years . accordingly , our program marketing and sales expense in any period is an investment we make to generate revenue in future periods . story_separator_special_tag likewise , revenue generated in any period is largely attributable to the investment made in student acquisition activities in earlier periods . because program marketing and sales expense in any period is almost entirely unrelated to revenue generated in that period , we do not 50 believe it is meaningful to directly compare the two . we believe that the total revenue we will receive in the future from students who enroll in our clients ' programs as a result of current period program marketing and sales expense will be significantly greater as a multiple of that expense than is implied by the multiple of current period revenue to current period program marketing and sales expense . further , we believe that our program marketing and sales expense in future periods will generally decline as a percentage of the revenue reported in those same periods as our revenue base from returning students in existing programs increases . we continually manage our program marketing and sales expense to ensure that across our portfolio of client programs , our cost to acquire students for these programs is appropriate for our business model . we use a ratio of attrition adjusted lifetime revenue of a student , or ltr , to the total cost to acquire that student , or tca , as the measure of our marketing efficiency and to determine how much we are willing to spend to acquire an additional student for any program . the calculations included in this ratio include certain assumptions . for any period , we know what we spent on program sales and marketing and therefore , can accurately calculate the ratio 's denominator . however , given the time lag between when we incur our program marketing and sales expense and when we receive revenue related to students enrolled based on that expense , we have to incorporate forecasts of student enrollments and retention into our calculation of the ratio 's numerator , which is our estimate of future revenue related to that period 's expense . we use the significant amount of data we have on the effectiveness of various marketing channels , student attrition and other factors to inform our forecasts and are continually testing the assumptions underlying these forecasts against actual results to give us confidence that our forecasts are reasonable . the ltr to tca ratio may vary from program to program depending on the degree being offered , where that program is in its lifecycle and whether we enable the same or similar degrees at other universities . period-to-period fluctuations our revenue , cash position , accounts receivable and deferred revenue can fluctuate significantly from quarter to quarter due to variations driven by the academic schedules of our clients ' programs . these programs generally start classes for new and returning students an average of four times per year . class starts are not necessarily evenly spaced throughout the year , do not necessarily correspond to the traditional academic calendar and may vary from year to year . as a result , the number of classes our client programs have in session , and therefore the number of students enrolled , will vary from month to month and quarter to quarter , leading to variability in our revenue . the semesters of our clients ' programs often straddle two fiscal quarters . our clients generally pay us when they have billed tuition and specified fees to their students , which is typically early in the semester , and once the drop/add period has passed . we recognize the related revenue ratably over the course of the semester . because we generally receive payments from our clients prior to our ability to recognize the majority of those amounts as revenue , we record deferred revenue at each balance sheet date equal to the excess of the amounts we have billed or received from our clients over the amounts we have recognized as revenue as of that date . for these reasons , our cash flows typically vary considerably from quarter to quarter and our cash position , accounts receivable and deferred revenue typically fluctuate between quarterly balance sheet dates . our expense levels also fluctuate from quarter to quarter , driven primarily by our program marketing and sales activity . we typically reduce our paid search and other program marketing and sales efforts during late november and december because these efforts are less productive during the holiday season . this generally results in lower total program marketing and sales expense during the fourth quarter . in addition , because we begin spending on technology and content development , program marketing and sales , and , to a lesser extent , services and support as much as nine months prior to the start of classes for a new client program , these costs as a percentage of revenue fluctuate , 51 sometimes significantly , depending on the timing of new client programs and anticipated program launch dates . key business and financial performance metrics we use a number of key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate financial projections and make strategic decisions . in addition to adjusted ebitda , which we discuss below , we discuss revenue and the components of operating loss in the section below entitled `` ยcomponents of operating results . '' additionally , we utilize other key metrics to evaluate the success of our growth strategy , including measures we refer to as platform revenue retention rate and full course equivalent enrollments in our clients ' programs . platform revenue retention rate we measure our platform revenue retention rate for a particular period by first identifying the group of programs that our clients launched before the beginning of the prior year comparative period .
| as a percentage of revenue , servicing and support costs decreased from 27.3 % for the year ended december 31 , 2013 to 24.4 % for the same period of 2014 , as client programs continued to mature and greater operational efficiencies were achieved . technology and content development . technology and content development costs for the year ended december 31 , 2014 were $ 22.6 million , an increase of $ 3.1 million , or 16.2 % , from $ 19.5 million for the year ended december 31 , 2013. this was due primarily to a $ 2.2 million increase in 57 compensation costs ( net of capitalized amounts for software and content development ) and higher travel and related expenses of $ 0.3 million , as we increased our headcount in this area by 30 % to support additional client program launches and scaling of existing client programs . further , an increase of $ 0.9 million resulted from higher depreciation expense associated with our capitalized internal use software and content development costs , primarily as a result of an increase in the number of courses that have been developed for our client programs . additionally , costs related to equipment expenditures and our cloud-based server usage increased by $ 0.7 million and $ 0.7 million , respectively , to support a greater number of our clients ' programs . these increases were offset by lower curriculum development and production expenditures of $ 1.3 million , primarily related to the discontinuation of a pilot program , and other cost savings of $ 0.4 million . as a percentage of revenue , technology and content development costs decreased from 23.4 % for the year ended december 31 , 2013 to 20.5 % for the same period of 2014 , driven by our increased revenue . program marketing and sales . program marketing and sales expense for the year ended december 31 , 2014 was $ 65.2 million , an increase of $ 11.1 million , or 20.5 % , from $ 54.1
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if our forecasts are incorrect , market conditions deteriorate , or we decide to exit other product lines , further inventory write-downs may be required which result in an increase to cost of sales and reduced gross profit . if market conditions or demand are better than expected , we may sell inventories that have been previously written down , resulting in reduced or zero cost of sales and improved gross profit . allowance for uncollectible accounts . we maintain allowances for uncollectible accounts receivable resulting from the failure of our customers to make required payments . our estimate is based on , among other things , the aging of accounts receivable , historical write-off experience , and the current and projected financial condition of our customers . if we misinterpret the financial condition of our customers or if the financial condition of customers deteriorates , additional allowances for uncollectible accounts may be required , which would increase operating costs and reduce operating profit . goodwill . in conjunction with the implementation of sfas 142 as of the beginning of fiscal year 2003 , goodwill is no longer amortized , but instead tested for impairment at least annually . the first step of the goodwill impairment test is a comparison of the fair value of a reporting unit to its carrying value . the fair value of a reporting unit is the amount which the unit as a whole could be bought or sold in a current transaction between willing parties . we conducted a transitional goodwill impairment test upon adoption of sfas 142 as of july 1 , 2002 , and an annual goodwill impairment test as of april 1 , 2003. the goodwill impairment test requires us to identify our reporting units and obtain estimates of the fair values of those units as of the testing date . we estimate the fair values of our reporting units using discounted cash flow and public company market multiple valuation models . those models require estimates of future revenues , profits , capital expenditures and working capital for each reporting unit . we estimate these amounts by evaluating historical trends , current budgets , operating plans and industry data . a decline in the fair value of any of our reporting units below its carrying value is an indicator that the underlying goodwill of the unit is potentially impaired . if that occurs , we are required the complete the second step of the goodwill impairment test to determine whether the unit 's goodwill is impaired . the second step of the goodwill impairment test is a comparison of the implied fair value of a reporting unit 's goodwill to its carrying value . an impairment loss is required for the amount which the carrying value of a reporting unit 's goodwill exceeds its implied fair value . if an impairment loss is recognized , the implied fair value of the reporting unit 's goodwill becomes the new cost basis of the unit 's goodwill . the estimated fair value in our transitional impairment analysis completed in december 2002 for two reporting units was less than each respective unit 's carrying value indicating a potential for impairment at the test dates . accordingly , we performed the required second step of the goodwill impairment test and compared the implied fair value of each 18 reporting unit 's goodwill to its carrying value . the implied fair value of the goodwill in both reporting units tested in step 2 , which was finalized during the quarter ended june 30 , 2003 , was less than the carrying value . this resulted in a transitional impairment charge of approximately $ 6,058,000 , net of tax , which is reflected as a cumulative effect of change in accounting principle in sbs ' consolidated financial statements . the estimated fair value of goodwill in the annual test on april 1 , 2003 was determined to be in excess of its carrying value , indicating the underlying goodwill was not impaired at that date . we plan to conduct our annual impairment test as of april 1 of each fiscal year , when our budgets and operating plans for the forthcoming year are finalized . the timing and frequency of our goodwill impairment tests are based on an ongoing assessment of events and circumstances that would more than likely reduce the fair value of a reporting unit below its carrying value . we will continue to monitor our goodwill balance for impairment and conduct formal tests when impairment indicators are present . long-lived and intangible assets . we evaluate the carrying value of long-lived and intangible assets whenever certain events or changes in circumstances indicate that the carrying amount may not be recoverable . these events or circumstances include , but are not limited to , a prolonged industry or economic downturn , a significant decline in sbs ' market value , or significant reductions in projected future cash flows . an asset is considered to be impaired if future undiscounted cash flows , without consideration of interest , are insufficient to recover the carrying amount of the asset . once an asset is deemed impaired , a charge to expense is recognized to the extent that the carrying amount of the asset exceeds fair value . fair value is generally determined by calculating the discounted future cash flows using a discount rate based upon our weighted average cost of capital . estimates of future cash flows require significant judgment , and any change in these estimates may result in additional impairment charges and reduced operating profits . income taxes . our estimate of current and deferred income taxes reflects our assessment of current and future taxes to be paid or received on items reflected in the financial statements , giving consideration to the recoverability of certain of the deferred tax assets , which arise from temporary differences between the tax and financial statement recognition of revenue and expense . story_separator_special_tag estimates of current income taxes include estimates for general business credits , benefits from u.s. sales to foreign jurisdictions , and benefits from the utilization of foreign tax credits . actual income taxes may vary from our estimates due to future changes in tax laws or because of a review of our tax returns by taxing authorities , which may result in an increase or decrease to income tax expense . we must also assess the likelihood that we will be able to recover our deferred tax assets . if recovery is determined not to be more likely than not , we must increase our provision for taxes by recording a reserve , in the form of a valuation allowance , for the deferred tax assets that we estimate will not ultimately be recoverable . as of june 30 , 2003 , we believe that all of our recorded deferred tax assets will ultimately be recovered . however , should there be a change in our ability to recover the deferred tax assets , our tax provision would increase in the period we determine that recovery is no longer more likely than not . recent acquisitions sbs completed the acquisitions described below during the fiscal years ended june 30 , 2003 and 2002. the acquisitions have been accounted for using the purchase method of accounting , and the results of operations of the acquired companies have been combined with sbs ' since the respective dates of acquisition . the purchase price has been allocated to the underlying assets acquired and liabilities assumed based on their estimated fair values with goodwill , if any , representing the excess of the purchase price over the fair value of the net assets acquired . on june 30 , 2003 , sbs acquired 100 percent of the outstanding common stock of avvida holdings corp. and its wholly-owned subsidiary , avvida systems inc. ( avvida ) , located in waterloo , canada . avvida provides image processing solutions to customers serving a wide variety of applications . avvida 's focus is emerging programmable logic , including fully programmable gateway array ( fpga ) technology utilized in high performance video , image and data processing solutions . we plan to incorporate fpga technology into existing and future products across all sbs product lines . the aggregate purchase price of $ 6.2 million , including acquisition costs of $ 0.6 million , was paid in cash and shares of sbs common stock valued at $ 3,574,020. the value of the 386,940 shares of sbs common stock was determined based on the average market price of sbs ' common shares over the two-day period before and after the terms of the acquisition were agreed to and announced . the purchase price was allocated to the underlying assets acquired and liabilities assumed based on their estimated fair values . in conjunction with the purchase price allocation , the estimated fair value of identifiable intangible assets , specifically a core technology asset valued at $ 970,000 and a covenant not-to-compete valued at $ 1.2 million , was based on an assessment of their fair value determined by management , and goodwill of approximately $ 3.5 million was recorded which is not deductible for tax purposes . the identifiable intangible assets will be amortized over a period of 5 19 years based on the estimated economic useful life of the core technology asset and the contractual period of the covenant . the following unaudited pro forma consolidated results of operations for the fiscal year ended june 30 , 2003 have been prepared as if the acquisition of avvida had occurred on july 1 , 2002. accordingly , the weighted average shares used in the pro forma per share data were increased to reflect the shares issued in the acquisition . pro forma results of operations for 2002 are not presented as avvida 's results of operations in fiscal 2002 were not material to sbs ' consolidated results of operations . thousands ( except per share amounts ) sales $ 116,178 income before cumulative effect of change in accounting principle $ 207 cumulative effect of change in accounting principle ( 6,058 ) net loss $ ( 5,851 ) per share ย assuming dilution : income before cumulative effect of change in accounting principle $ 0.01 cumulative effect of change in accounting principle ( 0.40 ) net loss $ ( 0.39 ) the pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisition been consummated on july 1 , 2002 , nor is it intended to be a projection of future results . on march 4 , 2002 , sbs completed the acquisition of certain assets and assumed certain liabilities of essential communications , a division of publicly held intrusion , inc. , for approximately $ 1.0 million in cash . founded in 1992 , essential develops and delivers early stage infiniband products . sbs utilizes essential 's infiniband product expertise and industry relationships to build on its current infiniband efforts in the enterprise server and storage markets . the purchase price has been allocated to the underlying assets acquired and liabilities assumed based on their estimated fair values . in conjunction with the purchase price allocation , sbs recorded approximately $ 364,000 of identifiable intangibles , principally core-technology assets , which are being amortized over a two-year period . no goodwill was recorded . 20 story_separator_special_tag result of other actions taken by management in response to unfavorable economic and market conditions . 22 impairment of intangible assets .
| we are aggressive in our development activities , and we believe that there will be growth in this market , which should contribute to total company sales growth in fiscal year 2004. however , should the u.s. defense budget be reviewed in light of the growth in the federal budget deficit or for other reasons , u.s. procurement spending may be affected . gross profit . for the year ended june 30 , 2003 , gross profit increased 35 % , or $ 14.9 million , from $ 42.6 million for the year ended june 30 , 2002 , to $ 57.5 million . the increase in gross profit was primarily due to significant inventory write-downs and other charges recorded in fiscal 2002. in fiscal 2002 , we recorded $ 15.1 million of inventory write-downs and $ 185,000 of expenditures associated with our manufacturing consolidation and cost reduction efforts . the write-downs 21 consisted of inventory associated with programs that were not anticipated to come back to their previous forecasts , inventory associated with our decision to exit the legacy pci chassis product line , inventory associated with products that we will no longer market , and reduced demand for certain communications and enterprise group products . additionally , the implementation of a new inventory management methodology associated with the consolidation of our manufacturing operations , contributed to the inventory write-down in fiscal 2002. the consolidation efforts and new inventory methodology resulted in a reduction in required inventory levels . for these reasons , gross profit as a percent of sales for fiscal 2003 improved to 49.8 % compared with 35.9 % for fiscal 2002 ( 48.7 % excluding the $ 15.3 million of charges noted above ) . during the year ended june 30 , 2003 , we sold approximately $ 1.0 million of inventory that had been previously written down to zero cost , increasing gross margin as a percentage of sales by 0.9 % . based on management 's sales projections for fiscal 2004 , gross profit as a percentage of sales is expected to be similar to the percentage experienced
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under the terms of the arrangement , sunward shareholders received 0.3 of a novacopper common share for each sunward common share held resulting in the company issuing approximately 43.1 million common shares to sunward shareholders and sunward directors holding sunward deferred share units . each sunward stock option outstanding was exchanged for a fully-vested option ( each ยsunward arrangement optionย ) to purchase novacopper common shares for a period of 90 days , with the number of shares issuable and exercise price adjusted based on an exchange ratio of 0.3. a total of 2,505,000 sunward arrangement options were issued to holders of sunward stock options at closing . subsequent to the closing of the arrangement , 347,999 sunward arrangement options were exercised for proceeds of approximately c $ 188,000 , and 2,157,001 expired , accordingly no sunward arrangement options are outstanding . the total purchase consideration was $ 23.0 million , in exchange , novacopper received $ 19.4 million in cash and the titiribi mineral property valued at $ 3.3 million . for further information , please refer to note 4 of the company 's 2015 audited financial statements . 69 long-term incentives during the year ended november 30 , 2015 , the board of directors approved the granting of 3,813,350 stock options to employees , consultants and directors . share issuances during the year ended november 30 , 2015 , 458,032 restricted share units ( ยrsusย ) were granted to officers , vesting immediately to settle obligations previously accrued . project activities at the end of august 2015 , the company successfully completed the 2015 field program in support of the arctic deposit pre-feasibility . in total , fourteen diamond drill holes were completed amounting to a total of 3,056 meters drilled . the 2015 in-fill drill program was designed to evaluate vertical and lateral continuity of the high-grade polymetallic copper-zinc-lead-gold-silver mineralization in support of upgrading inferred resources to measured and indicated classification . in addition to the twelve resource estimation drill holes , two drill holes , representing 631 meters drilled , were completed to support preliminary rock mechanics and geotechnical studies and a hydrogeological assessment of the proposed arctic open-pit . the two geotech holes were drilled into separate areas of the high-wall and will be used to support preliminary pit slope design and guide future geotechnical and hydrogeological site investigations . results from the drill program were announced on a news release dated october 21 , 2015 , and will be used to advance our understanding of the arctic geological model . in addition to the drilling , the company also conducted a civil geotechnical assessment of potential site infrastructure and waste management facilities locations . the company initiated acid-base-accounting static and kinetic test work to support waste rock characterization efforts at arctic , and completed 34,000 acres of wetlands delineation within the project area . environmental baseline data collection continued and seventy percent of the project-wide aerial lidar survey ( used to obtain high resolution data and mapping ) was completed before weather conditions became unfavorable ; novacopper plans to complete the remaining thirty percent of the lidar survey in 2016. a lidar survey is used to make a high resolution map . the company continues to work closely with nana , our alaska native corporation partner , to focus efforts on community relations and workforce development strategies . during 2015 , we continued our efforts on supporting the alaska industrial development export authority ( `` aideaย ) in working towards drafting an environmental impact statement ( ยeisย ) as prescribed under the national environmental policy act process to permit the ambler mining district industrial access road ( ยamdiarย ) . the amdiar is anticipated to provide access to the ambler mining district and our ukmp projects ย arctic and bornite . in the first quarter of 2015 , the united states army corps of engineers ( ยusaceย ) selected hdr , inc. as the third party environmental engineer to manage the eis process on behalf of the usace . in light of the recent drop in oil prices , the government of alaska was reviewing all spending across state of alaska entities . on october 21 , 2015 , alaska 's governor authorized aidea to begin the eis process and shortly thereafter , the consolidated right of way application document in respect of the amdiar was completed . in fiscal 2015 , we expended $ 4.2 million on the ukmp projects , mainly at arctic , consisting of $ 1.1 million in wages and benefits , $ 0.7 million in drilling , $ 1.4 million in project support expenses , $ 0.4 million in land maintenance and permit expenses , and $ 0.4 million in engineering expenses . outlook we plan to advance the arctic deposit towards pre-feasibility over two to three years . we plan to invest approximately $ 5.5 million on the ukmp projects during 2016 mainly for drilling at arctic during the field season to collect arctic in-pit geotechnical and metallurgical data . funds will also be utilized for environmental and engineering studies to gather information in preparation for a pre-feasibility study and also to complete the lidar survey . 70 story_separator_special_tag color= '' # a95c35 '' > liquidity and capital resources at november 30 , 2015 , we had $ 16.1 million in cash and cash equivalents . we expended $ 8.4 million on operating activities during the 2015 fiscal year compared with $ 8.6 million for operating activities for the same period in 2014 , and expenditures of $ 15.2 million for operating activities for the same period in 2013. a majority of cash spent on operating activities during all periods was expended on mineral property expenses , professional fees , salaries and general and administrative expenses . the decrease in cash spent in the year ended november 30 , 2015 compared to the corresponding period in 2014 was mainly due to the reduction in staff at the corporate office offset against higher mineral properties expense and professional fees for the sunward acquisition . story_separator_special_tag the higher cash expenditure in 2013 was due to higher mineral property expenses from a larger field program in 2013. as at november 30 , 2015 , the company continues to manage its cash expenditures and management believes that the working capital available is sufficient to meet its operational requirements for the next two years . future financings are anticipated through equity financing , debt financing , convertible debt , or other means . during the year ended november 30 , 2014 , we raised $ 7.2 million in proceeds from the completion of a private placement in july 2014. there was no comparable amount from financing activities in 2015 or 2013. during the year ended november 30 , 2015 , we generated $ 19.4 million from investing activities through the acquisition of sunward . there was no comparable amount from investing activities in 2014 and 2013. in 2013 , we spent $ 0.2 million purchasing vehicles and equipment to replace older vehicles and expand mobile capacity . in 2014 and 2015 , to conserve cash , our expenditures were minimal and limited to replacements that were absolutely necessary . contractual obligations contractual obligated undiscounted cash flow requirements as at november 30 , 2015 are as follows . replace_table_token_11_th on january 25 , 2013 , the company entered into a commitment to lease office space effective may 1 , 2013 for a period of four years with a remaining total commitment of $ 0.22 million . as part of the acquisition of sunward , the company assumed an office space lease in vancouver , expiring on february 28 , 2017 , with a remaining commitment of $ 0.05 million , and two office leases in colombia , expiring on april 30 , 2016 and may 31 , 2016 respectively , with a total remaining commitment of $ 0.03 million . 73 off-balance sheet arrangements we have no material off-balance sheet arrangements . the company has lease commitments for office spaces with a remaining total commitment of $ 0.3 million . outstanding share data at february 5 , 2016 , we had 104,979,820 common shares issued and outstanding . at february 5 , 2016 , we had outstanding 6,521,740 warrants with an exercise price of $ 1.60 each , 6,773,350 stock options with a weighted-average exercise price of $ 0.48 , 879,750 dsus , 400,001 rsus , 391,486 novagold arrangement options with a weighted-average exercise price of $ 4.38 , and 20,685 novagold dsus for which the holder is entitled to receive one common share for every six novagold shares received . for additional information on novagold arrangement options and novagold dsus , please refer to note 7 in our november 30 , 2015 audited consolidated financial statements . upon the exercise of all of the forgoing convertible securities , the company would be required to issue an aggregate of 14,987,012 common shares . financial instruments our financial instruments are exposed to certain financial risks , including currency risk , credit risk , liquidity risk , interest risk and price risk . our financial instruments consist of cash and cash equivalents , accounts receivable , deposits , and accounts payable and accrued liabilities . our instruments are held in the normal course to meet daily operating and cash flow needs of the business . the fair value of the company 's financial instruments approximates their carrying value due to the short-term nature of their maturity . all of our financial instruments are initially measured at fair value and then held at amortized cost . ( a ) currency risk currency risk is the risk of a fluctuation in financial asset and liability settlement amounts due to a change in foreign exchange rates . the company operates in the united states , canada , and colombia with some expenses incurred in canadian dollars and colombian peso . the company 's exposure to the canadian dollar is limited to cash of cdn $ 230,000 , accounts receivable of cdn $ 30,000 , deposits and prepaid amounts of cdn $ 146,000 and accounts payable of cdn $ 396,000. based on a 10 % change in the us-canadian exchange rate , assuming all other variables remain constant , the company 's net loss would change by approximately $ 1,000. the company 's exposure to the colombian peso is limited to cash of cop 229 million , deposit and prepaid amounts of cop 58 million , and accounts payable of cop 73 million . based on a 10 % change in the us-cop exchange rate , assuming all other variables remain constant , the company 's net loss would change by approximately $ 7,000 . ( b ) credit risk credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations . we hold cash and cash equivalents with canadian chartered financial institutions and a colombian financial institution . the company 's accounts receivable consist of gst receivable from the federal government of canada and other receivables for recoverable expenses . our exposure to credit risk is equal to the balance of cash and cash equivalents and accounts receivable as recorded in the financial statements . ( c ) liquidity risk liquidity risk is the risk that we will encounter difficulties raising funds to meet our financial obligations as they fall due . the company is in the exploration stage and does not have cash inflows from operations ; therefore , the company manages liquidity risk through the management of our capital structure and financial leverage . future financings are expected to be obtained through debt financing , equity financing , convertible debt , exercise of options , or other means . continued operations are dependent on our ability to obtain additional financing or to generate future cash flows . our contractually obligated cash flow is disclosed under the section titled ยliquidity and capital resourcesย .
| the company also benefited from the favorable foreign exchange movement of the us dollar against the canadian dollar in 2015. the comparable basic and diluted loss per common share for 2015 is lower than 2014 and 2013 mainly as a result of the decreased loss and comprehensive loss for the year , as well as additional shares issued during 2015 as a result of the sunward acquisition completed in june 2015 , and in 2014 as a result of the private placement completed in july 2014. the other reduction in expenses is from a charge of $ 0.8 million in stock-based compensation in 2015 compared to $ 0.9 million in 2014 , and $ 8.2 million in 2013. the expense recognized for the current year included $ 0.7 million in expense relating to stock options and $ 0.1 million in expense relating to deferred share units ( ยdsusย ) issued to non-executive directors in lieu of cash remuneration . the expense recognized for 2014 included $ 0.5 million in expense relating to stock options and $ 0.4 million in expense relating to previously granted rsus and dsus . the expense recognized for 2013 of $ 8.2 million included $ 4.8 million in expense relating to previously granted stock options and $ 3.4 million in expense relating to rsu and dsu grants made during the 2013 fiscal year . on november 22 , 2013 , we cancelled 5,710,000 stock options at an exercise price of cdn $ 3.11 which were originally granted in 2012 upon the spin-out of the company from novagold resources inc. remaining expense relating to unvested options at the time of cancellation of $ 0.8 million was accelerated and recognized in the year . the variance in the mineral properties expense was primarily due to the differing magnitude of the field programs at our ukmp projects in 2015 , 2014 and 2013. in 2015 , we completed fourteen diamond drill holes amounting to
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the number of monthly active consumers decreased and our prescription offering experienced a decline in activity in the second quarter of 2020 as compared to the first quarter of 2020 as many consumers avoided visiting healthcare professionals and pharmacies in-person , which we believe has had a similar effect across the industry . the number of monthly active consumers then sequentially increased in the third and fourth quarters of 2020 as the number of physician visits increased and as consumers partially resumed their interaction with the healthcare system . even though we saw improved activity in our prescription offering in the third and fourth quarters of 2020 , we believe covid-19 continues to have an adverse impact on our prescription offerings and continued improvement in future periods remains uncertain . any decrease in the number of consumers seeking to fill prescriptions could negatively impact demand for and use of certain of our offerings , particularly our prescription offering , which would have an adverse effect on our business , financial condition and results of operations . conversely , pandemics , epidemics and outbreaks may significantly and temporarily increase demand for our telehealth offerings . covid-19 has significantly accelerated the awareness and use of our telehealth offerings , including demand for our goodrx care offering and the utilization of our goodrx telehealth marketplace . while we have experienced a significant increase in demand for the telehealth offerings , there can be no assurance that the levels of interest , demand and use of our telehealth offerings will continue at current levels or will not decrease during or after the pandemic . any such decrease could have an adverse effect on our growth and the success of our telehealth offerings . additionally , while the potential economic impact brought by , and the duration of any pandemic , epidemic or outbreak of an infectious disease , including covid-19 , may be difficult to assess or predict , the widespread covid-19 pandemic has resulted in , and may continue to result in , significant disruption of global financial markets , reducing our ability to access capital , which could in the future negatively affect our liquidity . the full extent to which the outbreak of covid-19 will continue to impact our business , results of operations and financial condition is still unknown and will depend on future developments , which are highly uncertain and can not be predicted , including , but not limited to , the duration and spread of the outbreak , its severity , the actions to contain the virus or treat its impact , and how quickly and to what extent normal economic and operating conditions can resume . even after the outbreak of covid-19 has subsided , we may experience materially adverse impacts to our business as a result of its global economic impact , including any recession that has occurred or may occur in the future . 80 for additional information , see part i , item 1a , โ risk factorsโrisks related to our businessโa pandemic , epidemic or outbreak of an infectious disease in the united states , including the outbreak of covid-19 , could impact our business . โ seasonality we typically experience stronger consumer demand during the first and fourth quarters of each year , which coincide with generally higher consumer healthcare spending , doctor office visits , annual benefit enrollment season , and seasonal cold and flu trends . this seasonality may impact revenue and sales and marketing expense . the rapid growth of our business may have masked these trends to date , and we expect the impact of seasonality to be more pronounced in the future . however , in 2020 we saw the impact of the covid-19 pandemic further disrupt these trends . this disruption has continued in 2021 and may continue in future periods . initial public offering on september 25 , 2020 , we completed our ipo by issuing 28,615,034 shares of our class a common stock at a price to the public of $ 33 per share , resulting in net proceeds to us of $ 886.9 million , after deducting the underwriting discount of $ 52.5 million and offering expenses of $ 4.9 million . additionally , certain existing stockholders sold an aggregate of 11,192,657 shares . private placement on september 25 , 2020 , we completed the sale of 3,030,303 shares of our class a common stock at a purchase price of $ 33 per share to slp geology aggregator , l.p. , resulting in proceeds to us of $ 100.0 million . slp geology aggregator , l.p. is an investment fund associated with silver lake partners . recent developments on march 8 , 2021 , we entered into a definitive agreement to acquire 100 % of the outstanding equity interests of healthination , inc. ( โ healthination โ ) for approximately $ 75.0 million in cash , subject to customary adjustments and payable at closing of the acquisition . healthination is a leading provider of engaging and informative health video content across all main categories of healthy living . the proposed acquisition will allow us to supplement and expand the services currently available under our existing pharmaceutical manufacturer solutions platform . we expect to fully fund the proposed acquisition with available cash on hand , but may also opt to fund a portion or all of the consideration through borrowings under our existing line of credit . the proposed acquisition is expected to close in the latter half of the second quarter of 2021 , subject to a number of customary conditions , including but not limited to , resolution of any due diligence findings and no material adverse changes occurring in healthination . 81 key financial and operating metri cs we use monthly active consumers and adjusted ebitda to assess our performance , make strategic and offering decisions and build our financial projections . story_separator_special_tag monthly active consumers we define monthly active consumers as the number of unique consumers who have used a goodrx code to purchase a prescription in a given calendar month and have saved money compared to the list price of the medication . a unique consumer who uses a goodrx code more than once in a calendar month to purchase prescription medications is only counted as one monthly active consumer in that month . a unique consumer who uses a goodrx code in two or three calendar months within a quarter will be counted as a monthly active consumer in each such month . monthly active consumers do not include subscribers to our subscription offerings , consumers of our pharmaceutical manufacturer solutions offering , or consumers who used our telehealth offerings . when presented for a period longer than a month , monthly active consumers is averaged over the number of calendar months in such period . for example , a unique consumer who uses a goodrx code twice in january , but who did not use our prescription offering again in february or march , is counted as 1 in january and as 0 in both february and march , thus contributing 0.33 to our monthly active consumers for such quarter ( average of 1 , 0 and 0 ) . a unique consumer who uses a goodrx code in january and in march , but did not use our prescription offering in february , would be counted as 1 in january , 0 in february and 1 in march , thus contributing 0.66 to our monthly active consumers for such quarter . monthly active consumers from acquired companies are only included beginning in the first full quarter following the acquisition . beginning in the fourth quarter of 2020 , our monthly active consumers number includes consumers we acquired through the acquisition of scriptcycle in august 2020. replace_table_token_7_th the number of monthly active consumers is a key indicator of the scale of our consumer base and a gauge for our marketing and engagement efforts . we believe that this metric reflects our scale , growth and engagement with consumers . the number of average monthly active consumers grew 34 % in the year ended december 31 , 2020 to 5.0 million , compared to 3.7 million in the year ended december 31 , 2019. adjusted ebitda adjusted ebitda is a key measure we use to assess our financial performance and is also used for internal planning and forecasting purposes . we believe adjusted ebitda is helpful to investors , analysts and other interested parties because it can assist in providing a more consistent and comparable overview of our operations across our historical financial periods . in addition , this measure is frequently used by analysts , investors and other interested parties to evaluate and assess performance . adjusted ebitda and adjusted ebitda margin are non-gaap measures and are presented for supplemental informational purposes only and should not be considered as alternatives or substitutes to financial information presented in accordance with gaap . for more information about adjusted ebitda and adjusted ebitda margin , including the definition and limitations of such measures , and a reconciliation of adjusted ebitda to net ( loss ) income , the most comparable financial measure calculated in accordance with gaap , see part ii , item 6 , `` selected financial data '' included in part ii of this annual report on form 10-k. 82 the following table presents our a djusted ebitda and adjusted ebitda margin for the periods i ndicated : replace_table_token_8_th adjusted ebitda grew 27 % in the year ended december 31 , 2020 to $ 203.4 million , compared to $ 159.8 million in the year ended december 31 , 2019 as our business continued to grow . adjusted ebitda margin decreased from 41.2 % to 36.9 % due to an increase in cost of revenue relative to revenue due primarily to continued investments in product development and technology , growth of our telehealth offering , as well as investments in our general and administrative infrastructure as we prepared for our ipo and to operate as a public company . we expect our adjusted ebitda and adjusted ebitda margin to fluctuate primarily based on the level of our investments in sales and marketing and product development and technology relative to changes in revenue . we generally expect to continue to invest in sales and marketing in the near-term , but will continue to evaluate the impact of covid-19 on our business and actively manage our sales and marketing spend , including investment in consumer acquisition , which is largely variable , as market conditions change . we also intend to continue to invest in product development and technology to continue to improve our platform , introduce new offerings and scale existing ones . additionally , we expect to continue to invest in our general and administrative infrastructure to support our operations as a public company . components of our results of operations revenue our revenue is primarily derived from prescription transactions revenue that is generated when pharmacies fill prescriptions for consumers , and from other revenue streams such as our subscription offerings , from pharmaceutical manufacturers and affiliates , and our telehealth offerings . all of our revenue has been generated in the united states . prescription transactions revenue : consists primarily of revenue generated from pbms when a prescription is filled with a goodrx code provided through our platform . the majority of our contracts with pbms provide for fees that represent a percentage of the fees that the pbm charges to the pharmacy , and a minority of our contracts provide for a fixed fee per transaction . our percentage of fee contracts often also include a minimum fixed fee per transaction . we expect the revenue contribution from contracts with fixed fee arrangements to remain largely stable over the medium term , and do not expect that changes in revenue contribution from fixed fee versus percentage of fee arrangements will materially impact our revenue .
| overhead , hosting and cloud expenses , and merchant fees . product development and technology replace_table_token_12_th product development and technology expenses for the year ended december 31 , 2020 increased by $ 32.5 million , or 111 % , compared to the year ended december 31 , 2019. this increase was primarily due to increases in product development related personnel expenses of $ 23.8 million due to higher headcount and an increase in stock-based compensation expense related to awards made in connection with and after our ipo . the increase in product development and technology expense was also due to an increase in allocated overhead of $ 4.6 million to support our product development efforts and an increase in third-party services and contractor expenses related to product development of $ 4.1 million . 86 sales and marketing replace_table_token_13_th sales and marketing expenses for the year ended december 31 , 2020 increased by $ 78.2 million , or 44 % , compared to the year ended december 31 , 2019. this increase was primarily due to a $ 58.7 million increase in advertising expenses and a $ 14.1 million increase in sales and marketing related personnel expenses due to higher headcount and an increase in stock-based compensation expense related to awards made in connection with and after our ipo . we continue to evaluate the impact of covid-19 on our business and actively manage our consumer acquisition spending according to market conditions . general and administrative replace_table_token_14_th general and administrative expenses for the year ended december 31 , 2020 increased by $ 446.8 million , or 3,041 % , compared to the year ended december 31 , 2019. this increase was primarily due to $ 383.4 million of expense related to the founders awards made in connection with the ipo as further described in note 15 of our audited consolidated financial statements , made up of $ 373.0 million of stock based compensation and $ 10.4 million payroll tax
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a significantly lower effective tax rate as a result of a change in the estimated tax deductible amount of the citytime loss provision . diluted earnings per share from continuing operations for fiscal 2013 increased $ 1.58 per share to $ 1.54 per share as compared to fiscal 2012 primarily due to the increase in income ( loss ) from continuing operations . cash and cash equivalents decreased $ 856 million during fiscal 2013 , primarily due to cash used to settle notes payable at maturity of $ 550 million , acquire a business for $ 483 million , net of cash acquired , and pay dividends of $ 165 million , partially offset by cash generated from operations of $ 345 million . net bookings ( as defined in ยkey performance measuresยbookings and backlogย ) were approximately $ 11.1 billion for fiscal 2013 , as compared to $ 11.7 billion in the prior year . total backlog was $ 17.9 billion at january 31 , 2013 and 2012. subsequent to the end of fiscal 2013 , in addition to the declaration of a regular quarterly cash dividend of $ 0.12 per share of saic common stock payable on april 30 , 2013 , our board of directors declared a special cash dividend of $ 1.00 per share of saic common stock payable on june 28 , 2013. planned separation transaction in august 2012 , we announced that our board of directors authorized management to pursue a plan to separate into two independent , publicly traded companies : ( i ) a company focused on technical , engineering and enterprise information technology services ; and ( ii ) a company focused on delivering science and technology solutions primarily in the areas of national security , engineering and health . the proposed separation is intended to take the form of a tax-free spin-off of the technical , engineering and enterprise information technology services business . the technical , engineering , and information technology services business had revenues of $ 4.7 billion for fiscal 2012. the separation transaction is expected to occur in the latter half of calendar year 2013 , subject to final approval of the board of directors and certain other customary conditions . the separation transaction does not require a vote of the stockholders of saic . in connection with the proposed separation transaction and in order to align our cost structure for greater competitiveness , we expect to take actions to reduce our real estate footprint by vacating facilities that are not necessary for our future requirements . we expect these actions will result in an aggregate of approximately $ 70 million in lease termination and facility consolidation costs over fiscal 2014 and fiscal 2015 , which is expected to generate annualized cost savings of approximately $ 70 million . we also expect to incur additional separation transaction expenses of approximately $ 40 million in fiscal 2014 , as well as approximately $ 10 million of incremental severance costs related to organizational streamlining . management is continuing to develop detailed plans on capital structure , management , governance and other significant matters . in addition , the completion of the separation transaction will be subject to certain customary conditions , including implementation of intercompany agreements , filing of required documents with the u.s. securities and exchange commission and receipt of an opinion from tax counsel and a ruling from the internal revenue service ( irs ) as to the tax-free nature of the transaction . although we expect that the separation of our businesses will be consummated , there can be no assurance that a separation will ultimately occur . upon completion of the separation transaction , the operating results of the separated business will be included in discontinued operations . see ยrisk factorsย in part 1 of this annual report for on form 10-k , which includes certain risk factors relating to the proposed separation transaction . business environment and trends in fiscal 2013 , we generated approximately 87 % of our total revenues from contracts with the u.s. government , either as a prime contractor or a subcontractor to other contractors engaged in work for the u.s. government . revenues under contracts with the dod , including subcontracts under which the dod is the ultimate purchaser , represented approximately 70 % of our total revenues in fiscal 2013. accordingly , our business performance is affected by the overall level of u.s. government spending , especially national security , including defense , homeland security , and intelligence spending , and the alignment of our service and product offerings and capabilities with current and future budget priorities of the u.s. government . as an example , we expect to see a reduction in revenue of approximately $ 250 million from fiscal 2013 to fiscal 2014 on our contract to provide logistics services for tactical mine resistant ambush protected vehicles largely as a result of the drawdown of forces in the middle east . 30 saic , inc. annual report part ii while we believe that national security , including defense , homeland security , and intelligence spending will continue to be a priority , the u.s. government budget deficit and the national debt has created increasing pressure to examine and reduce spending across all federal agencies . baseline spending for the dod for the next 10 years has been reduced and there may be further reductions . the budget control act of 2011 increased the u.s. government 's debt ceiling and enacted 10-year discretionary spending caps expected to generate over $ 1 trillion in savings for the u.s. government . according to the office of management and budget , these savings include $ 487 billion in dod baseline spending reductions over the next 10 years . in addition , the budget control act of 2011 provides for additional automatic spending cuts ( referred to as sequestration ) totaling $ 1.2 trillion over nine years , which are being implemented beginning in the current u.s. government fiscal year ending september 30 , 2013 ( gfy13 ) . story_separator_special_tag although the office of management and budget has recently provided guidance to agencies on implementing sequestration cuts , there remains much uncertainty about how exactly sequestration cuts will be implemented and the impact it will have on contractors supporting the u.s. government . the continuing threat of spending cuts and associated government guidance and planning activities are causing delays in government contracting actions . we continue to evaluate the potential impact of budget cuts and sequestration on our business , and while the ultimate effect on our business is uncertain , the amount and nature of these federal budget spending reductions could adversely impact our operations , future revenues and growth prospects in those markets . the u.s. government has funding measures in place through september 30 , 2013. these funding measures include individual spending bills for certain government agencies , including dod and dhs , and implement $ 85 billion of sequestration cuts for gfy13 . agencies and departments not covered by these individual spending bills will continue to operate under a continuing resolution with standard restrictions , including no new program starts and no program increases beyond current service levels , which could adversely impact our future revenues and growth prospects . trends in the u.s. government contracting process , including a shift towards multiple-awards contracts ( in which certain contractors are preapproved using indefinite-delivery/indefinite-quantity ( idiq ) and u.s. general services administration ( gsa ) contract vehicles ) and awarding contracts on a low price , technically acceptable basis , have increased competition for u.s. government contracts and increased pricing pressure . for example , during fiscal 2013 , we were not awarded the successor contract to the disn global solutions ( dgs ) program with the defense information systems agency . in fiscal 2013 , we recognized approximately $ 425 million in revenue on this program . revenues from the dgs program are expected to be approximately $ 40 million over the first half of fiscal 2014 as the activity transitions to the successor contractor . we expect that a majority of the business that we seek in the foreseeable future will be awarded through a competitive bidding process . for more information on these risks and uncertainties , see ยrisk factorsย in part i of this annual report on form 10-k. reportable segments our business is aligned into four reportable segments : defense solutions ; health , energy and civil solutions ; intelligence and cybersecurity solutions ; and corporate and other . except with respect to ยresults of operationsยdiscontinued operationsย and ยยnet income , ย and ยยdiluted eps , ย all amounts in this ยmanagement 's discussion and analysis of financial condition and results of operationsย are presented for our continuing operations . for additional information regarding our reportable segments , see ยbusinessย in part i and note 15 of the combined notes to consolidated financial statements contained within this annual report on form 10-k. key performance measures the primary financial performance measures we use to manage our business and monitor results of operations are revenue , operating income and cash flows from operations . we also believe that bookings and backlog are useful measures for management and investors to evaluate our potential future revenues . in addition , we consider measures such as contract types and revenue mix to be useful measures to management and investors evaluating our operating income and margin performance . bookings and backlog . we had net bookings worth an estimated $ 11.1 billion and $ 11.7 billion during fiscal 2013 and fiscal 2012 , respectively . net bookings represent the estimated amount of revenue to be earned in the future from funded and unfunded contract awards that were received during the year , net of any adjustments to previously awarded backlog amounts . we calculate net bookings as the year 's ending backlog plus the year 's revenues ( excluding the portion of the citytime loss provision of $ 410 million recorded against revenues during fiscal 2012 because such loss did not impact net bookings ) less the prior year 's ending backlog and less the backlog obtained in acquisitions during the year . backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed . we segregate our backlog into two categories as follows : funded backlog . funded backlog for contracts with government agencies primarily represents contracts for which funding is appropriated less revenues previously recognized on these contracts , and does not include the unfunded portion of contracts where funding is incrementally appropriated or authorized on a quarterly or annual basis by the u.s. government and other customers , even though the contract may call for performance over a number of years . funded saic , inc. annual report 31 part ii backlog for contracts with non-government agencies represents the estimated value on contracts , which may cover multiple future years , under which we are obligated to perform , less revenues previously recognized on these contracts . negotiated unfunded backlog . negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from ( 1 ) negotiated contracts for which funding has not been appropriated or otherwise authorized and ( 2 ) unexercised priced contract options . negotiated unfunded backlog does not include any estimate of future potential task orders expected to be awarded under idiq , gsa schedule , or other master agreement contract vehicles . the estimated value of our total backlog as of the end of the last two fiscal years was as follows : replace_table_token_8_th bookings and backlog fluctuate from period to period depending on our success rate in winning contracts and the timing of contract awards , renewals , modifications and cancellations . contract awards continue to be negatively impacted by ongoing industry-wide delays in procurement decisions , which have resulted in an increase in the value of our submitted proposals awaiting decision .
| defense solutions revenues decreased by $ 466 million , or 10 % , in fiscal 2012 as compared to fiscal 2011. this was primarily attributable to the portion of the citytime loss provision recorded against revenues in fiscal 2012 ( $ 410 million ) . additional internal revenue contraction of $ 56 million for fiscal 2012 was attributable to reduced activity on the bctm contract as a result of the program 's termination in fiscal 2012 ( $ 112 million ) , reductions in various analytic studies and policy analysis operations ( $ 92 million ) , decreased revenues attributable to completion of the citytime workforce management systems development and implementation contract in fiscal 2012 ( $ 84 million ) , and various smaller declines on a number of programs throughout the segment . these declines were partially offset by increased activity on a systems and software maintenance/upgrade program for the u.s. army ( $ 118 million ) , the ramp up of a program to operate and maintain the enterprise network it infrastructure for the u.s. department of state ( $ 80 million ) and increased activity on systems integration and logistics programs for tactical and mine resistant ambush protected vehicles ( $ 88 million ) . defense solutions operating income increased $ 523 million in fiscal 2013 as compared to fiscal 2012. this increase was primarily attributable to the negative impact to fiscal 2012 operating income of the loss recognized in connection with the citytime matter ( $ 540 million ) . this increase was partially offset by a reduction in net favorable changes in contract estimates ( $ 9 million ) and a gain included in fiscal 2012 operating income from the sale of certain assets previously used in developing guidance and navigation control systems for precision munitions ( $ 5 million ) . defense solutions operating income decreased $ 551 million in fiscal 2012 as compared to fiscal 2011. this includes the entire citytime loss provision ( $ 540 million ) . the operating income decline was also due to the decline in revenues , lower contract fees resulting from completion of the citytime workforce management systems development and implementation contract in fiscal 2012 ( $ 25 million ) and a reduction in estimated fees related to work
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under the real estate repositioning and optimization restructuring program , though all specific locations have not yet been identified , the company 's current strategic plan is to remodel , reposition and consolidate our company-operated store footprint over the next 3 to 4 years . we believe that such strategic actions will allow the company to continue to successfully serve our markets while continuing to utilize our growing aarons.com shopping and servicing platform . in conjunction with the plan 's optimization initiatives , the company also determined during the fourth quarter of 2020 that it would permanently cease use of one of its administrative buildings in kennesaw , georgia . management expects that this strategy , along with our increased use of technology , will enable us to reduce store count while retaining a significant portion of our existing customer relationships and attract new customers . to the extent that management executes on its long-term strategic plan , additional restructuring charges will likely result from our real estate repositioning and optimization initiatives , primarily related to operating lease right-of-use asset and fixed asset impairments . however , the extent of future restructuring charges is not estimable at this time , as specific store locations to be closed and or consolidated have not yet been identified by management . we have purchased 295 store locations from our franchisees since january 1 , 2017. the acquisitions are benefiting our omni-channel platform through added scale , strengthening our presence in certain geographic markets , enhancing operational control , including compliance , and enabling us to execute our business transformation initiatives on a broader scale . recent developments and operational measures taken by us in response to the covid-19 pandemic on march 11 , 2020 , the world health organization declared the outbreak of covid-19 a pandemic . as a result of the covid-19 pandemic , we temporarily closed our showrooms in march 2020 and shifted to e-commerce and curbside service only for all of our company-operated stores to protect the health and safety of our customers and associates , except where such curbside service was prohibited by governmental authorities . since that time , we have reopened nearly all of our store showrooms , but there can be no assurance that those showrooms will not be closed in future months , or have their operations limited , if , for example , there are localized increases or `` additional waves '' in the number of covid-19 cases in the areas where our stores are located and , in response , governmental authorities issue orders requiring such closures or limitations on operations , or we voluntarily close our showrooms or limit their operations to protect the health and safety of our customers and associates . furthermore , we are experiencing disruptions in our supply chain which have impacted product availability in some of our stores and , in some situations , we are procuring inventory from alternative sources at higher costs . these developments had an unfavorable impact on our generation of lease agreements during the year ended december 31 , 2020. the covid-19 pandemic may impact our business , results of operations , financial condition , liquidity and or cash flow in future periods . the extent of any such impacts likely would depend on several factors , including ( a ) the length and severity of the pandemic , including , for example , localized outbreaks or additional waves of outbreaks of covid-19 cases ; ( b ) the impact of any such outbreaks on our customers , suppliers , and employees ; ( c ) the nature of any government orders issued in response to such outbreaks , including whether we would be deemed essential , and thus , exempt from all or some portion of such orders ; ( d ) whether there is one or more additional rounds of government stimulus and or enhanced unemployment benefits in response to the covid-19 outbreak , as well as the nature , timing and amount of any such stimulus payments or benefits ; and ( e ) supply chain disruptions for our business . the following summarizes significant developments and operational measures taken by us in response to the covid-19 pandemic : in our company-operated stores , we are following the guidance of health authorities , including requiring associates to wear masks and observe social distancing practices . we have also installed protective plexiglass barriers at check-out counters , implemented enhanced cleaning and sanitization procedures , and reconfigured our showrooms in a manner designed to reduce covid-19 transmission . 37 in conjunction with the operational adjustments made at our company-operated stores , we accelerated the national rollout of our centralized digital decisioning platform , which is an algorithm-driven lease decisioning tool used in our company-operated stores that is designed to improve our customers ' experiences by streamlining and standardizing the lease application decisioning process , shortening transaction times , and establishing appropriate transaction sizes and lease payment amounts , given the customer 's profile . we completed the national rollout during the second quarter of 2020 , and that decisioning platform is now being utilized in all of our company-operated and franchised stores in the united states . to assist the franchisees of our business who were facing adverse impacts to their businesses , we offered a royalty fee abatement from march 8 , 2020 until may 16 , 2020 and modified payment terms on outstanding accounts receivable owed to us by franchisees . in addition , payment terms were temporarily modified for the franchise loan facility under which certain franchisees have outstanding borrowings that are guaranteed by us . story_separator_special_tag coronavirus legislative relief in response to the global impacts of covid-19 on u.s. companies and citizens , the government enacted the coronavirus , aid , relief , and economic security act ( `` cares act '' ) on march 27 , 2020 and the consolidated appropriations act on december 27 , 2020. we believe a significant portion of our customers have received stimulus payments and or federally supplemented unemployment payments , pursuant to both the cares act and the consolidated appropriations act , which we believe has enabled them to continue making payments to us under their lease-to-own agreements , despite the economically challenging times resulting from the covid-19 pandemic . the cares act also included several tax relief options for companies , which resulted in the following provisions available to the company : aaron 's , inc. elected to carryback its 2018 net operating losses of $ 242.2 million to 2013 , thus generating a refund of $ 84.4 million , which was received in july 2020 , and a discrete income tax benefit of $ 34.2 million recognized during the three months ended march 31 , 2020. the discrete tax benefit is the result of the federal income tax rate differential between the current statutory rate of 21 % and the 35 % rate applicable to 2013. the company has deferred all payroll taxes that it is permitted to defer under the cares act , which generally applies to social security taxes otherwise due , with 50 % of the tax payable on december 31 , 2021 and the remaining 50 % payable on december 31 , 2022. certain wages and benefits that were paid to furloughed employees may be eligible for an employee retention credit of up to 50 % of wages paid to eligible associates . separate from the cares act , the irs extended the due dates for estimated tax payments for the first and second quarters of 2020 to july 15 , 2020. additionally , many states are offering similar deferrals . the company has taken advantage of all such extended due dates . the federal supplement to unemployment payments originally lapsed on july 31 , 2020 but has been extended on a prospective basis through march 2021. the current nature and or extent of future stimulus measures , if any , remains unknown . we can not be certain that our customers will continue making their payments to us if the federal government does not continue supplemental measures or enact additional stimulus measures , which could result in a significant reduction in the portion of our customers who continue making payments owed to us under their lease-to-own agreements . 38 fiscal year 2020 highlights the following summarizes significant highlights from the year ended december 31 , 2020 : we reported revenues of $ 1.7 billion in 2020 , a decrease of 2.8 % compared to 2019. this decrease is primarily due to the reduction of 253 company-operated stores during 2019 and 2020 , partially offset by a 1.8 % increase in same store revenues . the increase in same store revenues was driven by strong customer payment activity , an increase in early buyouts and higher retail sales , all of which we believe were due in part to government stimulus payments and supplemental federal unemployment benefits received by a significant portion of our customers during the covid-19 pandemic . losses before income taxes were $ 397.8 million during 2020 compared to earnings before income taxes of $ 34.3 million in 2019. losses before income taxes during 2020 includes a goodwill impairment charge of $ 446.9 million , a $ 14.1 million charge related to an early termination fee for a sales and marketing agreement , restructuring charges of $ 42.5 million , retirement charges of $ 12.6 million and spin-related separation costs of $ 8.2 million . we also recognized $ 4.9 million of incremental allowances for lease merchandise write-offs , franchisee accounts receivable , and reserves on the franchise loan guarantees due to the potential adverse impacts of the covid-19 pandemic . these decreases were partially offset by strong customer payment activity and lower lease merchandise write-offs during the year ended december 31 , 2020. earnings before income taxes during 2019 included restructuring charges of $ 40.0 million related to the closure and consolidation of company-operated stores , $ 7.4 million in gains from the sale of various real estate properties and gains on insurance recoveries of $ 4.5 million . we generated cash from operating activities of $ 355.8 million in 2020 compared to $ 186.0 million in 2019. the increase in net cash from operating activities was primarily driven by lower lease merchandise inventory purchases , strong customer payment activity , and net income tax refunds of $ 64.0 million during the year ended december 31 , 2020 compared to net income tax refunds of $ 4.6 million in the same period in 2019. key metrics company-operated and franchised store activity ( unaudited ) is summarized as follows : replace_table_token_1_th same store revenues . we believe that changes in same store revenues are a key performance indicator of the company , as it provides management insight into our ability to collect contractually due payments from our current customers on existing lease agreements , as well as our level of success in writing new leases into and retaining current customers within our customer lease portfolio . for the year ended december 31 , 2020 , we calculated this amount by comparing revenues for the year ended december 31 , 2020 to revenues for the year ended december 31 , 2019 for all stores open for the entire 24-month period ended december 31 , 2020 , excluding stores that received lease agreements from other acquired , closed or merged stores . same store revenues increased 1.8 % during the year ended december 31 , 2020 compared to the prior year . 39 key components of earnings before income taxes in this management 's discussion and analysis section , we review our consolidated and combined results .
| in march 2020 , the company voluntarily closed the showrooms for all of its company-operated stores , and moved to an e-commerce and curbside only service model to protect the health and safety of our customers and associates , while continuing to provide our customers with the essential products they needed such as refrigerators , freezers , mattresses and computers . since that time , we have reopened nearly all of our store showrooms . there can be no assurances that some portion or all of those showrooms will not be closed in the future , whether due to covid-19 pandemic-related government orders or voluntarily by us where we determine that such closures are necessary to protect the health and safety of our customers and associates during the covid-19 pandemic . any such closures or restrictions may have an unfavorable impact on the revenues and earnings in future periods , and could also have an unfavorable impact on the company 's liquidity , as discussed below in the `` liquidity and capital resources '' section . although almost all of the showrooms of company-operated stores had reopened by the end of the second quarter of 2020 , changing consumer behavior , such as consumers voluntarily refraining from shopping in-person at those store locations during the covid-19 pandemic , and ongoing supply chain disruptions , particularly in appliance , furniture , and electronics , are expected to continue to challenge new lease originations in future periods . cost of revenues and gross profit cost of lease and retail revenues . information about the components of the cost of lease and retail revenues is as follows : replace_table_token_4_th depreciation of lease merchandise and other lease revenue costs . depreciation of lease merchandise and other lease revenue costs decreased primarily due to the reduction of 253 company-operated stores during 2019 and 2020. gross profit for lease revenues and fees was $ 1.02 billion and $ 1.04 billion during 2020 and 2019 , respectively , which represented a gross profit margin of 66.6 % and 65.9 % for the respective periods . the improvement in gross profit percentage was primarily driven by strong
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you should not place undue certainty on these forward-looking statements , which apply only as of the date of our prospectus . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions . our auditors have issued a going concern opinion . this means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills . we have not attained profitable operations and are dependent upon obtaining financing to pursue our business plan and activities . for these reasons , our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing . overview we were formed for the purpose of selling products in our retail stores located throughout the united states . we have one retail store in the state of washington . our financial statements were prepared on a going concern basis , which assumes that we will be able to realize assets and discharge liabilities in the normal course of business . the ability to continue as a going concern is dependent on the company 's ability to generate profitable operations in the future , to maintain adequate financing , and to achieve a positive cash flow . there is no assurance it will be able to meet any or all of such goals . -10- story_separator_special_tag assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the most significant accounting estimates inherent in the preparation of our financial statements are set forth in note 1 to our audited financial statements . use of estimates the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . fair value of financial instruments the fair value of the company 's assets and liabilities , which qualify as financial instruments under financial accounting standards board ( fasb ) guidance regarding disclosures about fair value of financial instruments , approximate the carrying amounts presented in the accompanying consolidated balance sheets . -12- inventory inventories consist of merchandise that is ready for sale to end-user customers . inventories are recorded at the lower of average cost or market . in-bound freight-related costs from our vendors are included as part of the net cost of merchandise inventories . other costs associated with acquiring , storing and transporting merchandise inventories are expensed as incurred . our inventories are acquired and carried for retail sale and , accordingly , the carrying value is susceptible to , among other things , market trends and conditions and overall customer demand . we use our best estimates of all available information to establish reasonable inventory quantities . however , these conditions may cause our inventories to become obsolete and or excessive . we review our inventories periodically for indications that reserves are necessary to reduce the carrying values to the lower of cost or market values . for all periods presented , the company determined that no reserves were necessary . property and equipment computer equipment , computer software and furniture and fixtures are stated at cost and depreciated on a straight-line basis over an estimated useful life of five years . upon disposal , assets and related accumulated depreciation are removed from the accounts and the related gain or loss is included in results from operations . impairment of long-lived assets and other intangible assets we evaluated the recoverability of long-lived assets with finite lives in accordance with asc 350. intangible assets , including purchased technology and other intangible assets , are carried at cost less accumulated amortization . finite-lived intangible assets are being amortized on a straight-line basis over their estimated useful lives of five to ten years . asc 350 requires recognition of impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value amount of an asset may not be recoverable . an impairment charge is recognized in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets . a significant impairment of finite-lived intangible assets could have a material adverse effect on our financial position and results of operations . for all periods presented , we determined that no impairment charges were incurred . revenue recognition overview we recognize revenue when persuasive evidence of an arrangement exists , we have delivered the product or performed the service , the fee is fixed or determinable and collection is reasonably assured . if any of these criteria are not met , we defer recognizing the revenue until such time as all criteria are met . determination of whether or not these criteria have been met may require us to make judgments , assumptions and estimates based upon current information and historical experience . the company markets its products direct to customers and has developed retail pricing for all revenue generating products . in addition the company may mark-down prices on an individual case basis to increase demand on our products , and increase our sales to boost up the market . advertising and marketing costs the company expenses advertising and marketing costs as they are incurred . -13- computation of ( loss ) per share basic earnings ( loss ) per share is calculated by dividing the earnings ( loss ) by the weighted average number of common shares outstanding during the period . diluted earnings ( loss ) per share is calculated by story_separator_special_tag you should not place undue certainty on these forward-looking statements , which apply only as of the date of our prospectus . these forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions . our auditors have issued a going concern opinion . this means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills . we have not attained profitable operations and are dependent upon obtaining financing to pursue our business plan and activities . for these reasons , our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing . overview we were formed for the purpose of selling products in our retail stores located throughout the united states . we have one retail store in the state of washington . our financial statements were prepared on a going concern basis , which assumes that we will be able to realize assets and discharge liabilities in the normal course of business . the ability to continue as a going concern is dependent on the company 's ability to generate profitable operations in the future , to maintain adequate financing , and to achieve a positive cash flow . there is no assurance it will be able to meet any or all of such goals . -10- story_separator_special_tag assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the most significant accounting estimates inherent in the preparation of our financial statements are set forth in note 1 to our audited financial statements . use of estimates the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . actual results could differ from those estimates . fair value of financial instruments the fair value of the company 's assets and liabilities , which qualify as financial instruments under financial accounting standards board ( fasb ) guidance regarding disclosures about fair value of financial instruments , approximate the carrying amounts presented in the accompanying consolidated balance sheets . -12- inventory inventories consist of merchandise that is ready for sale to end-user customers . inventories are recorded at the lower of average cost or market . in-bound freight-related costs from our vendors are included as part of the net cost of merchandise inventories . other costs associated with acquiring , storing and transporting merchandise inventories are expensed as incurred . our inventories are acquired and carried for retail sale and , accordingly , the carrying value is susceptible to , among other things , market trends and conditions and overall customer demand . we use our best estimates of all available information to establish reasonable inventory quantities . however , these conditions may cause our inventories to become obsolete and or excessive . we review our inventories periodically for indications that reserves are necessary to reduce the carrying values to the lower of cost or market values . for all periods presented , the company determined that no reserves were necessary . property and equipment computer equipment , computer software and furniture and fixtures are stated at cost and depreciated on a straight-line basis over an estimated useful life of five years . upon disposal , assets and related accumulated depreciation are removed from the accounts and the related gain or loss is included in results from operations . impairment of long-lived assets and other intangible assets we evaluated the recoverability of long-lived assets with finite lives in accordance with asc 350. intangible assets , including purchased technology and other intangible assets , are carried at cost less accumulated amortization . finite-lived intangible assets are being amortized on a straight-line basis over their estimated useful lives of five to ten years . asc 350 requires recognition of impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying value amount of an asset may not be recoverable . an impairment charge is recognized in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets . a significant impairment of finite-lived intangible assets could have a material adverse effect on our financial position and results of operations . for all periods presented , we determined that no impairment charges were incurred . revenue recognition overview we recognize revenue when persuasive evidence of an arrangement exists , we have delivered the product or performed the service , the fee is fixed or determinable and collection is reasonably assured . if any of these criteria are not met , we defer recognizing the revenue until such time as all criteria are met . determination of whether or not these criteria have been met may require us to make judgments , assumptions and estimates based upon current information and historical experience . the company markets its products direct to customers and has developed retail pricing for all revenue generating products . in addition the company may mark-down prices on an individual case basis to increase demand on our products , and increase our sales to boost up the market . advertising and marketing costs the company expenses advertising and marketing costs as they are incurred . -13- computation of ( loss ) per share basic earnings ( loss ) per share is calculated by dividing the earnings ( loss ) by the weighted average number of common shares outstanding during the period . diluted earnings ( loss ) per share is calculated by
| the increased losses of $ 406,053 were primarily due the increase of stock based compensation from the year ended in october 31 , 2013 to the year ended in october 31 , 2014. liquidity and capital resources as of october 31 , 2014 , we had a working capital deficit of $ 37,063,757 as compared to a working capital deficit of $ 36,005,317 as of october 31 , 2013. in the past we have relied on sales of our equity securities to raise funds for our working capital requirements , as well as loans from our majority stockholder . we will need to raise additional capital in order to implement our business plan and will seek to sell additional equity and or debt securities to accomplish this objective . there can be no assurance that we will be able to raise funds sufficient to carry out our business plan , or that if funds are available to us that they will be on acceptable terms . operating activities cash used in operations decreased from $ 607,219 at october 31 , 2013 to $ 574,246 at october 31 , 2014. the decrease was as a result in a decrease in revenue and an increase in operating expenses . more particularly we incurred a charge of $ 385,000 in stock based compensation for the year ended october 31 , 2014. at october 31 , 2013 , we had no expenses related to stock based compensation . investing activities during the year ended october 31 , 2014 and 2013 , we had no investing activities . -11- financing activities during the year ended october 31 , 2014 , we received $ 188,214 from the sale of restricted shares of common stock to investors pursuant to the exemption contained in section 4 ( a ) ( 2 ) of the securities act of 1933 , as amended ; a sale not involving a public offering . sales of $ 93,093 and the aforementioned $ 188,214 raised from the sale of common stock were the only activities that resulted in financing for october 31 , 2014. this is compared to the year ended october 31 , 2013 , we generated proceeds of $ 454,500 from the sale of restricted shares of common stock to investors and had sales of $ 108,254. seasonality results we do not expect to experience any seasonality in our operating results . going concern we have not attained profitable operations and are dependent upon obtaining financing to pursue our business plan and activities . for these reasons ,
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selling , general and administrative expenses include compensation for executive , sales , marketing , finance , information technology , human resources and administrative personnel , including stock-based compensation . other significant expenses include the medical device excise tax , bad debt expense , travel , marketing costs and professional fees . research and development expenses . research and development expenses include costs associated with the design , development , testing , enhancement and regulatory approval of our products . research and development expenses include employee compensation including stock-based compensation , supplies and materials , patent expenses , consulting expenses , travel and facilities overhead . we also incur significant expenses to operate clinical trials , including trial design , third-party fees , clinical site reimbursement , data management and travel expenses . all research and development expenses are expensed as incurred . approved patent applications are capitalized and amortized using the straight-line method over their remaining estimated lives . patent amortization begins at the time of patent application approval , and does not exceed 20 years . interest and other , net . interest and other , net primarily includes interest expense ( including premium and discount amortization ) , interest income , change in the fair value of the debt conversion option , debt refinancing costs , and net write-offs upon debt conversion ( option and unamortized premium or discount ) . interest expense . interest expense ( including premium and discount amortization ) results from outstanding debt balances and debt premiums and discounts . interest income . interest income is attributed to interest earned on deposits in investments that consist of money market funds . change in fair value of debt conversion option . change in fair value of debt conversion option represents the period to period change in fair value of the debt conversion option associated with outstanding convertible debt . 30 net write-offs upon debt conversion . net write-offs upon debt conversion are the result of the conversion of convertible debt , and include the write-off of the related debt conversion option and any unamortized debt premium or discount . other . other consists of miscellaneous non-operating expenses , including state taxes . net operating loss carryforwards . we have established valuation allowances to fully offset our deferred tax assets due to the uncertainty about our ability to generate the future taxable income necessary to realize these deferred assets , particularly in light of our historical losses . the future use of net operating loss carryforwards is dependent on us attaining profitable operations and will be limited in any one year under internal revenue code section 382 due to significant ownership changes ( as defined in section 382 ) resulting from our equity financings . at june 30 , 2015 , we had net operating loss carryforwards for federal and state income tax reporting purposes of approximately $ 197.5 million , which will expire at various dates through fiscal 2033. critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of our consolidated financial statements requires us to make estimates , assumptions and judgments that affect amounts reported in those statements . our estimates , assumptions and judgments , including those related to revenue recognition , allowance for doubtful accounts , excess and obsolete inventory , and stock-based compensation are updated as appropriate at least quarterly . we use authoritative pronouncements , our technical accounting knowledge , cumulative business experience , valuation specialists , judgment and other factors in the selection and application of our accounting policies . while we believe that the estimates , assumptions and judgments that we use in preparing our consolidated financial statements are appropriate , these estimates , assumptions and judgments are subject to factors and uncertainties regarding their outcome . therefore , actual results may materially differ from these estimates . some of our significant accounting policies require us to make subjective or complex judgments or estimates . an accounting estimate is considered to be critical if it meets both of the following criteria : ( 1 ) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made , and ( 2 ) different estimates that reasonably could have been used , or changes in the estimate that are reasonably likely to occur from period to period , would have a material impact on the presentation of our financial condition , results of operations , or cash flows . revenue recognition . we sell the majority of our products via direct shipment to hospitals or office-based labs . we recognize revenue when all of the following criteria are met : persuasive evidence of an arrangement exists ; delivery has occurred ; the sales price is fixed or determinable ; and collectability is reasonably assured . we record estimated sales returns , discounts and rebates as a reduction of net sales . costs related to products delivered are recognized in the period the revenue is recognized . cost of goods sold consists primarily of raw materials , direct labor , and manufacturing overhead . allowance for doubtful accounts . we maintain an allowance for doubtful accounts . this allowance is an estimate and is regularly evaluated for adequacy by taking into consideration factors such as past experience , credit quality of the customer base , age of the receivable balances , both individually and in the aggregate , and current economic conditions that may affect a customer 's ability to pay . provisions for the allowance for doubtful accounts attributed to bad debt are recorded in general and administrative expenses . excess and obsolete inventory . we have inventories that are principally comprised of capitalized direct labor and manufacturing overhead , raw materials and components , and finished goods . story_separator_special_tag due to the technological nature of our products , there is a risk of obsolescence for changes in our technology and the market , which is impacted by technological developments and events . accordingly , we write down our inventories as we become aware of any situation where the carrying amount exceeds the estimated realizable value based on assumptions about future demands and market conditions . the evaluation includes analysis of inventory levels , expected product lives , product at risk of expiration , sales levels by product and projections of future sales demand . 31 stock-based compensation . we have stock-based compensation plans , which include stock options , nonvested share awards , and an employee stock purchase plan . we determine the fair value of our option awards using option-pricing models . we determine the fair value of nonvested share awards with market conditions using the monte carlo simulation . fair value of nonvested share awards that vest based upon performance or time conditions is determined by the closing market price of our stock on the date of grant . stock-based compensation expense is recognized ratably over the requisite service period for the awards expected to vest . management 's key assumptions are developed with input from independent third-party valuation advisors . legal proceedings . in accordance with fasb guidance , we record a liability in our consolidated financial statements related to legal proceedings when a loss is known or considered probable and the amount can be reasonably estimated . if the reasonable estimate of a known or probable loss is a range , and no amount within the range is a better estimate than any other , the minimum amount of the range is accrued . if a loss is possible , but not known or probable , and can be reasonably estimated , the estimated loss or range of loss is disclosed in the notes to the consolidated financial statements . in most cases , significant judgment is required to estimate the amount and timing of a loss to be recorded . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > include $ 12.2 million and $ 9.2 million , respectively , for stock-based compensation . we expect our selling , general and administrative expenses to increase in the future as a result of the costs associated with expanding our sales and marketing organization to further commercialize our pad systems and expand the commercial launch of our cad system . research and development expenses . research and development expenses increased by $ 9.9 million , or 47.0 % , from $ 21.1 million for the year ended june 30 , 2014 to $ 31.0 million for the year ended june 30 , 2015 . research and development expenses relate to the specific projects to develop new products or expand into new markets , such as the development of new versions of our pad and cad systems , shaft designs , crown design , and pad and cad clinical studies . the increase primarily related to additional product development projects and clinical studies , and the related increase in headcount . research and development expenses for the year ended june 30 , 2015 and 2014 include $ 1.5 million and $ 1.1 million , respectively , for stock-based compensation . as we continue to expand our product portfolio and clinical studies within the pad and cad markets , we generally expect to incur research and development expenses above amounts incurred for the year ended june 30 , 2015 . fluctuations could occur based on the number of projects and studies and the timing of expenditures . interest and other , net . interest and other , net was $ ( 0.2 ) million and $ ( 1.8 ) million for the years ended june 30 , 2015 and 2014 , respectively . the decrease was primarily driven by lower interest expense related to lower outstanding debt balances , as well as charges in the prior year from debt conversions and changes in fair value of the debt conversion option that were associated with previously outstanding convertible debt . net loss . net loss for the year ended june 30 , 2015 was $ ( 32.8 ) million , compared to $ ( 35.3 ) million for the year ended june 30 , 2014 . our net loss decreased as a result of higher revenues and gross profit , partially offset by increased operating expenses . comparison of fiscal year ended june 30 , 2014 with fiscal year ended june 30 , 2013 replace_table_token_4_th 33 net revenues . revenues increased by $ 32.7 million , or 31.5 % , from $ 103.9 million for the year ended june 30 , 2013 to $ 136.6 million for the year ended june 30 , 2014. this increase was primarily attributable to a $ 24.2 million , or 26.5 % , increase in revenue from pad systems sold , which reflects a 30.8 % increase in number of device units sold , partially offset by a 3.3 % reduction in average selling prices . additionally , sales of our cad system contributed approximately $ 5.0 million in revenues following our pma in october 2013. other product revenue also increased $ 3.5 million , or 28.0 % , during the year ended june 30 , 2014 as compared to the year ended june 30 , 2013 , primarily driven by increased sales of pad and cad systems , which the products support . cost of goods sold . cost of goods sold increased by $ 6.6 million , or 27.3 % , from $ 24.4 million for the year ended june 30 , 2013 to $ 31.0 million for the year ended june 30 , 2014. these amounts represent the cost of materials , labor and overhead for single-use catheters , guide wires , control units , and other ancillary products . the increase was due to an increase in the quantities of products sold , partially offset by lower indirect costs per unit from higher production volumes and manufacturing efficiencies .
| 32 cost of goods sold . cost of goods sold increased by $ 8.5 million , or 27.3 % , from $ 31.0 million for the year ended june 30 , 2014 to $ 39.5 million for the year ended june 30 , 2015 . these amounts represent the cost of materials , labor and overhead for single-use catheters , guide wires , pumps , and other ancillary products . the increase was due to an increase in the quantities of products sold , partially offset by lower indirect costs per unit from higher production volumes and manufacturing efficiencies . the increase in gross margin from 77.3 % for the year ended june 30 , 2014 , to 78.2 % for the year ended june 30 , 2015 , was primarily due to the increase in sales of our cad system , which has a higher average selling price than the pad systems , and to lower indirect costs per unit . cost of goods sold for the years ended june 30 , 2015 and 2014 includes $ 1.0 million and $ 0.7 million , respectively , for stock-based compensation . we expect that gross margin in fiscal 2016 will improve slightly compared to fiscal 2015. quarterly fluctuations could occur based on production volumes , timing of new product introductions , sales mix , changes in selling prices , or other unanticipated circumstances . selling , general and administrative expenses . selling , general , and administrative expenses increased by $ 25.7 million , or 21.8 % , from $ 118.0 million for the year ended june 30 , 2014 to $ 143.7 million for the year ended june 30 , 2015 . our selling , general and administrative expenses for the year ended june 30 , 2015 have increased due to higher expenses from the coronary commercial launch , the expansion of our sales and marketing organization , increased medical education , and higher incentive and stock-based compensation . selling , general , and administrative expenses for the years ended june 30 , 2015
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dave gates generating station at mill creek on march 19 , 2011 , our vice president of wholesale operations , david g. gates , was tragically killed in a private plane crash . on march 26 , 2011 our board of directors renamed the mill creek generating station as the dave gates generating station at mill creek ( dggs ) to posthumously recognize gates ' significant contributions to the company . on december 31 , 2010 , we completed construction of dggs , a 150 mw natural gas fired facility and began commercial operations on january 1 , 2011. dggs was constructed for a total cost of approximately $ 183 million , as compared to an original estimate of $ 202 million . the facility provides regulating resources ( in place of previously contracted ancillary services ) to balance our transmission system in montana to maintain reliability and enable wind power to be integrated into the network to meet renewable energy portfolio needs and is subject to jurisdiction by both the mpsc and the ferc . in our regulatory filings with the mpsc and the ferc , we proposed an allocation of approximately 80 % of costs to retail customers subject to the mpsc 's jurisdiction and approximately 20 % allocated to wholesale customers subject to ferc 's jurisdiction . our proposed allocation is based on methodology that has been consistently used and is well established for allocating transmission costs in both jurisdictions . in october 2010 , the ferc approved interim rates to reflect the estimated cost of service under schedule 3 of the oatt . in november 2010 , the mpsc approved interim rates based on the originally estimated construction costs of $ 202 million . the interim rates under both orders became effective beginning january 1 , 2011. as a result of lower than originally estimated construction costs and the estimated impact of the flow-through of accelerated state tax depreciation , we reduced interim rates for retail customers on may 1 , 2011. the respective interim rates are subject to refund plus interest pending final resolution in both jurisdictions . a hearing was held at the mpsc in november 2011 to conduct a final cost review and establish final rates . the mcc is challenging our proposed allocation of costs to retail customers . a ferc hearing was scheduled for january 23 , 2012 ; however , ferc has continued the hearing until june 11 , 2012 to allow for additional testimony and an initial decision is not scheduled to be issued until september 24 , 2012. wholesale customers are challenging our proposed allocation of costs to them . through december 31 , 2011 , we have deferred revenue of approximately $ 11.0 million associated with dggs , primarily due to lower than estimated construction costs , the estimated impact of the flow-through of accelerated state tax depreciation , our current estimate of operating expenses as compared to amounts included in our interim rate requests , and uncertainty related to the allocation of costs between the mpsc and ferc jurisdictions . there is significant uncertainty related to the ultimate resolution of cost allocations between the two jurisdictions , which could result in an inability to fully recover our costs , and may require us to refund more interim revenues than our current estimate . dggs was shut down on january 31 , 2012 and is expected to be down for a period of up to several months following the discovery of a problem within the gas turbines on each of the three generation units . we expect the turbine repair costs to be covered under the manufacturer 's warranty ; however , we will also have incremental costs for contracts with third parties for replacement regulation service . we estimate our contracted costs will exceed the variable operating costs of dggs by up to $ 0.5 million per month while the plant is down . we will actively manage our contracted service in an effort to reduce these costs as much as possible as dggs is brought back into service . we believe these contracted costs for regulation service are recoverable from customers through our normal course of business ; however , there can be no assurance that the mpsc and or ferc will allow us full recovery of such costs . 25 montana distribution system infrastructure project ( dsip ) as part of our commitment to maintain high level reliability and system performance we continue to evaluate the condition of our distribution assets to address aging infrastructure through our asset management process . the primary goals of our infrastructure investment are to reverse the trend in aging infrastructure , maintain reliability , proactively manage safety , build capacity into the system , and prepare our network for the adoption of new technologies . we are working on various solutions taking a proactive and pragmatic approach to replace these assets while also evaluating the implementation of additional technologies to prepare the overall system for smart grid applications . we formed an infrastructure stakeholder group to assist us as we considered possible future scenarios for investment in our distribution system and evaluated the potential impacts of different scenarios to rates and future service quality . based on discussions with this infrastructure stakeholder group and our assessments of necessary improvements to our system , during 2011 we developed a technical plan detailing recommended actions and estimated costs of implementing the dsip . while we were preparing the technical plan , we requested and received mpsc approval of an accounting order to defer certain incremental operating and maintenance expenses . the accounting order allows us to defer up to $ 16.9 million of expenses incurred during 2011 and 2012 and amortize these expenses associated with the phase-in portion of the dsip over five years beginning in 2013. as of december 31 , 2011 we have deferred incremental expenses of approximately $ 4.9 million and incurred approximately $ 15.2 million of dsip-related capital expenditures . story_separator_special_tag we presented the technical plan during an informational meeting to the mpsc on october 31 , 2011. based on the technical plan , we are currently estimating incremental dsip expenses of approximately $ 12.0 million ( which will be deferred under the accounting order ) and approximately $ 18.2 million of dsip capital expenditures during 2012. in addition , we are projecting approximately $ 72.0 million of incremental dsip expenses and approximately $ 253.0 million of dsip capital expenditures over a five-year time span beginning in 2013. based on our current forecast , along with the mpsc 's approval of the accounting order , we believe dsip-related expenses and capital expenditures will be recovered in base rates through annual or biennial general rate cases . supply investments wind generation in april 2011 , we executed an agreement to purchase a wind project in judith basin county in montana to be developed and constructed by spion kop wind , llc , a wholly-owned subsidiary of compass wind projects , llc that would provide approximately 40 mw of capacity , with an estimated cost for the total project of approximately $ 86 million . we filed an application for pre-approval with the mpsc during the second quarter of 2011 to include the project in regulated rate base as an electric supply resource . both the energy and associated renewable energy credits would be placed into the electric supply portfolio to meet future customer loads and renewable portfolio standards obligations . in november 2011 , we filed a joint stipulation with the mcc , proposing an authorized rate of return of 7.40 % , which was computed using a 10.00 % return on equity , a 5.00 % estimated cost of debt and a capital structure consisting of 52 % debt and 48 % equity . the stipulation also provided that we will include the spion kop project in our next full general rate case , so that its cost of capital and capital structure can be determined on a consolidated basis with the rest of our montana electric utility operations . an uncontested hearing was held in december 2011. in february 2012 , the mpsc held a work session and verbally approved the project . the approval includes a condition that would reduce our revenue requirement if the average production failed to meet a minimum threshold for the first three years . we expect a final written order to be issued during the first quarter of 2012 , and will evaluate our options . if the mpsc fails to grant approval to the satisfaction of both parties on or before april 1 , 2012 , then either party may terminate this agreement . material construction would not commence until we receive a favorable ruling from the mpsc . assuming satisfactory approval by april 1 , 2012 , commercial operation is projected to begin by december 31 , 2012. south dakota electric during 2011 , we began construction on a 60 mw peaking facility located in aberdeen , south dakota , which we expect to achieve commercial operation before the 2013 summer season . this facility will provide peaking reserve margin necessary to comply with capacity reserve requirements . as of december 31 , 2011 , we have capitalized approximately $ 17.1 million associated with this project and we expect additional capital expenditures of approximately $ 44.4 million during 2012. the big stone and neal # 4 facilities are subject to additional emission reduction requirements . we are working with the joint owners of the facilities to evaluate options . based upon current engineering estimates , capital expenditures for these environmental related technologies are estimated to be approximately $ 490 million for big stone ( our share is 23.4 % ) and approximately $ 270 million for neal # 4 ( our share is 8.7 % ) . neal # 4 began incurring such costs in 2011 and the costs are 26 expected to be spread over the next three years . transmission investment due to the abundance of natural resources in montana , significant electric generation projects , particularly wind generation , are in development by various parties . uncertainty surrounding global climate change and environmental concerns related to new coal-fired generation development is changing the mix of the potential sources of new generation in the region . state renewable portfolio standards are increasing the region 's reliance on wind generation and montana has one of the best wind regimes in the country . our montana transmission assets are strategically located between these renewable generation resources and the population base desiring them , which should allow us to take advantage of the potential transmission grid expansion in the west . in montana , we continue to develop three significant electric transmission projects : an expansion of the existing colstrip 500 kv system that would increase capacity by 500-700 mws , of which we assume a 30 % joint ownership ; the mountain states transmission intertie project ( msti ) , a proposed 500 kv transmission line from southwestern montana to southeastern idaho with a planned capacity of 1,500 mws ; and a 230 kv collector project in central montana designed to aggregate renewables and facilitate their access to markets . colstrip 500 kv upgrade all of the current joint owners of the existing colstrip 500 kv transmission line from colstrip , montana to mid-columbia , as well as bonneville power administration ( bpa ) , are working to develop an upgrade to the system , which involves an additional substation and related electrical equipment to increase westbound capacity out of montana by more than 500 mws . we anticipate beginning construction during the fourth quarter of 2014 and completing the upgrade by early 2017. as of december 31 , 2011 , we have capitalized approximately $ 2.6 million associated with this upgrade .
| primary components of this change include the following : replace_table_token_10_th this $ 30.2 million increase was primarily due to the following : insurance settlements and recoveries increased expenses by $ 8.8 million . our 2010 expenses were reduced by insurance recoveries and favorable settlements totaling approximately $ 6.5 million , while 2011 results include an increase of $ 2.3 million due to a dispute settlement with a former employee ; increased labor costs due primarily to compensation increases and a larger number of employees , offset in part by more time spent on capital projects , which reduces expense ; higher operating expenses primarily related to costs incurred for customer efficiency programs in montana and environmental remediation costs in south dakota , which are recovered from customers through trackers and have no impact on operating income ; higher plant operator costs primarily at colstrip unit 4 and big stone due to scheduled maintenance ; the operations of dggs in 2011 ; non-employee directors deferred compensation increased , primarily due to the increase in our stock price during the year . directors may defer their board fees into deferred shares held in a rabbi trust . if the market value of our stock goes up , deferred compensation expense increases ; however , we account for the deferred shares as trading securities and their increase in value is reflected in other income with no impact on net income ; higher bad debt expense based on slower collections from customers ; the full period effect of operations of the battle creek field ; and the write-off of an abandoned gas transmission project due to the pursuit of a more cost effective solution . property and other taxes were $ 89.1 million in 2011 as compared with $ 88.2 million in 2010 . this increase was due primarily to plant additions , including approximately $ 3.7 million due to the addition of dggs , partially offset by lower
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20 outlook we believe that recreational boating retail demand in many segments of the industry is improving . attendance and sales during the 2016 winter boat shows have been moderately higher than the 2015 winter boat show season , residential real estate markets and consumer confidence have stabilized , and fuel prices have declined significantly . we also believe that there is improved demand from consumers who have delayed purchasing a boat over the past few years due to economic uncertainty . although industry wide retail boat sales remain lower than they were prior to the 2008 financial crisis , retail boat sales have increased each year since 2013. we believe that continued improvements in retail boat sales will be modest due to the lack of strong economic improvement , which tends to discourage consumers from purchasing large discretionary goods such as pleasure boats . fluctuations in fuel prices can impact our sales , and during 2015 fuel prices decreased significantly , and have fallen to some of the lowest inflation-adjusted levels recorded during the past 10 years . in general , however , the overall cost of boat ownership has increased , especially in the sterndrive recreational boat market segment , which comprises almost 50 percent of the company 's sales . the higher cost of boat ownership discourages consumers from purchasing recreational boats . for a number of years , marine products as well as other boat manufacturers have been improving their customer service capabilities , marketing strategies and sales promotions in order to attract more consumers to recreational boating as well as improve consumers ' boating experiences . the company provides financial incentives to its dealers for receiving favorable customer satisfaction surveys . in addition , the recreational boating industry conducts a promotional program which involves advertising and consumer targeting efforts , as well as other activities designed to increase the potential consumer market for pleasure boats . many manufacturers , including marine products , participate in this program . management believes that these efforts have incrementally benefited the industry and marine products . as in past years , marine products enhanced its selection of models for the 2016 model year which began on july 1 , 2015. we are continuing to emphasize the value-priced chaparral and robalo models , as well as larger models in the chaparral line-up including the ssx 's and robalo bay boat models . in addition , we continue to experience a favorable consumer reception of our chaparral vortex jet boats and chaparral suncoast outboard boats . for the 2016 model year , we have introduced a smaller robalo model , a new chaparral sterndrive sportboat , and a smaller suncoast outboard boat . we believe that these boat models will expand our customer base , and leverage our strong dealer network and reputation for quality and styling . we plan to continue to develop and produce additional new products for subsequent model years . our financial results for 2016 will depend on a number of factors , including interest rates , consumer confidence , the availability of credit to our dealers and consumers , fuel costs , the continued acceptance of our new products in the recreational boating market , our ability to compete in the competitive pleasure boating industry , and the costs of labor and certain of our raw materials and key components . 21 story_separator_special_tag 0 0 0 0.25in '' > 2015 cash provided by operating activities increased by $ 5.4 million in 2015 compared to 2014. this increase was primarily due to an increase in net income , partially offset by a net unfavorable change in working capital . the major components of the net unfavorable change in working capital were as follows : a favorable change in accounts payable of $ 2.1 million due to the timing of payments ; an unfavorable change of $ 3.9 million in inventories to support higher production levels in the current year ; and a $ 1.5 million favorable change in accounts receivable due to the timing of receipts . cash used for investing activities was $ 2.5 million in 2015 compared to $ 4.2 million used for investing activities in 2014. the decrease in cash used for investing activities is primarily due to a decrease in purchases of marketable securities , coupled with a decrease in proceeds from the sale of assets , partially offset by an increase in capital expenditures . cash used for financing activities increased $ 2.1 million in 2015 primarily due to an increase in regularly quarterly dividends paid in the current year , coupled with an increase in open market share repurchases in 2015 compared to 2014. the company paid a $ 0.04 per share special dividend in both the fourth quarter of 2015 and the fourth quarter of 2014 . 2014 cash provided by operating activities decreased by $ 0.3 million in 2014 compared to 2013. this decrease was primarily due to an unfavorable change in working capital , partially offset by an increase in net income . the major components of the net unfavorable change in working capital were as follows : an unfavorable change in accounts payable of $ 3.3 million due to the timing of payments ; and a favorable change of $ 0.7 million in inventories due to a decrease in inventory in the current year . cash used for investing activities was $ 4.2 million in 2014 compared to $ 1.3 million used for investing activities in 2013. the increase in cash used for investing activities is primarily due to the investment in a joint venture which was funded with a contribution of approximately $ 2.6 million coupled with increased purchases of marketable securities as a result of improved cash flows . story_separator_special_tag cash used for financing activities increased $ 1.4 million in 2014 primarily due to an increase in open market share repurchases , coupled with an increase in the special dividend paid in the fourth quarter of 2014. the company paid a $ 0.04 per share special dividend in the fourth quarter of 2014 compared to $ 0.03 per share paid in the fourth quarter of 2013. cash requirements management expects that capital expenditures during 2016 will be approximately $ 3.5 million . the company participates in a multiple employer retirement income plan , sponsored by rpc , inc. ( โ rpc โ ) . during 2015 , the company made cash contributions of $ 170 thousand to this plan in order to achieve the company 's funding objective . we expect that additional contributions by the company to the retirement income plan of approximately $ 180 thousand will be made in 2016 . 23 on january 27 , 2016 , the board of directors approved a quarterly dividend of $ 0.06 per common share payable march 10 , 2016 to stockholders of record at the close of business on february 10 , 2016. the company has agreements with two employees , which provide for a monthly payment to the employees equal to 10 percent of profits ( defined as pretax income before goodwill amortization and certain allocated corporate expenses ) . in january 2008 , the board of directors authorized an additional 3,000,000 shares that the company may repurchase for a total aggregate authorization of 8,250,000 shares . the company repurchased 221,794 shares in the open market during 2015. as of december 31 , 2015 , the company has repurchased under this program a total of 5,380,243 shares in the open market and there are 2,869,757 shares that remain available for repurchase . the company has entered into agreements with third-party floor plan lenders where it has agreed , in the event of default by a dealer , to repurchase mpc boats repossessed from the dealer . these arrangements are subject to maximum repurchase amounts and the associated risk is mitigated by the value of the boats repurchased . there were no material repurchases of dealer inventory during 2015. the company incurred obligations for inventory repurchases totaling approximately $ 1.1 million during 2014 resulting from dealer defaults on floor plan financing . the company recorded costs in connection with these repurchases of approximately $ 75 thousand during 2014 as a reduction of net sales . if dealers experience financial difficulty as a result of the current market conditions , the company may incur repurchase obligations under current programs or programs initiated in the future . see further information regarding repurchase obligations in โ note 9 : commitments and contingencies โ of the consolidated financial statements . the company believes that the liquidity provided by its existing cash and cash equivalents , marketable securities , and cash expected to be generated from operations will provide sufficient capital to meet its requirements for at least the next twelve months . the company 's decisions about the amount of cash to be used for investing and financing purposes are influenced by its capital position and the expected amount of cash to be provided by operations . contractual obligations the following table summarizes the company 's contractual obligations as of december 31 , 2015 : replace_table_token_6_th ( 1 ) operating leases represent agreements for warehouse space , various office and operating equipment . ( 2 ) as part of the normal course of business the company enters into purchase commitments to manage its various operating needs . however , the company does not have any obligations that are non-cancelable or subject to a penalty if canceled . ( 3 ) the company has agreements with various third-party lenders where it guarantees varying amounts of debt for qualifying dealers on boats in dealer inventory . as of december 31 , 2015 , there are no payables outstanding to floor plan lenders . fair value measurements the company 's assets and liabilities measured at fair value are classified in the fair value hierarchy ( level 1 , 2 or 3 ) based on the inputs used for valuation . assets and liabilities that are traded on an exchange with a quoted price are classified as level 1. assets and liabilities that are valued using significant observable inputs in addition to quoted market prices are classified as level 2. the company currently has no assets or liabilities measured on a recurring basis that are valued using unobservable inputs and therefore no assets or liabilities measured on a recurring basis are classified as level 3. for defined benefit plan assets classified as level 3 , the values are computed using inputs such as cost , discounted future cash flows , independent appraisals and market based comparable data or on net asset values calculated by the fund and not publicly available . 24 off balance sheet arrangements to assist dealers in obtaining financing for the purchase of its boats for inventory , the company has entered into agreements with various third-party floor plan lenders whereby the company guarantees varying amounts of debt for qualifying dealers on boats in inventory . the company 's obligation under these guarantees becomes effective in the case of a default under the financing arrangement between the dealer and the third-party lender . the agreements typically provide for the return of all repossessed boats in โ new and unused โ condition subject to normal wear and tear , as defined , to the company , in exchange for the company 's assumption of specified percentages of the debt obligation on those boats , up to certain contractually determined dollar limits which vary by lender .
| selling , general and administrative expenses as a percentage of sales decreased from 12.1 percent in 2014 to 11.2 percent in 2015. as a percentage of net sales , warranty expense decreased to 0.6 percent in 2015 , compared to 1.2 percent in 2014. this decrease was primarily due to a model mix in recent years which included an increase in smaller boats with fewer accessories resulting in fewer warranty claims , coupled with engineering improvements . interest income . interest income declined to $ 420 thousand in 2015 compared to $ 521 thousand in 2014. marine products generates interest income primarily from investments in tax-exempt municipal obligations . the decrease was primarily due to a 13.7 percent reduction in the average balance of our marketable securities portfolio . income tax provision . the income tax provision was $ 6.7 million in 2015 compared to $ 3.6 million in 2014. the effective tax rate in 2015 was 31.8 percent compared to 28.8 percent in 2014. our effective rate increased primarily due to higher income which was subject to higher state and federal tax brackets . year ended december 31 , 2014 compared to year ended december 31 , 2013 net sales . marine products ' net sales increased by $ 2.8 million or 1.6 percent in 2014 compared to 2013. the increase was primarily due to a 2.7 percent increase in the average gross selling price per boat , partially offset by a 2.2 percent decrease in the number of boats sold . unit sales decreased due to lower sales of our chaparral sterndrive models , partially offset by increased unit sales of our robalo outboard sport fishing boats and sales of our vortex jet boats . average selling prices increased due to higher sales of our larger models in both the chaparral and robalo boat lines . during 2014 , sales outside of the united states accounted for 15.3 percent of net sales , a decrease compared to 17.2 percent of net sales in the prior year . domestic sales increased 4.0 percent and international sales decreased 9.5 percent during the period compared to the prior year . cost of goods sold . cost of goods sold decreased 0.1 percent in
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we anticipate incurring additional covid-19 related expenses or lost revenues in the future ; therefore , at this time , we believe we will fully utilize the remaining $ 16,068,000 of provider relief funds before the reporting requirement deadline that is required by the u.s. department of health and human services ( โ hhs โ ) . additionally , as part of the cares act , the legislation included an expansion of the medicare accelerated and advance payment program . the expanded medicare accelerated and advance payment program is a streamlined version of existing policy that allows the medicare administrative contractors ( โ mac 's โ ) to issue up to three months of advance medicare payments to help increase cash flow and liquidity to medicare part a and part b providers in certain circumstances that include national emergencies . we received approximately $ 51,253,000 as part of this program . on october 8 , 2020 as part of the continuing appropriations act , 2021 and other extensions act , cms amended the repayment terms for the accelerated and advance payments . these funds will begin to be applied against claims for services provided to medicare patients after approximately one year from the date we received the funds . during the first eleven months after repayment begins , repayment will occur through an automatic recoupment of twenty-five percent of medicare payments . during the succeeding six months , repayment will occur through an automatic recoupment of fifty percent of medicare payments . any remaining balance that was not paid through the recoupment process within twenty-nine months of receipt of the funds will be required to be paid on-demand , subject to an interest rate of four percent . as of december 31 , 2020 , the accelerated payments are reflected within contract liabilities in the consolidated balance sheets as the related performance obligations have not been completed . the cares act temporarily suspended medicare sequestration beginning may 1 , 2020 through december 31 , 2020. the medicare sequestration policy reduces fee-for-service medicare payments by 2 percent . the cares act extends the sequestration policy through 2030 in exchange for this temporary suspension . our net patient revenues increased by approximately $ 2,900,000 in 2020 ( 2nd , 3rd , and 4th quarter impact ) due to sequestration being temporarily suspended for the eight-month period . on december 27 , 2020 , the consolidated appropriations act of 2021 further suspended the 2.0 % payment adjustment through march 31 , 2021. the cares act also temporarily permitted employers to defer the deposit and payment of the employer 's portion of the social security taxes ( 6.2 % of employee wages ) that otherwise would be due between march 27 , 2020 and december 31 , 2020. the provision requires that the deferred taxes be paid over a two-year period with half the amount required to be paid by december 31 , 2021 , and the other half by december 31 , 2022. at december 31 , 2020 , we have deferred $ 21,158,000 of the company 's share of the social security taxes . at december 31 , 2020 , half of the payroll tax deferral is included in accrued payroll in the current liabilities section of the consolidated balance sheet and the other half of the payroll tax deferral is included in other noncurrent liabilities within our consolidated balance sheet . we have also received from many of the states in which we operate a supplemental medicaid payment to help mitigate the incremental costs resulting from the covid-19 public health emergency . for the year ended december 31 , 2020 , we have recorded $ 26,179,000 in net patient revenues in our consolidated statements of operations for these supplemental medicaid payments . 24 executive summary earnings to monitor our earnings , we have developed budgets and management reports to monitor labor , census , and the composition of revenues . inflationary increases in our costs may cause net earnings from patient services to decline . occupancy a primary area of management focus continues to be the rates of occupancy within our skilled nursing facilities . the overall census in owned and leased skilled nursing facilities for 2020 was 83.6 % compared to 90.3 % in 2019 and 89.8 % in 2018. our census was strong for most of the first quarter of 2020 , but during the second half of march , our census began to decline due to covid-19 and the lack of new admissions from our acute care providers and referral partners . with the average length of stay decreasing for a skilled nursing patient , as well as the increased availability of assisted living facilities and home and community-based services , the challenge of maintaining desirable patient census levels has been amplified . management has undertaken a number of steps in order to best position our current and future health care facilities . this includes working internally to examine and improve systems to be most responsive to referral sources and payors . additionally , nhc is in various stages of partnerships with hospital systems , payors , and other postโacute alliances to better position ourselves so we are an active participant in the delivery of post-acute healthcare services . quality of patient care centers for medicare and medicaid services ( โ cms โ ) introduced the five-star quality rating system to help consumers , their families and caregivers compare skilled nursing facilities more easily . the five-star quality rating system gives each skilled nursing operation a rating of between one and five stars in various categories ( five stars being the best ) . the company has always strived for patient-centered care and quality outcomes as precursors to outstanding financial performance . the tables below summarize nhc 's overall performance in these five-star ratings versus the skilled nursing industry as of december 31 , 2020 : replace_table_token_11_th development and growth we are undertaking to expand our postโacute and senior health care operations while protecting our existing operations and markets . the following table lists our recent construction and purchase activities . story_separator_special_tag replace_table_token_12_th 25 accrued risk reserves our accrued professional liability and workers ' compensation reserves totaled $ 99,537,000 and $ 96,011,000 at december 31 , 2020 and 2019 , respectively , and are a primary area of management focus . we have set aside restricted cash and restricted marketable securities to fund our professional liability and workers ' compensation reserves . as to exposure for professional liability claims , we have developed performance measures to bring focus to the patient care issues most likely to produce professional liability exposure , including inโhouse acquired pressure ulcers , significant weight loss and numbers of falls . these programs for certification , which we regularly modify and improve , have produced measurable improvements in reducing these incidents . our experience is that achieving goals in these patient care areas improves both patient and employee satisfaction . segment reporting the company has two reportable operating segments : ( 1 ) inpatient services , which includes the operation of skilled nursing facilities , assisted and independent living facilities , and one behavioral health hospital , and ( 2 ) homecare services . these reportable operating segments are consistent with information used by the company 's chief executive officer , as chief operating decision maker ( โ codm โ ) , to assess performance and allocate resources . the company also reports an โ all other โ category that includes revenues from rental income , management and accounting services fees , insurance services , and costs of the corporate office . for additional information on these reportable segments see note 1 - โ summary of significant accounting policies โ . the company 's codm evaluates performance and allocates capital resources to each segment based on an operating model that is designed to improve the quality of patient care and profitability of the company while enhancing long-term shareholder value . the codm does not review assets by segment in his resource allocation and therefore , assets by segment are not disclosed below . the following tables set forth the company 's consolidated statements of operations by business segment ( in thousands ) : replace_table_token_13_th replace_table_token_14_th 26 replace_table_token_15_th non-gaap financial presentation the company is providing certain non-gaap financial measures as the company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the company 's operations and measure the company 's performance more consistently across periods . therefore , the company believes this information is meaningful in addition to the information contained in the gaap presentation of financial information . the presentation of this additional non-gaap financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with gaap . specifically , the company believes the presentation of non-gaap financial information should exclude the following items : the unrealized gains or losses on our marketable equity securities , operating results for the newly constructed healthcare facilities not at full capacity , any gains on the acquisition of equity method investments , gains on the sale of healthcare facilities , stock-based compensation expense , legal costs and charges related to the settlement of a qui tam investigation within our caris hospice partnership , and the tax adjustments with the passage of the 2017 u.s. tax cuts and jobs act . the operating results for the newly constructed healthcare facilities not at full capacity include the following : for the year ended december 31 , 2020 , included are facilities that began operations from 2018 to 2020 , which is one memory care facility . for the year ended december 31 , 2019 , included are facilities that began operations from 2017 to 2019 ( one skilled nursing facility , two assisted living facilities , and one memory care facility ) . for the year ended december 31 , 2018 , included are facilities that began operations from 2016 to 2018 ( two skilled nursing facilities and three assisted living facilities ) . the table below provides reconciliations of gaap to non-gaap items ( dollars in thousands , except per share data ) : replace_table_token_16_th 27 story_separator_special_tag margin : 0pt ; text-align : justify ; text-indent : 36pt ; ' > salaries , wages and benefits , the largest operating costs of the company , increased $ 16,475,000 , or 2.8 % , to $ 609,306,000 from $ 592,831,000. our salaries and wages were 59.3 % and 59.5 % of net operating revenues and grant income for 2020 and 2019 , respectively . the primary reason for salaries and wages increasing is due to the incentive compensation , or `` combat pay '' , paid to our frontline partners in fighting the covid-19 pandemic . for the year ended december 31 , 2020 , we incurred approximately $ 15,224,000 in incentive compensation paid to our employees/partners related to covid-19 . for the year ended december 31 , 2020 , we also incurred approximately $ 6,094,000 in salaries and wages from the skilled nursing facility that we acquired in february 2020 , compared to the same period of 2019. other operating expenses increased $ 18,403,000 , or 6.9 % , to $ 286,845,000 for 2020 compared to $ 268,442,000 in 2019. these costs were 27.9 % and 26.9 % of net operating revenues and grant income for 2020 and 2019 , respectively . for the year ended december 31 , 2020 , we incurred $ 32,450,000 in covid-19 related expenses in purchasing personal protective equipment , sanitizers and infection control supplies , and lab and testing supplies .
| the composite skilled nursing facility per diem increased 7.0 % in 2020 compared to 2019. medicare per diem rates increased 10.1 % in 2020 compared to 2019 and managed care per diem rates increased 3.2 % in 2020 compared to 2019. medicaid and private pay per diem rates increased 11.4 % and 2.7 % , respectively , in 2020 compared to 2019. our medicare per diem rates have benefited from the new case-mix reimbursement model of pdpm , which was implemented on october 1 , 2019. the cares act also temporarily suspended medicare sequestration beginning may 1 , 2020 through december 31 , 2020. the medicare sequestration policy reduces fee-for-service medicare payments by 2 percent . since march 2020 , our medicaid per diem rates benefited from many of the states paying a supplemental medicaid payment to help mitigate the incremental costs resulting from the covid-19 public health emergency . in february 2020 , the company acquired the remaining 75 % ownership interest in a 166-bed skilled nursing facility in knoxville , tennessee . for the year ended december 31 , 2020 , this skilled nursing facility increased net patient revenues approximately $ 11,299,000 compared to 2019. our homecare operations had a decline in net patient revenues of approximately $ 2,569,000 for the year ended december 31 , 2020 as compared to 2019. our homecare net patient revenue decline was primarily due to volume declines in the first and second quarter due to covid-19 . other revenues in 2020 were $ 48,917,000 , an increase of $ 406,000 , or 0.8 % , as further detailed in note 4 of the consolidated financial statements . other revenues in 2020 include rental revenues of $ 22,768,000 ( $ 22,641,000 in 2019 ) , management and accounting service fees of $ 17,147,000 ( $ 18,533,000 in 2019 ) , and insurance services revenue of $ 5,447,000 ( $ 6,209,000 in 2019 ) . in november 2020 , we sold a skilled nursing facility in town & country , missouri , and recorded a gain on the sale of
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- provide our sales force with top-performing and secure products packaged to target our desired revenue mix and drive customer delight and stockholder value , as well as invest in appropriate training programs to enable success . potentially significant risks to the execution of our initiatives and achievement of our strategy include the strength of demand for the products we offer or will offer in the future consistent with our strategy and its effect on our businesses ; the impact of disruptions in our supply chain and the addition of new suppliers due to the wuhan coronavirus ; domestic and global economic and credit conditions including , in particular , those resulting from the imposition or threat of protectionist trade policies or import or export tariffs , global and regional market conditions and spending trends in the financial , retail and hospitality industries , modified or new global or regional trade agreements , the execution of united kingdom 's exit from the european union ; uncertainty over further potential changes in eurozone participation and fluctuations in oil and commodity prices ; our ability to transform our business model and to sell higher-margin software and services with recurring revenue , including our ability to successfully streamline our hardware operations ; the success of our restructuring plans and spend optimization program ; our ability to improve execution of new product offerings or integration of acquired product offerings ; market acceptance of new solutions ; competition in the information technology industry ; cybersecurity risks and compliance with data privacy and protection requirements ; disruptions in or problems with our data center hosting facilities ; defects or errors in our products ; the historical seasonality of our sales ; tax rates and new tax legislation ; and foreign currency fluctuations . cybersecurity risk management similar to most companies , ncr and its customers are subject to more frequent and increasingly sophisticated cybersecurity attacks . the company maintains cybersecurity risk management policies and procedures including disclosure controls , which it regularly evaluates for updates , for handling and responding to cybersecurity events . these policies and procedures include internal notifications and engagements and , as necessary , cooperation with law enforcement . personnel involved in handling and responding to cybersecurity events periodically undertake tabletop exercises to simulate an event . our internal notification procedures include notifying the applicable company attorneys , which , depending on the level of severity assigned to the event , may include direct notice to , among others , the company 's general counsel , ethics & compliance officer , and chief privacy officer . company attorneys support efforts to evaluate the materiality of any incidents , determine whether notice to third parties such as customers or vendors is required , determine whether any prohibition on insider trading is appropriate , and assess whether disclosure to stockholders or governmental filings , including with the sec , are required . our internal notification procedures also include notifying various ncr information technology services managers , subject matter experts in the company 's software department and company leadership , depending on the level of severity assigned to the event . for further information on potential risks and uncertainties see item 1a `` risk factors . '' 28 results of operations the following table shows our results for the years ended december 31 : replace_table_token_4_th the following tables show our revenue by geographic theater for the years ended december 31 : replace_table_token_5_th replace_table_token_6_th the following table shows our revenue by segment for the years ended december 31 : replace_table_token_7_th 29 replace_table_token_8_th ( 1 ) the tables above include presentations of period-over-period revenue growth or decline on a constant currency basis . revenue growth on a constant currency basis is a non-gaap measure that excludes the effects of foreign currency fluctuations . we calculate this information by translating prior period revenue growth at current period monthly average exchange rates . we believe that examining period-over-period revenue growth or decline excluding foreign currency fluctuations is useful for assessing the underlying performance of our business and provides additional insight into historical and or future performance , and our management uses revenue growth adjusted for constant currency to evaluate period-over-period operating performance on a more consistent and comparable basis . these non-gaap measures should not be considered substitutes for , or superior to , period-over-period revenue growth under gaap . the following table provides a reconciliation of region revenue % growth ( gaap ) to revenue % growth constant currency ( non-gaap ) for the years ended december 31 : replace_table_token_9_th the following table provides a reconciliation of segment revenue % growth ( gaap ) to revenue % growth constant currency ( non-gaap ) for the years ended december 31 : replace_table_token_10_th 30 2019 compared to 2018 results discussion revenue revenue increased 8 % in 2019 from 2018 due to increases in all segments . foreign currency fluctuations had an unfavorable impact of 2 % on the revenue comparison . banking revenue increased 10 % due to a 29 % increase in automated teller machine ( atm ) revenue driven by higher backlog conversion and higher atm-related software as well as growth in services revenue . foreign currency fluctuations had an unfavorable impact of 3 % on the revenue comparison . retail revenue increased 6 % driven by an increase in payments , strength in self-checkout ( sco ) and services revenue . foreign currency fluctuations had an unfavorable impact of 1 % on the revenue comparison . hospitality revenue increased 3 % driven by higher cloud , payments , and point-of-sale ( pos ) revenue . foreign currency fluctuations had an unfavorable impact of 1 % on the revenue comparison . gross margin gross margin as a percentage of revenue was 27.8 % in 2019 compared to 26.2 % in 2018 . gross margin for the year ended december 31 , 2019 included $ 21 million related to transformation and restructuring costs and $ 24 million related to amortization of acquisition-related intangible assets . story_separator_special_tag gross margin for the year ended december 31 , 2018 included $ 102 million related to transformation and restructuring costs and $ 23 million related to amortization of acquisition-related intangible assets . excluding these items , gross margin as a percentage of revenue increased from 28.1 % to 28.4 % due to growth in the banking and retail segments primarily driven by improved hardware profitability partially offset by declines in the hospitality segment . 2018 compared to 2017 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > in 2019 , up from $ 252 million in 2018 . as a percentage of revenue , these costs were 3.7 % in 2019 and 3.9 % in 2018 . in 2019 , research and development expenses included $ 6 million of costs related to our transformation and restructuring costs . in 2018 , research and development expenses included $ 10 million of transformation and restructuring costs . after considering this item , research and development expenses decreased slightly as a percentage of revenue from 3.8 % in 2018 to 3.7 % in 2019 due to increased discipline for investments in our strategic growth platforms . research and development expenses were $ 252 million in 2018 , up from $ 241 million in 2017 . as a percentage of revenue , these costs were 3.9 % in 2018 and 3.7 % in 2017 . in 2018 , research and development expenses included $ 10 million of transformation and restructuring costs . in 2017 , research and development expenses included $ 4 million of transformation costs . after considering this item , research and development expenses increased slightly as a percentage of revenue from 3.6 % in 2017 to 3.8 % in 2018 . asset impairment charges in 2019 , there were no significant asset impairment charges recorded . in 2018 , asset impairment charges were $ 227 million which included a $ 146 million impairment of goodwill under our previous segment structure , which was assigned to the hardware reporting unit and a $ 37 million impairment charge related to long-lived assets held and used in our hardware operations . refer to note 5 , `` goodwill and purchased intangible assets '' of the notes to consolidated financial statements included in item 8 of part ii of this report for additional discussion . additionally , in 2018 , we recorded $ 44 million for the write-off of certain internal and external use software capitalization projects that were no longer considered strategic based on review by the new management team and as a result , the projects have been abandoned . in 2017 , there were no significant asset impairment charges recorded . 32 interest expense interest expense was $ 197 million in 2019 compared to $ 168 million in 2018 and $ 163 million in 2017 . interest expense in all years was primarily related to the company 's senior unsecured notes and borrowings under the company 's senior secured credit facility . the increase from 2018 to 2019 is due to higher average outstanding principal balances during 2019 as well as the write-off of $ 7 million of deferred financing fees as a result of the debt refinancing completed during 2019. refer to note 7 , `` debt obligations '' of the notes to consolidated financial statements included in item 8 of part ii of this report for additional discussion . other income ( expense ) , net other income ( expense ) , net was expense of $ 73 million in 2019 , income of $ 16 million in 2018 and expense of $ 46 million in 2017 , with the components reflected in the following table : replace_table_token_12_th income taxes our effective tax rate was ( 80 ) % in 2019 , 187 % in 2018 , and 50 % in 2017 . during 2019 , our tax rate was impacted by the transfer of certain intangible assets among our wholly-owned subsidiaries , resulting in a variety of tax effects including the establishment of deferred tax assets , recognition of tax gains and losses and other deferred tax adjustments . in total , these tax impacts created a net tax benefit associated with the intangible asset transfer of $ 264 million . our tax rate was also impacted by foreign valuation allowance releases of $ 74 million . during 2018 , our tax rate was impacted by lower income before tax as well as our final assessment of the impact as a result of the tax cuts and jobs act of 2017 enacted on december 22 , 2017 ( `` u.s. tax reform '' ) . we filed tax method changes that resulted in lower deferred tax assets subject to the downward rate remeasurement , and we recorded a valuation allowance on deferred tax assets related to foreign tax credits not able to be utilized as a result of u.s. tax reform . the net impact of these adjustments was an income tax expense of $ 37 million . during 2017 , our tax rate was impacted by a $ 130 million provisional expense primarily related to the application of the newly enacted 21 % corporate income tax rate to our net u.s. deferred income tax assets and the repatriation tax instituted with the u.s. tax reform . while we are subject to numerous federal , state and foreign tax audits , we believe that appropriate reserves exist for issues that might arise from these audits . should these audits be settled , the resulting tax effect could impact the tax provision and cash flows in future periods . during 2020 , the company expects to resolve certain tax matters related to u.s. and foreign jurisdictions . these resolutions could have a material impact on the effective tax rate in 2020 . we regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized .
| effects of pension , postemployment , and postretirement benefit plans ncr 's income from continuing operations for the years ended december 31 was impacted by certain employee benefit plans as reflected in the table below : 31 replace_table_token_11_th in 2019 , pension expense was $ 94 million compared to pension benefit of $ 31 million in 2018 and pension expense of $ 36 million in 2017 . in 2019 , pension expense included actuarial losses of $ 75 million compared to actuarial gains of $ 45 million in 2018 and actuarial losses of $ 28 million in 2017 . actuarial losses in 2019 were primarily due to a decrease in the discount rates . actuarial gains in 2018 were due to an increase in discount rates as well as a favorable impact from a mortality update in the united kingdom . discount rates in 2017 remained consistent with 2016 and actuarial losses in 2017 were primarily due to a mortality update in the united states . the components of pension , postemployment and postretirement , other than service cost , are included in other income ( expense ) , net for all periods presented . service cost is included within the income statement line items within income from operations as other employee compensation costs arising from service rendered during the periods presented . selling , general and administrative expenses selling , general and administrative expenses were $ 1,051 million in 2019 , up from $ 1,005 million in 2018 . as a percentage of revenue , these expenses were 15.2 % in 2019 and 15.7 % in 2018 . in 2019 , selling , general and administrative expenses included $ 31 million of transformation and restructuring costs , $ 62 million of acquisition-related amortization of intangibles and $ 3 million of acquisition-related costs . in 2018 , selling , general and administrative expenses included $ 67 million of transformation and restructuring costs , $ 62 million of acquisition-related amortization of intangibles and $ 6 million of acquisition-related costs . excluding these items , selling , general and administrative expenses increased as a percentage of revenue from 13.6 % in 2018 to 13.8 % in 2019 due to increases
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โ if market interest rates in the three to five year term remain at low levels as compared to the short term interest rates , the interest rate environment may present a challenge to the company . the company 's earning assets ( typically priced at market interest rates in the three to five year range ) will reprice at lower interest rates , but the deposits will not reprice at significantly lower interest rates , therefore the net interest income may decrease . management believes bank earning assets have the appropriate maturity and repricing characteristics to optimize earnings and the banks ' interest rate risk positions . โ the agricultural community is subject to commodity price fluctuations . extended periods of low commodity prices , higher input costs or poor weather conditions could result in reduced profit margins , reducing demand for goods and services provided by agriculture-related businesses , which , in turn , could affect other businesses in the company 's market area . any combination of these factors could produce losses within the company 's agricultural loan portfolio and in the commercial loan portfolio with respect to borrowers whose businesses are directly or indirectly impacted by the health of the agricultural economy . key performance indicators certain key performance indicators for the company and the industry are presented in the following chart . the industry figures are compiled by the federal deposit insurance corporation ( fdic ) and are derived from 5,670 commercial banks and savings institutions insured by the fdic . management reviews these indicators on a quarterly basis for purposes of comparing the company 's performance from quarter to quarter against the industry as a whole . selected indicators for the company and the industry replace_table_token_6_th 26 k ey performance indicators include : โ return on assets this ratio is calculated by dividing net income by average assets . it is used to measure how effectively the assets of the company are being utilized in generating income . the company 's return on assets ratio is higher than that of the industry , primarily as a result of the company 's noninterest expense relative to the industry . โ return on equity this ratio is calculated by dividing net income by average equity . it is used to measure the net income or return the company generated for the shareholders ' equity investment in the company . the company 's return on equity ratio is lower than the industry primarily as a result of the company 's higher capital ratio . โ net interest margin this ratio is calculated by dividing net interest income by average earning assets . earning assets consist primarily of loans and investments that earn interest . this ratio is used to measure how well the company is able to maintain interest rates on earning assets above those of interest-bearing liabilities , which is the interest expense paid on deposit accounts and other borrowings . the company 's net interest margin is the same as the industry . โ efficiency ratio this ratio is calculated by dividing noninterest expense by net interest income and noninterest income . the ratio is a measure of the company 's ability to manage noninterest expenses . the company 's efficiency ratio is lower than the industry average , primarily as a result of the company 's lower noninterest expense . โ capital ratio the capital ratio is calculated by dividing average total equity capital by average total assets . it measures the level of average assets that are funded by shareholders ' equity . given an equal level of risk in the financial condition of two companies , the higher the capital ratio , generally the more financially sound the company . the company 's capital ratio is significantly higher than the industry average . story_separator_special_tag quarter , as loan-loss provisions of $ 13.6 billion exceeded net charge-offs of $ 13.2 billion . banks that itemize their reserves ( banks with assets greater than $ 1 billion ) reported higher reserves for credit card losses ( up $ 1.9 billion , or 5.2 % ) from the previous quarter , and lower reserves for residential real estate losses ( down $ 827.2 million , or 5.4 % ) and commercial and industrial loan losses ( down $ 723.5 million , or 2.2 % ) during the quarter . the coverage ratio ( loan-loss reserves to noncurrent loan balances ) declined slightly to 106.3 % , but has been above 100 % for the past three quarters . equity capital rises modestly total equity capital increased by $ 3.6 billion ( 0.2 % ) in fourth quarter 2017. declared dividends of $ 30.1 billion exceeded the quarterly net income of $ 25.5 billion during th e quarter , reducing retained earnings by $ 4.6 billion . accumulated other comprehensive income declined by $ 8.5 billion in the quarter , which was led by a decline in the market value of available-for-sale securities . the equity-to-asset ratio declined to 11.22 % from 11.31 % in third quarter 2017 , but remained above the year-ago ratio of 11.10 % . at year-end 2017 , 99.4 % of all insured institutions , which account for 99.97 % of total industry assets , met or exceeded the requirements for the highest regulatory capital category , as defined for prompt corrective action purposes . 28 total loan and lease balances increase $ 164.1 billion during the fourth quarter total loan and lease balances increased by $ 164.1 billion ( 1.7 % ) from third quarter 2017 , as balances in all major loan categories increased . credit card balances increased by $ 69.6 billion ( 8.8 % ) from the previous quarter , commercial and industrial loans grew by $ 24.5 billion ( 1.2 % ) , and residential mortgage loans rose by $ 21.7 billion ( 1.1 % ) .unused loan commitments were $ 108.9 billion ( 1.5 % ) higher than the previous quarter , led by higher unused credit card lines ( up $ 57.7 billion , or 1.6 % ) . story_separator_special_tag over the past 12 months , loan and lease balances increased by $ 416.1 billion ( 4.5 % ) , exceeding last quarter 's annual growth rate of 3.5 % .the 12-monthincrease in loan and lease balances was led by commercial and industrial loans ( up $ 78.4 billion , or 4.1 % ) , residential mortgage loans ( up $ 68.7 million , or 3.4 % ) , nonfarm nonresidential loans ( up $ 67.1 billion , or 5.1 % ) , and credit card balances ( up $ 65.2 billion , or 8.2 % ) . home equity lines of credit continued with the year-over-year decline ( down $ 23 billion , or 5.3 % ) . unused loan commitments increased 4.4 % from a year ago , the largest annual growth rate since third quarter 2016. deposits grew 1.4 % from the previous quarter total deposits increased by $ 179.8 billion ( 1.4 % ) in the fourth quarter . balances in domestic interest-bearing accounts rose by $ 153.7 billion ( 1.8 % ) , and balances in noninterest-bearing accounts grew by $ 7.8 billion ( 0.2 % ) . domestic deposits in accounts larger than $ 250,000 increased by $ 159.6 billion ( 2.5 % ) from third quarter 2017. nondeposit liabilities declined by $ 8.9 billion ( 0.4 % ) , as other liabilities were down $ 29.3 billion ( 7.3 % ) . โ problem bank list โ falls below 100 the fdic 's problem bank list declined from 104 to 95 at year-end 2017 , the lowest number of problem banks since first quarter 2008. total assets of problem banks were down from $ 16 billion in the third quarter to $ 13.9 billion . during the quarter , merger transactions absorbed 64 institutions , two institutions failed , and one new charter was added . for full-year 2017 , five new charters were added , 230 institutions were absorbed by mergers , and eight institutions failed . critical accounting policies the discussion contained in this item 7 and other disclosures included within this annual report are based on the company 's audited consolidated financial statements which appear in item 8 of this annual report . these statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the financial information contained in these statements is , for the most part , based on the financial effects of transactions and events that have already occurred . however , the preparation of these statements requires management to make certain estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . the company 's significant accounting policies are described in the โ notes to consolidated financial statements โ accompanying the company 's audited financial statements . based on its consideration of accounting policies that involve the most complex and subjective estimates and judgments , management has identified the allowance for loan losses , the assessment of other-than-temporary impairment for investment securities and the assessment of goodwill to be the company 's most critical accounting policies . allowance for loan l osses the allowance for loan losses is established through a provision for loan losses that is treated as an expense and charged against earnings . loans are charged against the allowance for loan losses when management believes that collectability of the principal is unlikely . the company has policies and procedures for evaluating the overall credit quality of its loan portfolio , including timely identification of potential problem loans . on a quarterly basis , management reviews the appropriate level for the allowance for loan losses , incorporating a variety of risk considerations , both quantitative and qualitative . quantitative factors include the company 's historical loss experience , delinquency and charge-off trends , collateral values , known information about individual loans and other factors . qualitative factors include various considerations regarding the general economic environment in the company 's market area . to the extent actual results differ from forecasts and management 's judgment , the allowance for loan losses may be greater or lesser than future charge-offs . due to potential changes in conditions , it is at least reasonably possible that change in estimates will occur in the near term and that such changes could be material to the amounts reported in the company 's financial statements . for further discussion concerning the allowance for loan losses and the process of establishing specific reserves , see the section of this annual report entitled โ asset quality review and credit risk management โ and โ analysis of the allowance for loan losses โ . fair value and other - than - temporary impairment of investment securities the company 's securities available-for-sale portfolio is carried at fair value with โ fair value โ being defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants . a fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or , in the absence of a principal market , the most advantageous market for the asset or liability . the price in the principal ( or most advantageous ) market used to measure the fair value of the asset or liability is not adjusted for transaction costs . an orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities ; it is not a forced transaction . market participants are buyers and sellers in the principal market that are ( i ) independent , ( ii ) knowledgeable , ( iii ) able to transact , and ( iv ) willing to transact . 29 declines in the fair value of available-for-sale securities below their cost that are deemed to be other-than-temporary are reflected in earnings as realized losses .
| the average net interest margin ( nim ) increased to 3.25 % from 3.13 % in 2016. without the one-time tax charges in the fourth quarter , estimated full-year 2017 net income would have been $ 183.1 billion , an increase of 7.2 % from 2016. net interest income rises 8.5 % from fourth quarter 2016 net operating revenue of $ 192.2 billion , was $ 10 billion ( 5.5 % ) higher than fourth quarter 2016. net interest income grew by $ 10.2 billion ( 8.5 % ) , while noninterest income fell by $ 202.4million ( 0.3 % ) .more than four out of five banks ( 86.4 % ) reported higher net interest income from a year ago , as interest-bearing assets increased ( up 4.4 % ) and the average nim increased to 3.31 % from 3.16 % a year ago . this is the highest quarterly nim for the industry since fourth quarter 2012. more than two out of three banks ( 70 % ) reported higher net interest margins than a year earlier . 27 provisions increase 8.9 % from a year ago loan-loss provisio ns totaled $ 13.6 billion in the fourth quarter , an increase of $ 1.1 billion ( 8.9 % ) from a year ago . more than one in three ( 38.9 % ) institutions reported higher loan-loss provisions than in fourth quarter 2016. fourth quarter loan-loss provisions totaled 7.1 % of net operating revenue , up from 6.8 % a year ago . this estimate of net income applies the average quarterly tax rate between fourth quarter 2011 and third quarter 2017 to income before taxes and discontinued operations . 3this estimate of net income applies the average annual tax rate between 2011 and 2016 to income before taxes and discontinued operations . noninterest expense increases from a year ago noninterest expense for the banking industry was $ 9.4 billion ( 8.6 % ) higher than fourth quarter 2016 , led by an increase in โ other โ noninterest expense ( up $ 6.3 billion , or 14.1 % ) .other noninterest expense includes , but is not limited to , information technology costs , legal fees , consulting services , and audit fees . salary and employee benefits rose by $ 3.2 billion ( 6.3 % ) from a year ago . full-time equivalent employees at fdic-insured institutions rose by 1.1 % from a year ago , while industry assets increased by 3.8 % . average assets per employee rose to $ 8.4 million from $ 8.2 million in fourth quarter 2016. net charge-off rate increases slightly banks charged off $ 13.2 billion in uncollectable loans during the quarter , an increase of $
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16 disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the securities exchange act of 1934 is recorded , processed , summarized and reported , within the time periods specified in the securities and exchange commission 's rules and forms . disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company 's reports filed under the securities exchange act of 1934 is accumulated and communicated to management , including our chief executive officer and chief financial officer , to allow timely decisions regarding required disclosure . based upon that evaluation , including our chief executive officer and chief financial officer , we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report . management 's report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in rule 13a-15 ( f ) under the securities exchange act of 1934 ) . management has assessed the effectiveness of our internal control over financial reporting as of december 31 , 2013 based on criteria established in internal control-integrated framework issued by the committee of sponsoring organizations of the treadway commission . as a result of this assessment , management concluded that , as of december 31 , 2013 , our internal control over financial reporting was not effective . our management identified the following material weaknesses in our internal control over financial reporting , which are indicative of many small companies with small staff : ( i ) inadequate segregation of duties and effective risk assessment ; and ( ii ) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both us gaap and sec guidelines . we plan to take steps to enhance and improve the design of our internal control over financial reporting . during the period covered by this annual report on form 10-k , we have not been able to remediate the material weaknesses identified above . to remediate such weaknesses , we hope to implement the following changes during our fiscal year ending december 31 , 2014 : ( i ) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management ; and ( ii ) adopt sufficient written policies and procedures for accounting and financial reporting . the remediation efforts set out in ( i ) and ( ii ) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required . if we are unsuccessful in securing such funds , remediation efforts may be adversely affected in a material manner . this annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by our registered public accounting firm because as a smaller reporting company we are not subject to section 404 ( b ) of the sarbanes-oxley act of 2002. changes in internal controls over financial reporting no change in our system of internal control over financial reporting occurred during the fourth quarter of the year ended december 31 , 2013 that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . item 9b . other information on march 14 , 2014 , we entered into a subscription agreement for a private placement of shares of our series a preferred stock and warrants with an accredited investor , whereby we will sell an aggregate of 540,977 shares of our series a preferred stock , par value $ 0.001 per share ( โ series a preferred stock โ ) , at a per share price of $ 1.85 for gross proceeds of $ 1,000,000 and issue to the investors for no additional consideration warrants ( the โ warrants โ ) to purchase 270,489 shares of the company 's common stock in the aggregate at an exercise price of $ 3.70 per share . on march 14 , 2014 , the company , the majority shareholders of the company and the subscriber who is the party to the subscription agreement entered into an investor rights agreements , whereby the subscriber was granted certain rights including : ( i ) right to receive copies of quarterly and annual reports of the company , ( ii ) right of inspection of the company 's properties and records , ( iii ) right of participation in future securities offerings , ( iv ) tag-along rights in connection with sales of the company 's stock by a major shareholder , and ( v ) board of directors representation rights for the subscribers who purchased at least 500,000 shares of series a preferred stock and hold at least 30 % of such shares ( the โ qualified subscribers โ ) . the company made certain covenants under the agreement including : ( i ) uplisting to nyse or nasdaq within three years from the issuance shares of series a preferred stock , and ( ii ) increase of the board of directors to five members including one member to be appointed by the qualified subscribers . on march 20 , 2014 , the company filed with the secretary of state of the state of nevada a certificate of designations , preferences , rights and limitations of series a preferred stock ( the โ series a certificate โ ) . pursuant to the series a certificate , there are 3.3 million shares of series a preferred stock authorized . 17 part iii item 10. directors , executive officers and corporate governance in connection with the share exchange transaction , effective on january 21 , 2014 , mr. james pekarsky was appointed as our story_separator_special_tag 16 disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the securities exchange act of 1934 is recorded , processed , summarized and reported , within the time periods specified in the securities and exchange commission 's rules and forms . disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company 's reports filed under the securities exchange act of 1934 is accumulated and communicated to management , including our chief executive officer and chief financial officer , to allow timely decisions regarding required disclosure . based upon that evaluation , including our chief executive officer and chief financial officer , we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report . management 's report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting ( as defined in rule 13a-15 ( f ) under the securities exchange act of 1934 ) . management has assessed the effectiveness of our internal control over financial reporting as of december 31 , 2013 based on criteria established in internal control-integrated framework issued by the committee of sponsoring organizations of the treadway commission . as a result of this assessment , management concluded that , as of december 31 , 2013 , our internal control over financial reporting was not effective . our management identified the following material weaknesses in our internal control over financial reporting , which are indicative of many small companies with small staff : ( i ) inadequate segregation of duties and effective risk assessment ; and ( ii ) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both us gaap and sec guidelines . we plan to take steps to enhance and improve the design of our internal control over financial reporting . during the period covered by this annual report on form 10-k , we have not been able to remediate the material weaknesses identified above . to remediate such weaknesses , we hope to implement the following changes during our fiscal year ending december 31 , 2014 : ( i ) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management ; and ( ii ) adopt sufficient written policies and procedures for accounting and financial reporting . the remediation efforts set out in ( i ) and ( ii ) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required . if we are unsuccessful in securing such funds , remediation efforts may be adversely affected in a material manner . this annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting . management 's report was not subject to attestation by our registered public accounting firm because as a smaller reporting company we are not subject to section 404 ( b ) of the sarbanes-oxley act of 2002. changes in internal controls over financial reporting no change in our system of internal control over financial reporting occurred during the fourth quarter of the year ended december 31 , 2013 that has materially affected , or is reasonably likely to materially affect , our internal control over financial reporting . item 9b . other information on march 14 , 2014 , we entered into a subscription agreement for a private placement of shares of our series a preferred stock and warrants with an accredited investor , whereby we will sell an aggregate of 540,977 shares of our series a preferred stock , par value $ 0.001 per share ( โ series a preferred stock โ ) , at a per share price of $ 1.85 for gross proceeds of $ 1,000,000 and issue to the investors for no additional consideration warrants ( the โ warrants โ ) to purchase 270,489 shares of the company 's common stock in the aggregate at an exercise price of $ 3.70 per share . on march 14 , 2014 , the company , the majority shareholders of the company and the subscriber who is the party to the subscription agreement entered into an investor rights agreements , whereby the subscriber was granted certain rights including : ( i ) right to receive copies of quarterly and annual reports of the company , ( ii ) right of inspection of the company 's properties and records , ( iii ) right of participation in future securities offerings , ( iv ) tag-along rights in connection with sales of the company 's stock by a major shareholder , and ( v ) board of directors representation rights for the subscribers who purchased at least 500,000 shares of series a preferred stock and hold at least 30 % of such shares ( the โ qualified subscribers โ ) . the company made certain covenants under the agreement including : ( i ) uplisting to nyse or nasdaq within three years from the issuance shares of series a preferred stock , and ( ii ) increase of the board of directors to five members including one member to be appointed by the qualified subscribers . on march 20 , 2014 , the company filed with the secretary of state of the state of nevada a certificate of designations , preferences , rights and limitations of series a preferred stock ( the โ series a certificate โ ) . pursuant to the series a certificate , there are 3.3 million shares of series a preferred stock authorized . 17 part iii item 10. directors , executive officers and corporate governance in connection with the share exchange transaction , effective on january 21 , 2014 , mr. james pekarsky was appointed as our
| summary compensation the following is a summary of the compensation we paid to our executive officers , for the two fiscal years ended december 31 , 2013 and 2012. name and principal position year salary ( $ ) bonus ( $ ) stock awards ( $ ) option awards ( $ ) all other compensation ( $ ) totals ( $ ) james r. pekarsky ( 1 ) ceo , cfo , chairman of the company ; ceo and director of bpx 2013 2012 - - - - - - - - - - - - anja krammer ( 2 ) president and director of the company ; president and director of bpx 2013 2012 - - - - - - - - - - - - kade thompson ( 3 ) ceo , cfo , director of the company < td align= '' left ''
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partially offset by : the discontinuance and reduction of various high volume/low margin product lines such as navigation , gmrs radios , flat-panel tv 's , camcorders , clock radios , digital players and digital voice recorders , volatility in core mobile , consumer and accessories sales due to increased competition , lower selling prices and the decline in the national and global economy . critical accounting policies and estimates 22 general our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions can be subjective and complex and may affect the reported amounts of assets and liabilities , revenues and expenses reported in those financial statements . as a result , actual results could differ from such estimates and assumptions . the significant accounting policies and estimates which we believe are the most critical in fully understanding and evaluating the reported consolidated financial results include the following : revenue recognition we recognize revenue from product sales at the time of passage of title and risk of loss to the customer either at fob shipping point or fob destination , based upon terms established with the customer . any customer acceptance provisions , which are related to product testing , are satisfied prior to revenue recognition . we have no further obligations subsequent to revenue recognition except for returns of product from customers . we do accept returns of products , if properly requested , authorized and approved . we continuously monitor and track such product returns and record the provision for the estimated amount of such future returns at point of sale , based on historical experience and any notification we receive of pending returns . sales incentives we offer sales incentives to our customers in the form of ( 1 ) co-operative advertising allowances ; ( 2 ) market development funds ; ( 3 ) volume incentive rebates ; and ( 4 ) other trade allowances . we account for sales incentives in accordance with asc 605-50 `` customer payments and incentives '' ( `` asc 605-50 '' ) . except for other trade allowances , all sales incentives require the customer to purchase our products during a specified period of time . all sales incentives require customers to claim the sales incentive within a certain time period ( referred to as the `` claim period '' ) and claims are settled either by the customer claiming a deduction against an outstanding account receivable or by the customer requesting a check . all costs associated with sales incentives are classified as a reduction of net sales , and the following is a summary of the various sales incentive programs : co-operative advertising allowances are offered to customers as a reimbursement towards their costs for print or media advertising in which our product is featured on its own or in conjunction with other companies ' products . the amount offered is either a fixed amount or is based upon a fixed percentage of sales revenue or fixed amount per unit sold to the customer during a specified time period . market development funds are offered to customers in connection with new product launches or entrance into new markets . the amount offered for new product launches is based upon a fixed amount or fixed percentage of our sales revenue to the customer or a fixed amount per unit sold to the customer during a specified time period . we accrue the cost of co-operative advertising allowances and market development funds at the latter of when the customer purchases our products or when the sales incentive is offered to the customer . volume incentive rebates offered to customers require that minimum quantities of product be purchased during a specified period of time . the amount offered is either based upon a fixed percentage of our sales revenue to the customer or a fixed amount per unit sold to the customer . we make an estimate of the ultimate amount of the rebate customers will earn based upon past history with the customer and other facts and circumstances . we have the ability to estimate these volume incentive rebates , as there does not exist a relatively long period of time for a particular rebate to be claimed . any changes in the estimated amount of volume incentive rebates are recognized immediately using a cumulative catch-up adjustment . other trade allowances are additional sales incentives that we provide to customers subsequent to the related revenue being recognized . in accordance with asc 605-50 , we record the provision for these additional sales incentives at the latter of when the sales incentive is offered or when the related revenue is recognized . such additional sales incentives are based upon a fixed percentage of the selling price to the customer , a fixed amount per unit , or a lump-sum amount . the accrual balance for sales incentives at february 28 , 2014 and february 28 , 2013 was $ 17,401 and $ 16,821 , respectively . although we make our best estimate of sales incentive liabilities , many factors , including significant unanticipated changes in the purchasing volume and the lack of claims from customers could have a significant impact on the liability for sales incentives and reported operating results . 23 we reverse earned but unclaimed sales incentives based upon the expiration of the claim period of each program . unclaimed sales incentives that have no specified claim period are reversed in the quarter following one year from the end of the program . for the years ended february 28 , 2014 , february 28 , 2013 and february 29 , 2012 , reversals of previously established sales incentive liabilities amounted to $ 1,990 , $ 3,350 and $ 3,662 , respectively . these reversals include unearned and unclaimed sales incentives . story_separator_special_tag unearned sales incentives are volume incentive rebates where the customer did not purchase the required minimum quantities of product during the specified time . volume incentive rebates are reversed into income in the period when the customer did not reach the required minimum purchases of product during the specified time . reversals of unearned sales incentives for the years ended february 28 , 2014 , february 28 , 2013 and february 29 , 2012 amounted to $ 1,935 , $ 2,933 and $ 2,200 , respectively . unclaimed sales incentives are sales incentives earned by the customer but the customer has not claimed payment within the claim period ( period after program has ended ) . reversals of unclaimed sales incentives for the years ended february 28 , 2014 , february 28 , 2013 and february 29 , 2012 amounted to $ 55 , $ 417 and $ 1,462 , respectively . accounts receivable we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and current credit worthiness , as determined by a review of current credit information . we continuously monitor collections from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified . we record charges for estimated credit losses against operating expenses and charges for price adjustments against net sales in the consolidated financial statements . the reserve for estimated credit losses at february 28 , 2014 and february 28 , 2013 were $ 6,889 and $ 7,840 , respectively . the decrease in the reserve is a result of the related decreases in sales and accounts receivable . while such credit losses have historically been within management 's expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that have been experienced in the past . since our accounts receivable are concentrated in a relatively few number of large customers , a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectability of accounts receivable and our results of operations . during fiscal 2014 , the company entered into two supply chain financing agreements ( `` factoring agreements '' ) with wells fargo and citibank ( `` the banks '' ) to accelerate receivable collection and better manage cash flow . under the factoring agreements , the company has agreed to sell the banks certain of its accounts receivable balances . for those accounts receivable tendered to the banks and that the banks choose to purchase , the banks agreed to advance an amount equal to the net accounts receivable balance due , less a discount as set forth in the respective agreements . the company 's german subsidiary also has a factoring agreement with ge capital ag that was entered into in october 2000 , under which the subsidiary may factor up to 16,000 of accounts receivable at a time . the factored balances under all agreements are accounted for as sales of accounts receivable , as they are sold without recourse . total balances factored for the year ended february 28 , 2014 were approximately $ 100,000 , $ 77,000 and $ 93,000 , respectively . fees incurred in connection with the factoring agreements totaled $ 258 , $ 213 and $ 259 for the years ended february 28 , 2014 , february 28 , 2013 and february 29 , 2012 , respectively . inventories we value our inventory at the lower of the actual cost to purchase ( primarily on a weighted moving average basis , with a portion valued at standard cost ) and or the current estimated market value of the inventory less expected costs to sell the inventory . we regularly review inventory quantities on-hand and record a provision , in cost of sales , for excess and obsolete inventory based primarily from selling price reductions subsequent to the balance sheet date , indications from customers based upon current negotiations , and purchase orders . a significant sudden increase in the demand for our products could result in a short-term increase in the cost of inventory purchases while a significant decrease in demand could result in an increase in the amount of excess inventory quantities on-hand . in addition , our industry is characterized by rapid technological change and frequent new product introductions that could result in an increase in the amount of obsolete inventory quantities on-hand . during the years ended february 28 , 2014 , february 28 , 2013 and february 29 , 2012 , we recorded inventory write-downs of $ 3,602 , $ 4,300 and $ 2,942 , respectively . estimates of excess and obsolete inventory may prove to be inaccurate , in which case we may have understated or overstated the provision required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand or technological developments could have a significant impact on the carrying value of inventory and our results of operations . goodwill and other intangible assets 24 goodwill and other intangible assets consist of the excess over the fair value of assets acquired ( goodwill ) , and other intangible assets ( patents , contracts , trademarks/tradenames and customer relationships ) . values assigned to the respective assets are determined in accordance with asc 805 `` business combinations '' ( `` asc 805 '' ) and asc 350 `` intangibles โ goodwill and other '' ( `` asc 350 '' ) . goodwill is calculated as the excess of the cost of purchased businesses over the value of their underlying net assets . generally , the primary valuation method used to determine the fair value ( `` fv '' ) of acquired businesses is the discounted future cash flow method ( `` dcf '' ) . a five-year period is analyzed using a risk adjusted discount rate .
| these increases were partially offset by a continued decline in satellite fulfillment sales , as more vehicles are being built with satellite radio ; the decrease in sales of aftermarket car radios , due to change in demand ; a decrease in oem sales for certain products as a result of competitive pricing decreases ; as well as lower sales in venezuela due to foreign currency restrictions resulting from current economic and political restrictions . premium audio sales represented 23.4 % of net sales for the year ended february 28 , 2014 as compared to 23.1 % in the prior year . the decrease in premium audio was primarily related to the discounting of certain products being phased out , as well as a very cold and extended winter season in the u.s. , which resulted in lower than expected sales during the fourth quarter of fiscal 2014 , as the ability of many consumers to travel to facilities where our products are sold was restricted or deterred . these decreases were offset by increased sales of new soundbar , bluetooth , wireless and cinema speaker products . consumer accessories represented 25.5 % of our net sales for the year ended february 28 , 2014 , compared to 26.9 % in the prior year . the decrease in the consumer accessories group was related to sales in our international markets as a result of the prior year conversion of analog to digital broadcasting in germany , which resulted in higher than normal sales in the first half of fiscal 2013 , as well as due to european market conditions and a very cold and extended winter season in the u.s. , which resulted in lower than expected sales during the fourth quarter of fiscal 2014 , as the ability of many consumers to travel to facilities where our products are sold was restricted or deterred . in addition , there have been continued decreases in sales in low margin products , such as camcorders , clock radios , digital players , digital voice recorders , rechargeable batteries and surge protectors as a result of competition , changes
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from our flagship cio conference gartner it symposium , to industry-leading conferences focused on specific business roles and topics , to member-driven sessions , our offerings enable attendees to experience the best of gartner insight and advice live . consulting provides customized solutions to unique client needs through on-site , day-to-day support , as well as proprietary tools for measuring and improving it performance with a focus on cost , performance , efficiency and quality . business measurements we believe that the following business measurements are important performance indicators for our business segments : business segment business measurements research total contract value represents the value attributable to all of our subscription-related contracts . it is calculated as the annualized value of all contracts in effect at a specific point in time , without regard to the duration of the contract . total contract value primarily includes research deliverables for which revenue is recognized on a ratable basis , as well as other deliverables ( primarily conferences tickets ) for which revenue is recognized when the deliverable is utilized . our total contract value consists of global technology sales contract value , which includes sales to users and providers of technology , and global business sales contract value , which includes sales to all other functional leaders . client retention rate represents a measure of client satisfaction and renewed business relationships at a specific point in time . client retention is calculated on a percentage basis by dividing our current clients , who were also clients a year ago , by all clients from a year ago . client retention is calculated at an enterprise level , which represents a single company or customer . wallet retention rate represents a measure of the amount of contract value we have retained with clients over a twelve-month period . wallet retention is calculated on a percentage basis by dividing the contract value of clients , who were clients one year ago , by the total contract value from a year ago , excluding the impact of foreign currency exchange . when wallet retention exceeds client retention , it is an indication of retention of higher-spending clients , or increased spending by retained clients , or both . wallet retention is calculated at an enterprise level , which represents a single company or customer . conferences number of destination conferences represents the total number of hosted destination conferences completed during the period . single day , local meetings are excluded . number of destination conferences attendees represents the total number of people who attend destination conferences . single day , local meetings are excluded . consulting consulting backlog represents future revenue to be derived from in-process consulting and measurement engagements . utilization rate represents a measure of productivity of our consultants . utilization rates are calculated for billable headcount on a percentage basis by dividing total hours billed by total hours available to bill . billing rate represents earned billable revenue divided by total billable hours . average annualized revenue per billable headcount represents a measure of the revenue generating ability of an average billable consultant and is calculated periodically by multiplying the average billing rate per hour times the utilization percentage times the billable hours available for one year . 20 executive summary of operations and financial position we have executed a consistent growth strategy since 2005 to drive revenue and earnings growth . the fundamentals of our strategy include a focus on creating extraordinary research insight , delivering innovative and highly differentiated product offerings , building a strong sales capability , providing world class client service with a focus on client engagement and retention , and continuously improving our operational effectiveness . we continue to focus on maximizing shareholder value . during 2018 , we repurchased 2.1 million shares of our outstanding common stock , reduced the company 's outstanding debt by $ 1.0 billion , and divested all three of the non-core businesses that comprised the company 's other segment , each of which were acquired as part of the acquisition of ceb inc. ( `` ceb '' ) in 2017. we had total revenues of $ 4.0 billion in 2018 , an increase of 20 % compared to 2017 on a reported basis and 19 % excluding the foreign currency impact . net income increased to $ 122.5 million in 2018 from $ 3.3 million in 2017 and , as a result , diluted earnings per share was $ 1.33 in 2018 compared to $ 0.04 in 2017. research revenues increased to $ 3.1 billion during 2018 , or 26 % compared to 2017 on a reported basis and 25 % excluding the foreign currency impact . the research gross contribution margin improved by two points in 2018 , to 69 % . total contract value was $ 3.2 billion at december 31 , 2018 , an increase of 11 % compared to december 31 , 2017 on a foreign currency neutral basis . conferences revenues increased to $ 410.5 million in 2018 , or 21 % compared to 2017 on a reported basis and 22 % excluding the foreign currency impact . the conferences gross contribution margin was 50 % and 48 % in 2018 and 2017 , respectively . we held 70 and 69 destination conferences in 2018 and 2017 , respectively . consulting revenues increased to $ 353.7 million in 2018 , or 8 % compared to 2017 on a reported basis and 7 % excluding the foreign currency impact . the consulting gross contribution margin was 29 % for both 2018 and 2017. backlog was $ 110.7 million at december 31 , 2018. cash provided by operating activities was $ 471.2 million and $ 254.5 million during 2018 and 2017 , respectively . as of december 31 , 2018 , we had $ 156.4 million of cash and cash equivalents and $ 1.0 billion of available borrowing capacity on our revolving credit facility . critical accounting policies and estimates the preparation of our consolidated financial statements requires the application of appropriate accounting policies and the use of estimates . story_separator_special_tag our significant accounting policies are described in note 1 โ business and significant accounting policies in the notes to consolidated financial statements included in this annual report on form 10-k. management considers the policies discussed below to be critical to an understanding of our financial statements because their application requires complex and subjective management judgments and estimates . specific risks for these critical accounting policies are also described below . the preparation of our consolidated financial statements requires us to make estimates and assumptions about future events . we develop our estimates using both current and historical experience , as well as other factors , including the general economic environment and actions we may take in the future . we adjust such estimates when facts and circumstances dictate . however , our estimates may involve significant uncertainties and judgments and can not be determined with precision . in addition , these estimates are based on our best judgment at a point in time and , as such , they may ultimately differ materially from actual results . ongoing changes in our estimates could be material and would be reflected in the company 's consolidated financial statements in future periods . our critical accounting policies pertaining to the years presented in the consolidated financial statements included in this annual report on form 10-k are described below . revenue recognition โ on january 1 , 2018 , the company adopted financial accounting standards board ( `` fasb '' ) accounting standards update no . 2014-09 , `` revenue from contracts with customers '' ( `` asu no . 2014-09 '' ) . asu no . 2014-09 and related amendments required changes in revenue recognition policies as well as enhanced disclosures . among other things , asu no . 2014-09 requires a five-step evaluative process that consists of : ( 1 ) identifying the contract with the customer ; ( 2 ) identifying the performance obligations in the contract ; ( 3 ) determining the transaction price for the contract ; 21 ( 4 ) allocating the transaction price to the performance obligations in the contract ; and ( 5 ) recognizing revenue when ( or as ) performance obligations are satisfied . the company adopted asu no . 2014-09 on january 1 , 2018 using the modified retrospective method of adoption . under this method of adoption , the cumulative effect of applying the new standard is recorded at the date of initial application , with no restatement of the comparative prior periods presented . the adoption of asu no . 2014-09 did not have a material impact on the company 's consolidated financial statements . however , the adoption of the new standard required reclassifications of certain amounts presented in the company 's consolidated balance sheet . prior to january 1 , 2018 , the company recognized revenue in accordance with then-existing generally accepted accounting principles in the united states of america and sec staff accounting bulletin no . 104 , `` revenue recognition '' ( โ prior gaap โ ) . under both asu no . 2014-09 and prior gaap , revenue can only be recognized when all of the required criteria are met . note 1 โ business and significant accounting policies in the notes to consolidated financial statements provides additional information regarding our adoption of asu no . 2014-09 and its impact on the company 's consolidated financial statements and related disclosures . our revenue by significant source is accounted for as follows : research revenues are mainly derived from subscription contracts for research products . the related revenues are deferred and recognized ratably over the applicable contract term . fees derived from assisting organizations in selecting the right business software for their needs are recognized when the leads are provided to vendors . conferences revenues are deferred and recognized upon the completion of the related conference or meeting . consulting revenues are principally generated from fixed fee and time and material engagements . revenues from fixed fee contracts are recognized as we work to satisfy our performance obligations . revenues from time and materials engagements are recognized as work is delivered and or services are provided . revenues related to contract optimization contracts are contingent in nature and are only recognized upon satisfaction of all conditions related to their payment . the majority of research contracts are billable upon signing , absent special terms granted on a limited basis from time to time . research contracts are generally non-cancelable and non-refundable , except for government contracts that may have cancellation or fiscal funding clauses . it is our policy to record the amount of a subscription contract that is billable as a fee receivable at the time the contract is signed with a corresponding amount as deferred revenue because the contract represents a legally enforceable claim . uncollectible fees receivable โ at december 31 , 2017 , the company maintained an allowance for losses that was comprised of a bad debt allowance and a revenue reserve . in connection with the adoption of asu no . 2014-09 on january 1 , 2018 , management concluded that the revenue reserve was a refund liability rather than a contra-receivable due to the nature of the account activity . as a result , the company reclassified the revenue reserve of $ 6.2 million on january 1 , 2018 from the allowance for losses to accounts payable and accrued liabilities and will consistently present the revenue reserve in this manner in all future consolidated balance sheets . note 1 โ business and significant accounting policies in the notes to consolidated financial statements provides additional information regarding our adoption of asu no . 2014-09 and its impact on the company 's allowance for losses . increases and decreases in the allowance for losses are charged to earnings , either to expense ( i.e. , the bad debt allowance ) or revenues ( i.e. , the revenue reserve ) .
| cost of services and product development as a percent of revenues was 37 % and 40 % for 2018 and 2017 , respectively , with the improvement in 2018 primarily due to the negative impact on revenue from the deferred revenue fair value accounting adjustment , which was substantially less in 2018 compared to 2017. selling , general and administrative ( โ sg & a โ ) expense was $ 1.9 billion in 2018 , an increase of $ 285.1 million compared to 2017 , or 18 % on a reported basis and 17 % excluding the foreign currency impact . this increase was primarily due to : ( i ) higher commissions from increased sales bookings ; ( ii ) incremental costs from the ceb acquisition ; ( iii ) higher facilities and corporate costs ; and ( iv ) more payroll and related benefits costs , which were driven mostly by increased headcount . these items were partially offset by a reduction in sg & a expense resulting from certain businesses that were divested during 2018. the overall headcount growth includes increases in quota bearing sales associates at global technology sales and global business sales to 3,104 and 790 , respectively , at december 31 , 2018. on a combined basis , the total number of quota-bearing sales associates increased by 16 % when compared to december 31 , 2017. sg & a expense as a percent of revenues was 47 % and 48 % for 2018 and 2017 , respectively . depreciation increased $ 4.7 million during 2018 when compared to 2017. such increase was due to property , equipment and leasehold improvements acquired with ceb and additional gartner investments . amortization of intangibles increased $ 10.7 million during 2018 when compared to 2017. such increase was due to additional amortization recorded in connection with our 2017 acquisitions . acquisition and integration charges declined in 2018 compared to 2017 as the company had two acquisitions in 2017 and none in 2018. acquisition and integration charges consist of additional costs and expenses resulting from our acquisitions and include , among other items , professional fees , severance , stock-based compensation charges and accruals for exit costs for certain office space in arlington , virginia related to our acquisition of ceb that the company does not intend to occupy . during 2018 , exit costs represented the single largest component of our acquisition and integration charges . operating income ( loss ) was operating income
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for the respective time periods each were owned by ss & c . story_separator_special_tag thousands ) and percent change in operating expenses for the periods indicated : replace_table_token_9_th fiscal 2012 versus 2011. the increase in total operating expenses in 2012 was primarily due to our acquisitions and the transaction costs associated with our acquisitions of globeop and the portia business , partially offset by a decrease in stock-based compensation expense and a decrease of $ 0.4 million related to the favorable effect of foreign currency translation . fiscal 2011 versus 2010. the increase in total operating expenses in 2011 was primarily due to the acquisition of timeshareware and benefitsxml , inc. , or bxml , an increase in professional fees associated with of those acquisitions , an increase in costs of $ 1.0 million related to the unfavorable effect of foreign currency translation and an increase in costs related to stock-based compensation . comparison of fiscal 2012 , 2011 and 2010 for interest , taxes and other interest income and interest expense . we had interest expense of $ 32.9 million in 2012 compared to $ 14.7 million in 2011 and $ 30.6 million in 2010. the increase in interest expense in 2012 reflects the higher average debt balance resulting from the new credit facility , which was entered into in connection with the acquisitions of globeop and the portia business , and the related amortization of an original issue discount . the decrease in interest expense in 2011 reflects the lower average debt balance resulting from net repayments of debt of $ 191.1 million during 2011 , which includes the redemptions of our 11 3 / 4 % senior subordinated notes due 2013 in march and december 2011 and the full repayment of the senior credit facility under our then-existing credit agreement , which we refer to as the prior facility . these facilities are discussed further in ยliquidity and capital resourcesย . 37 other ( expense ) income , net . other expense , net for 2012 consists primarily of foreign currency transaction losses and a loss recorded on foreign currency contracts associated with our acquisition of globeop , which is discussed further in note 12 to our consolidated financial statements . other ( expense ) income , net for 2011 and 2010 consisted primarily of changes in accrued earn-out liabilities and foreign currency transaction gains and losses . loss on extinguishment of debt . loss on extinguishment of debt in 2012 consisted of write-offs of deferred financing costs associated with the repayment of our prior senior credit facility . loss on extinguishment of debt in 2011 consisted of note redemption premiums and write-offs of deferred financing costs associated with the redemption of the remaining $ 133.3 million of our 11 3 / 4 % senior subordinated notes due 2013. the redemption of our notes is discussed further in ยliquidity and capital resources.ย provision for income taxes . the following table sets forth the provision for income taxes ( dollars in thousands ) and effective tax rates for the periods indicated : replace_table_token_10_th our 2012 , 2011 and 2010 effective tax rates differ from the statutory rate primarily due to the effect of our foreign operations . the increase in effective rate from 2011 to 2012 was primarily due to the impact of a valuation allowance recorded on deferred tax assets and non-deductible transaction costs , partially offset by the favorable impact of a rate change in the united kingdom . the increase in effective rate from 2010 to 2011 was primarily due to benefits recorded in 2010 relating to changes in statutory rates and the release of uncertain tax positions . we had $ 139.7 million of deferred tax liabilities and $ 26.4 million of deferred tax assets at december 31 , 2012. our effective tax rate includes the effect of operations outside the united states , which historically have been taxed at rates lower than the u.s. statutory rate . while we have income from multiple foreign sources , the majority of the company 's non-u.s. operations are in canada , india and the united kingdom , where the statutory rates were 26.5 % , 32.4 % and 24.5 % , respectively , in 2012. the statutory rates for canada and the united kingdom were 28.2 % and 26.0 % , respectively , in 2011 and 30.4 % and 28.0 % , respectively , in 2010. a future proportionate change in the composition of income before income taxes from foreign and domestic tax jurisdictions could impact our periodic effective tax rate . liquidity and capital resources our principal cash requirements are to finance the costs of our operations pending the billing and collection of client receivables , to fund payments with respect to our indebtedness , to invest in research and development and to acquire complementary businesses or assets . we expect our cash on hand and cash flows from operations to provide sufficient liquidity to fund our current obligations , projected working capital requirements and capital spending for at least the next twelve months . our cash and cash equivalents at december 31 , 2012 were $ 86.2 million , an increase of $ 45.9 million from $ 40.3 million at december 31 , 2011. the increase in cash is due primarily to cash provided by operations and cash received from borrowings , partially offset by cash used for acquisitions , net repayments of debt and capital expenditures . net cash provided by operating activities was $ 134.4 million in 2012. cash provided by operating activities was primarily due to net income of $ 45.8 million adjusted for non-cash items of $ 81.2 million , partially offset by changes in our working capital accounts ( excluding the effect of acquisitions ) totaling $ 7.4 million . the changes in our working capital accounts were driven by increases in deferred revenues , accrued expenses and other liabilities and accounts payable , decreases in prepaid expenses and other assets and a change in income taxes prepaid and payable , partially offset by increases in accounts receivable . story_separator_special_tag the increase in deferred revenues was primarily due to the collection of annual maintenance fees . the increase in accounts receivable was primarily due to the increase in revenue associated with our acquisitions and an increase in days ' sales outstanding from 44 days at december 31 , 2011 to 48 days at december 31 , 2012. the change in income tax benefit related to exercise of stock options ( included in the non-cash items ) and income taxes prepaid and payable was primarily related to income tax prepayments in 2011 . 38 investing activities used net cash of $ 985.0 million in 2012 , primarily related to $ 967.1 million in cash paid for our acquisitions , $ 17.2 million in cash paid for capital expenditures and $ 1.1 million in cash paid for capitalized software , partially offset by $ 0.4 million in proceeds from the sale of property and equipment . financing activities provided net cash of $ 894.5 million in 2012 , representing $ 1,304.0 million in net proceeds from our credit facilities , proceeds of $ 14.4 million from stock option exercises and income tax windfall benefits of $ 3.5 million related to the exercise of stock options , partially offset by $ 165.6 million in repayments of debt , $ 260.0 million to refinance the prior senior credit facility and $ 1.8 million related to the payment of the bxml contingent consideration liability . we have made a permanent reinvestment determination in certain non-u.s. operations that have historically generated positive operating cash flows . at december 31 , 2012 , we held approximately $ 49.3 million in cash and cash equivalents at non-u.s. subsidiaries where we had made such a determination and in turn no provision for u.s. income taxes had been made . as of december 31 , 2012 , we believe we have sufficient foreign tax credits available to offset tax obligations associated with the repatriation of funds at our canadian operations . at december 31 , 2012 , we held approximately $ 20.3 million in cash by subsidiaries of our foreign debt holder that will be used to facilitate debt servicing of our foreign debt holder . at december 31 , 2012 , we held approximately $ 14.0 million in cash at our indian operations that if repatriated to our foreign debt holder would incur distribution taxes of approximately $ 2.3 million . off-balance sheet arrangements we have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources that is material to investors . contractual obligations the following table summarizes our contractual obligations as of december 31 , 2012 that require us to make future cash payments ( in thousands ) : replace_table_token_11_th ( 1 ) reflects interest payments on our credit facility at an assumed interest rate of one-month libor of 0.21 % plus 2.75 % for u.s. dollar loans on our term a-2 facility and 5.00 % on our term b-1 and b-2 facilities . ( 2 ) we are obligated under noncancelable operating leases for office space and office equipment . the lease for the corporate facility in windsor , connecticut expires in 2016. we sublease office space under noncancelable leases . we received rental income under these leases of $ 1.4 million for the year ended december 31 , 2012 and $ 1.3 million for each of the years ended december 31 , 2011 and 2010. the effect of the rental income to be received in the future has not been included in the table above . ( 3 ) purchase obligations include the minimum amounts committed under contracts for goods and services . 39 ( 4 ) as of december 31 , 2012 , our liability for uncertain tax positions and related net interest payable was $ 7.8 million and $ 2.9 million , respectively . we are unable to reasonably estimate the timing of such liability and interest payments in individual years beyond 12 months due to uncertainties in the timing of the effective settlement of tax positions . credit facility on march 14 , 2012 , in connection with our acquisition of globeop , we entered into a credit agreement with ss & c and ss & c technologies holdings europe s.a.r.l. , an indirect wholly-owned subsidiary of ss & c , or ss & c sarl , as the borrowers . the credit agreement has four tranches of term loans : ( i ) a $ 0 term a-1 facility with a five and one-half year term for borrowings by ss & c , ( ii ) a $ 325 million term a-2 facility with a five and one-half year term for borrowings by ss & c sarl , ( iii ) a $ 725 million term b-1 facility with a seven year term for borrowings by ss & c and ( iv ) a $ 75 million term b-2 facility with a seven year term for borrowings by ss & c sarl . in addition , the credit agreement had a $ 142 million bridge loan facility , of which $ 31.6 million was immediately drawn , with a 364-day term available for borrowings by ss & c sarl and has a revolving credit facility with a five and one-half year term available for borrowings by ss & c with $ 100 million in commitments . the revolving credit facility contains a $ 25 million letter of credit sub-facility and a $ 20 million swingline loan sub-facility . the bridge loan was repaid in july 2012 and is no longer available for borrowing . the term loans and the revolving credit facility bear interest , at the election of the borrowers , at the base rate ( as defined in credit agreement ) or libor , plus the applicable interest rate margin for the revolving credit facility .
| additionally , professional services revenues experienced an increase in product implementation projects . fiscal 2011 versus fiscal 2010. our revenues increased in 2011 as compared to 2010 primarily due to an increase in demand for our software-enabled services from alternative asset managers , revenues for businesses and products that we acquired through our acquisitions and the favorable impact from foreign currency translation of $ 3.5 million , resulting from the weakness of the u.s. dollar relative to currencies such as the canadian dollar and the australian dollar . our maintenance revenues increased due to revenues from acquisitions and annual increases in fees , which is generally tied to the percentage change in the consumer price index . overall , our professional services revenues increased due to revenues from acquisitions . cost of revenues cost of software-enabled services revenues consists primarily of the cost related to personnel utilized in servicing our software-enabled services clients and amortization of intangible assets . cost of software license revenues consists primarily of amortization of completed technology , royalties , third-party software , and the costs of product media , packaging and documentation . cost of maintenance revenues consists primarily of technical client support , costs associated with the distribution of products and regulatory updates and amortization of intangible assets . cost of professional services revenues consists primarily of the cost related to personnel utilized to provide implementation , conversion and training services to our software licensees , as well as system integration and custom programming consulting services . 35 the following table sets forth each of the following cost of revenues as a percentage of their respective revenue source for the periods indicated : replace_table_token_6_th the following table sets forth cost of revenues ( dollars in thousands ) and percent change in cost of revenues for the periods indicated : replace_table_token_7_th fiscal 2012 versus fiscal 2011. our gross margin decreased in 2012 primarily due to amortization expense related to intangible assets acquired in the acquisitions of globeop and the portia
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it does not have any products approved for sale , its products are still in the preclinical development stage , and it has not generated any revenue from product sales . as biomx moves its product candidates from preclinical to clinical stage , it expects its expenses to increase . to date , biomx has funded its operations with proceeds from sales of common and preferred shares . through december 31 , 2019 , biomx had received gross proceeds of approximately $ 60.1 million from sales of its common and preferred shares . to date , biomx received approximately $ 224 thousand from its collaboration agreements and recorded a reduction from research and development expenses of $ 167 thousand during the year ended december 31 , 2019. additional cash amounting to approximately $ 60 million was obtained by biomx from the business combination . since inception , biomx has incurred significant operating losses . biomx 's ability to generate product revenue sufficient to achieve profitability will depend on the successful development of , the receipt of regulatory approval for , and eventual commercialization of one or more of biomx 's product candidates . our net losses were approximately $ 20.6 million and $ 12.7 million for the years ended december 31 , 2019 and 2018 , respectively . as of december 31 , 2019 , we had an accumulated deficit of $ 44.6 million and expect that for the foreseeable future we will continue to incur significant expenses as biomx advances its product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of its product candidates . in addition , if biomx obtains regulatory approval for any of its product candidates , we would expect to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . we may also incur expenses in connection with in-licensing or acquiring additional product candidates . in november 2017 , biomx entered into a share purchase agreement to acquire all of the outstanding share capital of rondinx ltd. , a company organized under the laws of israel . we may incur expenses in the future in connection with similar acquisitions . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . we anticipate that our general and administrative expenses will increase as a result of the completion of the business combination because of the increased costs associated with being a public company , including significant legal , accounting , investor relations and other expenses that we did not incur as a private company . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . at december 31 , 2019 , we had cash and cash equivalents and short-term deposits of $ 82.2 million . we believe that our existing cash and cash equivalents and short-term deposits will enable us to fund our operating expenses and capital expenditure requirements for at least the next 24 months , as discussed further below under โ โ liquidity and capital resources โ 65 accounting treatment the business combination was treated as a โ reverse merger โ in accordance with gaap . for accounting purposes , biomx was considered to have acquired the company . therefore , for accounting purposes , the business combination was treated as the equivalent of a capital transaction in which biomx issued stock for the net assets of the company . the net assets of the company were stated at historical cost , with no goodwill or other intangible assets recorded . the post-acquisition financial statements of the company had shown the consolidated balances and transactions of the company and biomx as well as comparative financial information of biomx ( the acquirer for accounting purposes ) . change in fiscal year end in november 2019 , after the business combination , we elected to change our fiscal year end from june 30 to december 31. our 2018 fiscal year consists of the year ended december 31 , 2018 , and our 2019 fiscal year consists of the year ended december 31 , 2019. in view of this change , this item 7 , โ management 's discussion and analysis of financial condition and results of operations , โ ( โ md & a โ ) includes a discussion and analysis of our financial statements for fiscal years ended december 31 , 2019 and 2018. components of our consolidated results of operations revenue to date , we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the near future . if development efforts for our product candidates are successful and result in any necessary regulatory approvals or otherwise lead to any commercialized products or additional license agreements with third parties , we may generate revenue in the future from product sales . operating expenses research and development expenses , net research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates . we expense research and development costs as incurred , offset by iia grants . story_separator_special_tag these expenses include : โ license maintenance fees and milestone fees incurred in connection with various license agreements ; โ expenses incurred under agreements with cros , cmos , as well as investigative sites and consultants that conduct our clinical trials , preclinical studies and other scientific development services ; โ manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials ; โ employee-related expenses , including salaries , related benefits , travel and share-based compensation expenses for employees engaged in research and development functions , as well as external costs , such as fees paid to outside consultants engaged in such activities ; โ costs related to compliance with regulatory requirements ; and โ depreciation and other expenses . we recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers . 66 we do not allocate employee costs or facility expenses , including depreciation or other indirect costs , to specific programs because these costs are deployed across multiple programs and , as such , are not separately classified . we use internal resources primarily to oversee the research and discovery as well as for managing our preclinical development , process development , manufacturing and clinical development activities . these employees work across multiple programs and , therefore , we do not track their costs by program . the table below summarizes our research and development expenses incurred by program : replace_table_token_1_th research and development activities are central to our business . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . as a result , we expect that our research and development expenses will increase substantially over the next several years , particularly as we increase personnel costs , including share-based compensation , contractor costs and facilities costs , as we continue to advance the development of our product candidates . we also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates . general and administrative expenses general and administrative expenses consist primarily of salaries , related benefits , travel and share-based compensation expenses for personnel in executive , finance and administrative functions . general and administrative expenses also include professional fees for legal , consulting , accounting and audit services . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates . we also anticipate that we will incur increased accounting , audit , legal , regulatory , compliance , directors ' and officers ' insurance costs as well as investor and public relations expenses associated with being a public company . we anticipate the additional costs for these services will substantially increase our general and administrative expenses . additionally , if and when we believe a regulatory approval of a product candidate appears likely , we anticipate an increase in payroll and expenses as a result of our preparation for commercial operations , especially as it relates to the sales and marketing of our product candidate . financial expenses , net financial expenses , net consist primarily of income or expenses related to revaluation of foreign currencies and interest income on our bank deposits . 67 story_separator_special_tag was $ 30.0 million , mainly as a result of investment in short-term deposits of $ 29.9 million and purchases of property and equipment of $ 0.1 million , which consisted primarily of laboratory and office equipment . financing activities during the year ended december 31 , 2019 , net cash provided by financing activities was $ 61.6 million , consisting of $ 59.7 million due to the reverse recapitalization , $ 1.8 million from issuance of shares and $ 0.1 million from exercise of stock options . during the year ended december 31 , 2018 , net cash provided by financing activities was $ 43.0 million , consisting of net proceeds from the sale of our series a preferred shares in february 2018 and the sale of our series b preferred shares in november and december 2018. funding requirements we expect our expenses to increase substantially in connection with our ongoing activities , particularly as we advance the preclinical activities and clinical trials of our product candidates . in addition , we expect to incur additional costs associated with operating as the subsidiary of a public company . our expenses will also increase as biomx : โ continues the development of its product candidates , including its lead product candidate , bx001 ; โ completes ind-enabling activities and prepares to initiate clinical trials for biomx 's other product candidates ; โ initiates additional clinical trials and preclinical studies for biomx 's product candidates in its pipeline ; โ seeks to identify and develop or in-license or acquire additional product candidates and technologies ; โ seeks regulatory approvals for biomx 's product candidates that successfully complete clinical trials , if any ; 69 โ establishes a sales , marketing and distribution infrastructure to commercialize any product candidates for which it may obtain regulatory approval ; โ hires and retains additional personnel , such as clinical , quality control , commercial and scientific personnel ; and โ expands biomx 's infrastructure and facilities to accommodate its growing employee base , including adding equipment and physical infrastructure to support its research and development .
| cash flows the following table summarizes our cash flows for each of the periods presented : replace_table_token_3_th 68 net cash used in operating activities for the year ended december 31 , 2019 included our net loss of $ 20.6 million , net cash used by changes in our operating assets and liabilities of $ 2 million and non-cash charges of $ 0.9 million , which included share-based compensation expenses of $ 0.9 million and depreciation of $ 0.3 million , offset by non-cash revaluation of contingent liabilities expenses of $ 0.3 million . net changes in our operating assets and liabilities for the year ended december 31 , 2019 consisted primarily of an increase in trade account payables of $ 3 million , increase in other account payables of $ 0.8 million and increase in operation leasing liability of $ 0.1 million , offset by an increase of $ 1.8 million in other receivables and a decrease of $ 0.1 million in related parties . net cash used in operating activities for the year ended december 31 , 2018 included our net loss of $ 12.7 million , net cash used by changes in our operating assets and liabilities of $ 0.4 million and non-cash charges of $ 1 million , which included share-based compensation expenses of $ 1.0 million and depreciation of $ 0.2 million , offset by non-cash revaluation of contingent liabilities expenses of $ 0.1 million . net changes in our operating assets and liabilities for the year ended december 31 , 2018 consisted primarily of an increase in other account payables of $ 0.4 million and a decrease of $ 0.2 million in other receivables , offset by a decrease of $ 0.2 million in trade account payables . investing activities during the year ended december 31 , 2019 , net cash provided by investing activities was $ 19.7 million , mainly as a result of decrease in investment in short-term deposits of $ 21.0 million and purchase of property and equipment of $ 1.3 million , which consisted primarily of
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for the year ended december 31 , 2018 , adjusted ebitda excluded the loss on disposal of assets , gain on insurance recoveries , gain on sale of land , and gain on transfer of land . for the year ended december 31 , 2017 , adjusted ebitda excluded the gain on insurance recoveries and loss on disposal 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 reduction in operating expenses from all gains and losses from both years , total operating expenses increased $ 1,196,000 , or 2.3 % in 2018 compared to 2017. total purse expense increased $ 325,000 , or 4.7 % , in 2018 compared to 2017 due to an increase in card casino and pari-mutuel revenue . these factors also resulted in an increase in mbf expense ( shown below ) . as discussed in greater detail in item 1 above , minnesota law requires us to allocate a portion of card casino revenues , wagering handle on simulcast and live horse races , and adw source market fees for future payment as purses for live horse races and other authorized uses . while most of these amounts were paid into the purse funds for thoroughbred and quarter horse races , minnesota law requires that a portion of the amounts allocated for purses be paid into the minnesota breeders ' fund ( the โ mbf โ ) . replace_table_token_8_th salaries and benefits expense increased $ 1,256,000 , or 5.4 % , in 2018 compared to 2017. the increase is due to the state of minnesota mandated increase of $ 0.15 in the minimum wage effective january 1 , 2018 , as well as additional non-exempt labor needed resulting from the increase in operating revenues . furthermore , the company added several new exempt level positions in 2018 due to its continued growth . utilities expense increased $ 107,000 , or 7.6 % , in 2018 compared to 2017. this is due to an increase in electricity , gas , and water and sewer rates . advertising and marketing costs decreased $ 216,000 , or 8.0 % , in 2018 compared to 2017. the changes are primarily attributable to the decreased expenditures related to riversouth , an area wide marketing initiative that is designed to increase visitors to shakopee 's entertainment , hospitality and retail businesses . 25 during 2014 , the company incurred damage to buildings from multiple severe storms at the racetrack . during the year ended december 31 , 2015 , the company recognized as a reduction in operating expenses a $ 495,000 insurance recoveries gain in the consolidated statements of operations as โ gain on insurance recoveries. โ for the year ended december 31 , 2016 , the company received additional insurance proceeds of $ 592,000 and recognized as a reduction in operating expenses as insurance recoveries gain in the consolidated statements of operations as โ gain on insurance recoveries. โ the company had also concluded an additional $ 873,000 of insurance reimbursement would be received in 2017 when roof repair work was completed . however , the company was notified in 2017 that the costs of the repairs have exceeded the original contract price . therefore , the company recognized an additional $ 141,000 โ gain on insurance recoveries โ as a reduction in operating expenses in the consolidated statements of operations for the year ended december 31 , 2017. additionally , the company recorded an additional gain of $ 21,000 in 2018. because the claim has been settled and confirmed by the insurance company , that amount has been recognized as a gain on insurance recovery receivable in accordance with u.s. gaap . the storms did not cause any interruptions to the business or otherwise affect the company 's consolidated financial results of operations . on october 6 , 2015 , the company sold six acres of land adjacent to the racetrack for $ 1,459,000 and recorded a gain of $ 660,000 , reported on the consolidated statements of operations โ gain on sale of land . this transaction was structured as a โ deferred exchange using a qualified intermediary โ pursuant to internal revenue code ( irc ) section 1031 exchange ( โ 1031 exchange โ ) for income tax purposes . under the agreement , the company had the option to repurchase up to one acre within three years from closing date at the sale price of approximately $ 240,000 per acre . according to asc 360โ20โ40โ38 - derecognition , the company recorded the repurchase option acre as a deferred gain liability in the amount of $ 240,000 on the consolidated balance sheets . since the risks and rewards were not completely transferred to the buyer based on the repurchase option the company maintained the asset on our financials in the amount of $ 110,000. in october 2018 , the repurchase option expired and the company did not repurchase the land . therefore , the company recognized the gain of $ 130,000 on the consolidated statement of operations for the year ended december 31 , 2018. in 2018 , the company recorded a $ 2,241,000 gain on transfer of land as a result of transferring approximately 13 acres of land to the doran canterbury i joint venture . other operating expenses decreased $ 392,000 , or 7.1 % , in 2018 compared to 2017. the decrease is primarily due to a decrease in real estate tax expense as the company is capitalizing all real estate taxes payable in canterbury development llc , a subsidiary of the company , while canterbury development llc completes activities necessary to prepare the property for its intended us . income tax expense for 2018 and 2017 was $ 1,990,000 and $ 480,000 , respectively . story_separator_special_tag as a result of the u.s tax cuts and jobs act ( โ tcja โ ) signed on december 22 , 2017 , we recorded a tax benefit of $ 1,345,000 in the fourth quarter of 2017 as a result of a revaluation of the net deferred tax liabilities due to the corporate tax rate change from 34 % to 21 % starting in 2018. net income for the years 2018 and 2017 was $ 5,718,000 and $ 4,091,000 , respectively . critical accounting policies and estimates our financial statements have been prepared in conformity with u.s. gaap and are based upon certain critical accounting policies . these policies may require management to make estimates , judgments and assumptions that we believe are reasonable based on our historical experience , contract terms , observance of known trends in our company and the industry as a whole and information available from other outside sources . our estimates affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period . actual results may differ from those initial estimates . our critical accounting policies are : ยท revenue recognition ; 26 ยท property and equipment ; and ยท income tax expense . our significant accounting policies and recently adopted 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 10โk . 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 โ collection revenue. โ property and equipment - we have significant capital invested in our property and equipment , which represents approximately 62 % of our total assets at december 31 , 2018. 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 , 2018 , 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 . 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 . see footnote 4 of the consolidated financial statements for more information on the u.s tax cuts and jobs act ( โ tcja โ ) signed on december 22 , 2017. 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 2019 is $ 9.86 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 2018 , 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 . cooperative marketing agreement on june 4 , 2012 , the company entered into the cma with the smsc .
| referred to as โ collection revenue. โ 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 56.6 % and 56.2 % of the company 's net revenues for the years ended december 31 , 2018 and 2017 , respectively . total card casino revenue increased $ 1,940,000 , or 6.1 % , in 2018 compared to 2017. poker revenue decreased $ 627,000 , or 7.0 % , in 2018 compared to 2017. the decrease in poker revenue reflects a continuing industry decline in the popularity of poker . table games collection revenue increased $ 2,271,000 , or 11.2 % , in 2018 compared to 2017. effective march 2018 , the minnesota racing commission approved an amendment to the canterbury park operating plan that allowed the company to increase the maximum percentage of table games buy-in that it can record as revenue from 18 % to 20 % . this amendment , combined with a higher than normal table games hold percentage during 2018 , resulted in revenue percentages of 18.5 % for march and april , 20 % for may-august , and 18.5 % in september-december . the comparable rate for 2017 was 18 % . the impact of this increase in revenue percentage was 24 approximately $ 1,100,000. the remainder of the increase was due to increased table games play that the company attributes to players wagering more due to a strong economy and change in game mix . also , higher jackpots on specific games in early 2018 contributed to increased play . food and beverage revenues food and beverage revenue increased $ 79,000 , or 1.0 % , to $ 8,018,000 for the year ended december 31 , 2018 compared to 2017. this increase is primarily due to price increases on select menu items and two additional live racing days compared to 2017. other revenues other revenue decreased $ 92,000 , or
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the pmi index is a composite index of economic activity in the united states manufacturing sector and is available at https : //www.instituteforsupplymanagement.org . a measure of that index above 50 generally indicates expansion of the manufacturing sector while a measure below 50 generally represents contraction . the average monthly pmi was 59.0 for the year ended december 31 , 2018 compared to 57.5 for the year ended december 31 , 2017 indicating improvement in 2018 in the u.s. manufacturing economy compared to the prior year . our sales are also affected by the number and effectiveness of sales representatives and the amount of sales each representative can generate from providing products and services to our customers , which we measure as average sales per day per sales representative . we had an average of 994 sales representatives working for us in 2018 which was approximately the same as the number we had in 2017. results of operations are examined in detail following a recap of our major activities in 2018 . 2018 activities acquisitions - on october 1 st , we acquired screw products , inc. , a regional mro distributor with a presence in the dallas , tx and dayton , oh areas . we also completed the integration of bolt supply house , ltd into our operations , including the opening of a new branch . lean six sigma - over the past four years we have had over 100 employees complete lean six sigma training , which is a systematic data driven approach to analyzing and improving business processes . improved operational performance - we continued to improve the fundamentals of our business , measured as improved customer service levels to our customers . we believe we have created a scalable infrastructure that will allow us to take advantage of future growth opportunities . we continue to strive to be our customers ' first choice for maintenance , repair and operational solutions . 17 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 1.3 million in 2018 and 2017 respectively , were primarily for improvements to our distribution centers and information technology . we invested $ 5.3 million and $ 32.3 million in 2018 and 2017 respectively , in business acquisitions . lawson loan agreement we have the ability to borrow funds through the loan agreement which consists of a $ 40.0 million revolving credit facility which includes a $ 10.0 million sub-facility for letters of credit . the terms of the loan agreement as amended are more fully detailed in note 13 - loan agreements of the consolidated financial statements included in item 8 of this form 10-k. at december 31 , 2018 , we had $ 9.0 million of borrowings on our revolving line of credit under the loan agreement and had borrowing availability of $ 27.7 million . additionally , we had $ 1.8 million outstanding under a commitment letter ( `` bolt agreement '' ) for aggregate borrowings outstanding of $ 10.8 million . in addition to other customary representations , warranties and covenants , and if the excess capacity is below $ 10.0 million , we are required to meet a minimum trailing twelve month ebitda to fixed charges ratio , as defined in the amended loan agreement . on december 31 , 2018 , our borrowing capacity exceeded $ 10.0 million , therefore , we were not subject to these financial covenants , however , we have provided the results of the financial covenants below for informational purposes : quarterly financial covenants requirement actual ebitda to fixed charges ratio 1.10 : 1.00 3.46 : 1.00 although we have met the minimum financial covenant levels for all quarters since the loan agreement was put in place including the quarter ended december 31 , 2018 , failure to meet these covenant requirements in future quarters could lead to higher financing costs , increased restrictions , or reduce or eliminate our ability to borrow funds . no cash dividends were paid in the three years ended december , 31 2018 and dividends are currently restricted under our loan agreement to amounts not to exceed $ 7.0 million annually . commitment letter bolt has a commitment letter which allows bolt to access up to $ 5.5 million canadian dollars . the commitment letter carries an interest rate of the prime rate plus 0.25 % , is subject to certain covenants and is secured by substantially all of bolt 's assets . the commitment letter is subject to a working capital ratio , a maximum ratio of debt to tangible net worth of the bolt assets and a debt service coverage ratio as defined in the commitment letter . at december 31 , 2018 , bolt was in compliance with the financial covenants which are subject to periodic review , at least annually , with the next review due by august 31 , 2019 . we believe cash expected to be provided by operations and the funds available under our loan agreements are sufficient to fund our operating requirements , strategic initiatives and capital improvements throughout 2019 . 21 off-balance sheet arrangements of the $ 10.8 million operating lease obligation , $ 4.0 million relates to a lease agreement for our headquarters which expires in march 2023 , and $ 2.7 million relates to a lease agreement for our reno , nevada , distribution center which expires in june 2024. the remainder of the operating leases relate to the leases of bolt locations and the land associated with the mccook distribution facility . story_separator_special_tag a portion of the leased headquarters that has been sub-leased through june of 2019. the majority of our operating leases will be recognized as right of use assets and lease liabilities on the balance sheet upon the adoption of asu 2016-02 , leases ( `` asu 2016-02 '' ) in the first quarter of 2019. see note 4 - leases for the transition to asu 2016-02. also , as of december 31 , 2018 , we had contractual commitments to purchase approximately $ 11.5 million of product from our suppliers and contractors . critical accounting policies we have disclosed our significant accounting policies in note 2 to the consolidated financial statements . the following provides information on the accounts requiring more significant estimates . allowance for doubtful accounts โ we evaluate the collectability of accounts receivable based on a combination of factors . in circumstances where we are aware of a specific customer 's inability to meet its financial obligations ( e.g. , bankruptcy filings , substantial down-grading of credit ratings ) , a specific reserve for bad debts is recorded against amounts due to reduce the receivable to the amount we believe will be collected . for all other customers , we recognize reserves for bad debts based on our historical experience of bad debt write-offs as a percent of accounts receivable outstanding . if circumstances change ( e.g. , higher than expected defaults or an unexpected material adverse change in a major customer 's ability to meet its financial obligations ) , the estimates of the recoverability of amounts due to us could be revised by a material amount . at december 31 , 2018 , our reserve was 1.4 % of our gross accounts receivable outstanding . a hypothetical change of one percent to our reserve as a percent of our gross accounts receivable would have affected our annual doubtful accounts expense by approximately $ 0.4 million . inventory reserves โ inventories consist principally of finished goods and are stated at the lower of cost ( determined using the first-in-first-out method ) or net realizable value . most of our products are not exposed to the risk of obsolescence due to technology changes . however , some of our products do have a limited shelf life , and from time to time we add and remove items from our catalogs , brochures or website for marketing and other purposes . to reduce our inventory to a lower of cost or market value , we record a reserve for slow-moving and obsolete inventory based on historical experience and monitoring of our current inventory activity . we use estimates to determine the necessity of recording these reserves based on periodic detailed analysis , using both qualitative and quantitative factors . as part of this analysis , we consider several factors including the inventories ' length of time on hand , historical sales , product shelf life , product life cycle , product category and product obsolescence . in general , depending on the product category , we reserve inventory with low turnover at higher rates than inventory with higher turnover . at december 31 , 2018 , our inventory reserve was $ 5.3 million , equal to approximately 9.2 % of our gross inventory . a hypothetical change of one percent to our reserve as a percent of total inventory would have affected our cost of goods sold by $ 0.6 million . income taxes โ deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting . such amounts are adjusted , as appropriate , to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse . a valuation allowance is established to offset any deferred tax assets if , based upon the available evidence , it is more likely than not ( i.e . greater than 50 % likely ) that some or all of the deferred tax assets will not be realized . the determination of the amount of a valuation allowance to be provided on recorded deferred tax assets involves estimates regarding ( 1 ) the timing and amount of the reversal of taxable temporary differences , ( 2 ) expected future taxable income , ( 3 ) the impact of tax planning strategies and ( 4 ) the ability to carry back deferred tax assets to offset prior taxable income . in assessing the need for a valuation allowance , we consider all available positive and negative evidence , including past operating results , projections of future taxable income and the feasibility of ongoing tax planning strategies . the projections of future taxable income include a number of estimates and assumptions regarding our volume , pricing and costs . additionally , valuation allowances related to deferred tax assets can be impacted by changes to tax laws . the company recognizes the benefit of tax positions when a benefit is more likely than not ( i.e. , greater than 50 % likely ) to be sustained on its technical merits . 22 recognized tax benefits are measured at the largest amount that is more likely than not to be sustained , based on cumulative probability , in final settlement of the position . significant judgment is required in determining income tax provisions as well as deferred tax asset and liability balances , including the estimation of valuation allowances and the evaluation of uncertain tax positions . in 2012 , due to historical cumulative losses , we had determined it was more likely than not that we would not be able to utilize our deferred tax assets to offset future taxable income . therefore , substantially all of our deferred tax assets were subject to a tax valuation allowance . we have continued to generate pre-tax profits and have utilized some of our net operating loss carryforwards over the last two years and are now in a three year cumulative income position
| the lawson gross margin decreased as a percentage of sales primarily due to the adoption of asc 606 which reclassified $ 14.6 million of service related costs from selling expenses to service cost included in gross profit and higher sales to larger national customers , who typically generate lower product margin . 19 selling , general and administrative expenses replace_table_token_8_th selling expenses consist of compensation paid to our sales representatives and related expenses to support our sales efforts . selling expenses decreased $ 10.4 million to $ 87.6 million in 2018 from $ 98.0 million in 2017 primarily as a result of the adoption of asc 606 , offset by the inclusion of bolt for the entire year and increased compensation costs on higher sales . as a percent of sales , selling expenses decreased to 25.1 % from 32.0 % due to the reclassification of certain selling related expenses to gross margin due to the adoption of asc 606 and the selling expenses being leveraged over a higher sales base . general and administrative expenses consist of expenses to operate our distribution network and overhead expenses to manage the business , including the 14 branch locations of bolt . general and administrative expenses increased $ 12.2 million to $ 92.7 million in 2018 compared to $ 80.5 million in 2017 , due primarily to increased stock based compensation of $ 7.5 million , a portion of which is dependent on our stock price , and the inclusion of bolt for the entire year . gain on sale of properties in 2017 , we received net cash proceeds of $ 6.2 million and recognized a gain of $ 5.4 million from the sale of our fairfield , new jersey distribution center . interest expense interest expenses increased $ 0.4 million in 2018 , over the prior year , due primarily to higher average borrowings outstanding . other income , net other income , net decreased $ 2.1 million in 2018 compared to the prior year , due primarily to the effect of unfavorable changes in the exchange rate on the translation of u.s. dollar denominated receivables from canada . income tax ( benefit ) expense in 2012 , due to
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sales and marketing expenses for the year ended december 31 , 2012 increased by $ 438,119 as compared to fiscal 2011. the increase in sales and marketing expense is almost entirely attributable to the hiring of five former employees and consultants of sec compliance services , inc. ( โ seccs โ ) in january 2012 , including our vice president of sales . salaries and consulting fees increased $ 293,205 during the year ended december 31 , 2012 as compared to fiscal 2011 primarily due to the hiring of these five individuals , along with higher commissions based on higher sales . furthermore , we issued options to purchase our common stock to certain former employees and consultants of seccs which vest upon the achievement of milestones related to executing annual contracts for xbrl services or revenue thresholds . as a result , stock based compensation within sales and marketing expense increased $ 111,348 , during the year ended december 31 , 2012 as compared to fiscal 2011. the investments we have made in our sales and marketing efforts led to significant revenue growth in fiscal 2012 as previously discussed , and we do not anticipate any significant increases in our sales and marketing expenses to support our current business model . litigation expenses litigation expenses of $ 206,263 were incurred during the year ended december 31 , 2011 to defend the company against a dispute with a former shareholder . this dispute has been fully resolved as of the date of this filing , and all related expenses were accrued at december 31 , 2011. therefore , there were no expenses related to this matter in 2012. depreciation and amortization depreciation and amortization expenses during the year ended december 31 , 2012 increased to $ 138,349 as compared to $ 54,704 during fiscal 2011. we acquired certain assets , primarily the rights to all customer contracts , of seccs on january 4 , 2012. we are amortizing the purchase price of $ 425,000 over its estimated useful life of five years , which attributed to an increase in amortization expense in fiscal 2012. interest income , net net interest income ( expense ) of ( $ 401 ) and $ 12,711 during the years ended december 31 , 2012 and 2011 , respectively , consisted primarily of finance charges to customers with past due balances that we are reasonably assured that we will collect , and were offset by interest payable on our outstanding line of credit in fiscal 2012. income taxes during the year ended december 31 , 2011 , we were able to utilize our remaining net operating loss carryforwards , and after reversing our valuation allowance , we recorded income tax expense of only $ 21,800. however , in 2012 we had no such net operating loss carryforwards , and our income tax expense increased to $ 251,000. furthermore , we experienced significant timing differences with our taxable income largely due to stock compensation , which we anticipate recovering in future years to offset future taxable income . 23 net income net income for the year ended december 31 , 2012 increased to $ 305,732 as compared to $ 239,276 in fiscal 2011. the increase in net income is primarily due to increases in revenue and gross margin as previously discussed , offset by increases in operating expenses and income tax expense . liquidity and capital resources as of december 31 , 2012 , we had $ 1,250,643 in cash and cash equivalents and $ 544,684 net accounts receivable . current liabilities at december 31 , 2012 , totaled $ 589,545 , including our line of credit , accounts payable , deferred revenue , income taxes payable , accrued payroll liabilities , and other accrued expenses . at december 31 , 2012 , our current assets exceeded our current liabilities by $ 1,293,492. during the year ended december 31 , 2012 , we borrowed $ 275,000 under a working capital line of credit to purchase customer contracts from seccs . as of december 31 , 2012 we have repaid $ 125,000 , leaving a balance owed of $ 150,000. we have $ 350,000 of credit remaining available to us under this line of credit . we manage our cash flow carefully , with the intent to meet our obligations from cash generated from operations . there can be no assurance that cash generated from operations will be sufficient to fund our operating expenses , to allow us to continue paying dividends , or meet our other obligations , and there is no assurance that debt or equity financing will be available , or if available , that such financing will be upon terms acceptable to us . the company believes it has sufficient cash to fund its operations for the next twelve months . however , should we need to raise additional capital , either for business expansion reasons and / or to meet certain debt obligations , the company may opt to issue additional equity securities . disclosure about off-balance sheet arrangements we do not have any transactions , agreements or other contractual arrangements that constitute off-balance sheet arrangements . outlook the following statements and certain statements made elsewhere in this document are based upon current expectations . these statements are forward looking and are subject to factors that could cause actual results to differ materially from those suggested here , including , without limitation , demand for and acceptance of our services , new developments , competition and general economic or market conditions , particularly in the domestic and international capital markets . refer also to the cautionary statement concerning forward looking statements included in this report . the company strives to be a market leader and innovator of disclosure management solutions and cloudโbased compliance technologies . story_separator_special_tag with a focus on corporate issuers and mutual funds , the company alleviates the complexity of maintaining compliance with its integrated portfolio of products and services that enhance companies ' ability to efficiently produce and distribute their financial and business communications both online and in print . we pride ourselves on providing the best systems , the best service to our clients , the highest support to our staff ; record results , higher returns to our shareholders , and higher rewards to our team members . our strategy is focused on maximizing long-term shareholder value by driving profitable growth , continuing our focus on productivity , and acquiring and integrating complementary businesses . we work with a diverse client base in the financial services industry , including brokerage firms , banks , mutual funds , corporate issuers , shareholders and professional firms such as accountants and the legal community . for example , corporate issuers utilize our cloud-based technologies and services from document creation all the way to dissemination to regulatory bodies and shareholders . with this example , we generate revenue from all of our services during the lifecycle . 24 we continue to focus on both the organic growth of our revenue streams as well as evaluating potential acquisitions that could complement our core business operations and accelerate our overall mission of providing a complete solution for all corporate issuers . critical accounting policies and estimates the consolidated financial statements include the accounts of the company and its wholly owned subsidiaries , direct transfer llc , and qx interactive llc . significant intercompany accounts and transactions are eliminated in consolidation . cash and cash equivalents we consider all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents . cash and cash equivalents are carried at cost , which approximates fair value . revenue recognition we recognize revenue in accordance with sec staff accounting bulletin no . 104 , โ revenue recognition , โ which requires that : ( i ) persuasive evidence of an arrangement exists , ( ii ) delivery has occurred or services have been rendered , ( iii ) the sales price is fixed or determinable , and ( iv ) collectability is reasonably assured . we recognize revenue when services are rendered or delivered , where collectability is probable . deferred revenue primarily consists of upfront payments for annual service contracts , and is recognized throughout the year as the services are performed . allowance for doubtful accounts we provide an allowance for doubtful accounts , which is based upon a review of outstanding receivables as well as historical collection information . credit is granted on an unsecured basis . in determining the amount of the allowance , management is required to make certain estimates and assumptions . the allowance is made up of specific reserves , as deemed necessary , on client account balances , and a reserve based on our historical experience . income taxes we comply with the authoritative guidance for accounting for income taxes , which requires an asset and liability approach to financial accounting and reporting for income taxes . deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income . valuation allowances are established , when necessary , to reduce deferred income tax assets to the amounts expected to be realized . for any uncertain tax positions , we recognize the impact of a tax position , only if it is more likely than not of being sustained upon examination , based on the technical merits of the position . impairment of long-lived assets in accordance with the authoritative guidance for accounting for long-lived assets , such as property and equipment , and intangible assets subject to amortization , are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable . recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group . such ash flow estimates are highly subjective . if the carrying amount of an asset group exceeds its estimated future cash flows , an impairment charge is recognized by the amount by which the carrying amount of an asset group exceeds fair value of the asset group . goodwill is tested for impairment annually or whenever events indicate that the asset may be impaired . 25 fair value measurements as of december 31 , 2012 and 2011 , we do not have any financial assets or liabilities that are required to be , or that we elected to measure , at fair value . we believe that the fair value of our financial instruments , which consist of cash and cash equivalents , accounts receivable , our line of credit , and accounts payable approximate their carrying amounts . stock-based compensation we account for stock-based compensation under the authoritative guidance for stock compensation . the authoritative guidance for stock compensation requires that we estimate the fair value of share-based payment awards on the date of the grant using an option-pricing model . the cost is to be recognized over the period during which an employee is required to provide service in exchange for the award . included in the determination of the fair value under the option model are highly subjective assumptions regarding expected dividend yields , prior volatility , risk free rates of interest , and the expected life of options . the authoritative guidance for stock compensation also requires the benefit of tax deductions in excess of recognized compensation expense to be
| in addition to these two factors , we have also significantly increased the number of clients for whom we perform xbrl services , both organically and through the acquisition of customers from sec compliance services , inc. in january 2012. as most of our clients are now under annual contracts , we anticipate that revenue from xbrl services will be more recurring in nature in the future , and we intend to continue to increase revenue from these services through new client acquisition . printing and financial communication revenue increased $ 24,890 during the year ended december 31 , 2012 as compared to fiscal 2011. revenue from printing , particularly from our ifund platform , tends to be somewhat project oriented , and will therefore fluctuate from period to period based on the timing of projects . we will continue to focus on obtaining more recurring revenues , particularly from our print-on-demand services . fulfillment and distribution revenue decreased by $ 84,621 during the year ended december 31 , 2012 as compared to fiscal 2011. similar to revenue from printing services , fulfillment and distribution revenue tends to be somewhat project oriented , and will therefore fluctuate from period to period based on the timing of projects . software licensing revenues increased by $ 102,856 during the year ended december 31 , 2012 as compared to fiscal 2011 , as we performed more proxy services through our iproxydirect software in fiscal 2012. the timing of proxy services requested from our clients can be difficult to predict , and therefore revenue from this source can fluctuate significantly between quarters . transfer agent revenue increased by $ 137,104 during the year ended december 31 , 2012 as compared to the same period of fiscal 2011 , primarily due to the purchase of the clients of new york stock transfer in may 2012 , and due to an increased number of corporate action engagements in the 2012. historically , corporate action services are tied to a transaction that results in a project-based engagement , therefore the timing and predictability of this type of revenue becomes difficult to forecast . 2012 revenue backlog at december 31 , 2012 , we have recorded deferred revenue of $ 112,906 that we expect to recognize throughout 2013. the majority of the deferred revenues recorded are being carried forward from 2012 , which is a direct result of our reseller relationships with the issuer
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also , our research and development activities outside our collaborations , the costs of which are not reimbursed , will expand and require additional resources . our operating results may fluctuate from quarter to quarter and will depend on , among other factors , the net sales of our marketed products , the scope and progress of our research and development efforts , the timing of certain expenses , and the continuation of our collaborations with sanofi and bayer healthcare , including our share of collaboration profits or losses , or royalties , from sales of commercialized products and the amount of reimbursement of our research and development expenses that we receive from collaborators . we can not predict whether or when new products or new indications for our marketed products will receive regulatory approval or , if any such approval is received , whether we will be able to successfully commercialize such product ( s ) and whether or when they may become profitable . we have 13 product candidates in clinical development , all of which were discovered in our research laboratories . our trap-based clinical programs are : eylea , which is in clinical trials for the treatment of dme and macular edema following brvo , and , in asia , mcnv , in collaboration with bayer healthcare ; and zaltrap , which is being studied in combination with our angiopoietin-2 inhibitor ( regn910 ) in oncology in collaboration with sanofi . our antibody-based clinical programs include eleven fully human monoclonal antibodies . the following six are being developed in collaboration with sanofi : sarilumab ( regn88 ) , an antibody to the interleukin-6 receptor ( il-6r ) , which is being developed in rheumatoid arthritis ; regn727 , an antibody to proprotein convertase subtilisin/kexin type 9 ( pcsk9 ) , which is being developed for ldl cholesterol reduction ; regn668 , an antibody to the interleukin-4 receptor ( il-4r ) , which is being developed in atopic dermatitis and allergic asthma ; regn421 , an antibody to delta-like ligand-4 ( dll4 ) , a novel angiogenesis target , which is being developed in oncology ; regn910 , an antibody to angiopoietin-2 ( ang2 ) , another novel angiogenesis target , which is being developed in oncology ; and regn1033 , an antibody to myostatin ( gdf8 ) , which is in clinical development . in addition , we are developing the following five antibodies independently : regn1400 , an antibody to erbb3 , which is being developed in oncology ; regn846 , an antibody in clinical development against an undisclosed target , which is being developed in atopic dermatitis ; regn1154 , an antibody in clinical development against an undisclosed target ; regn1500 , an antibody in clinical development against an undisclosed target ; and regn475 , an antibody to nerve growth factor ( ngf ) , which is being developed for the treatment of pain and which is currently on clinical hold by the fda . 45 the planning , execution , and results of our clinical programs are significant factors that can affect our operating and financial results . in our clinical programs , key events in 2012 and 2013 to date were , and plans for the remainder of 2013 are , as follows : trap-based clinical programs : 2012 and 2013 events to date 2013 plans eylea ย fda approved eylea for the treatment of macular edema following crvo in the united states ย additional regulatory agency decisions on applications for the treatment of wet amd ย bayer healthcare received regulatory approval for eylea in the european union , switzerland , australia , japan , and other countries for the treatment of patients with wet amd ย bayer healthcare to submit regulatory applications for macular edema following crvo in other countries ย bayer healthcare continued to pursue regulatory applications for marketing approval for eylea for the treatment of wet amd in various other countries ย completion of patient enrollment in vibrant study ย bayer healthcare submitted an application for marketing authorization in europe , colombia , and japan for the treatment of macular edema following crvo ย initiated phase 3 vibrant study in macular edema following brvo ย completed enrollment of vista-dme and vivid-dme studies ย completed enrollment of myrror trial in asia zaltrap ย fda approved zaltrap for patients with mcrc that is resistant to or has progressed following an oxaliplatin-containing regimen ย decision on additional regulatory applications for zaltrap in the treatment of previously treated mcrc patients ย european commission granted marketing authorization in the european union for zaltrap for patients with mcrc that is resistant to or has progressed following an oxaliplatin-containing regimen ย reported final results in the phase 3 venice trial in prostate cancer ย initiated phase 1b study of combination of zaltrap and regn910 in patients with advanced solid malignancies arcalyst ย fda issued complete response letter to our sbla for the prevention of gout flares in patients initiating uric acid-lowering treatment . development in gout discontinued . 46 antibody-based clinical programs : replace_table_token_5_th 47 critical accounting policies and use of estimates a summary of the significant accounting policies that impact us is provided in note 2 to our consolidated financial statements , beginning on page f-8 . the preparation of financial statements in accordance with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements . management considers an accounting estimate to be critical if : it requires an assumption ( or assumptions ) regarding a future outcome ; and changes in the estimate or the use of different assumptions to prepare the estimate could have a material effect on our results of operations or financial condition . management believes the current assumptions used to estimate amounts reflected in our consolidated financial statements are appropriate . story_separator_special_tag however , if actual experience differs from the assumptions used in estimating amounts reflected in our consolidated financial statements , the resulting changes could have a material adverse effect on our results of operations , and in certain situations , could have a material adverse effect on our liquidity and financial condition . the critical accounting estimates that impact our consolidated financial statements are described below . revenue recognition product revenue product sales consist of u.s. sales of eylea and arcalyst . revenue from product sales is recognized when persuasive evidence of an arrangement exists , title to product and associated risk of loss have passed to the customer , the price is fixed or determinable , collection from the customer is reasonably assured , we have no further performance obligations , and returns can be reasonably estimated . we record revenue from product sales upon delivery to our distributors and specialty pharmacies ( collectively , our `` customers '' ) . we sell eylea in the united states to three distributors and several specialty pharmacies . we sell arcalyst in the united states to two specialty pharmacies . under these distribution models , the distributors and specialty pharmacies generally take physical delivery of product . for eylea , the distributors and specialty pharmacies generally sell the product directly to healthcare providers , whereas for arcalyst , the specialty pharmacies sell the product directly to patients . for the years ended december 31 , 2012 and 2011 , we recorded 78 % and 42 % , respectively , of our total gross product revenue from sales to besse medical , a subsidiary of amerisourcebergen corporation . revenue from product sales is recorded net of applicable provisions for rebates and chargebacks under governmental programs ( including medicaid ) , distribution-related fees , prompt pay discounts , product returns , and other sales-related deductions . calculating these provisions involves estimates and judgments . we review our estimates of rebates , chargebacks , and other applicable provisions each period and record any necessary adjustments in the current period 's net product sales . the following table summarizes the provisions , and credits/payments , for government rebates and chargebacks , distribution-related fees , and other sales-related deductions ; such amounts were not significant during the year ended december 31 , 2011. replace_table_token_6_th government rebates and chargebacks : we estimate reductions to product sales for medicaid and veterans ' administration ( va ) programs , and for certain other qualifying federal and state government programs . based upon our contracts with government agencies , statutorily-defined discounts applicable to government-funded programs , historical experience , and , in the case of eylea , estimated payer mix based on third-party market research data , we estimate and record an allowance for rebates and chargebacks . our liability for medicaid rebates consists of estimates for claims that a state will make for a current quarter , claims for prior quarters that have been estimated for which an invoice has not been received , and invoices received for claims from prior 48 quarters that have not been paid . our reserves related to discounted pricing offered to va , public health services ( phs ) , and other institutions ( collectively , โ qualified healthcare providers โ ) represent our estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices we charge to our customers . our customers charge us for the difference between what they pay for the products and the ultimate selling price to the qualified healthcare providers . our reserve for this discounted pricing is based on expected sales to qualified healthcare providers and the chargebacks that customers have already claimed . distribution-related fees : we have written contracts with our customers that include terms for distribution-related fees . we estimate and record distribution and related fees due to our customers based on gross sales . prompt pay discounts : no prompt pay discounts are currently offered to our customers on sales of eylea . in connection with sales of arcalyst , we offer discounts to our customers for prompt payments . we estimate these discounts based on customer terms and historical experience , and expect that our customers will always take advantage of this discount . therefore , we accrue 100 % of the prompt pay discount that is based on the gross amount of each arcalyst invoice at the time of sale . product returns : consistent with industry practice , we offer our customers a limited right to return product purchased directly from us , which is principally based upon the product 's expiration date . we will accept returns for three months prior to and up to six months after the product expiration date . product returned is generally not resalable given the nature of our products and method of administration . we develop estimates for product returns based upon historical experience , inventory levels in the distribution channel , shelf life of the product , and other relevant factors . we monitor product supply levels in the distribution channel , as well as sales by our customers of eylea to healthcare providers and arcalyst to patients using product-specific data provided by our customers . if necessary , our estimates of product returns may be adjusted in the future based on actual returns experience , known or expected changes in the marketplace , or other factors . collaboration revenue we earn collaboration revenue in connection with collaboration agreements to develop and commercialize product candidates and utilize our technology platforms . we currently have collaboration agreements with sanofi and bayer healthcare . the terms of these collaboration agreements typically include non-refundable up-front licensing payments , research progress ( milestone ) payments , payments for development activities , and sharing of profits or losses arising from the commercialization of products . non-refundable up-front license payments , where continuing involvement is required of us , are deferred and recognized over the related performance period .
| 52 sanofi collaboration revenue the collaboration revenue we earned from sanofi , as detailed below , consisted primarily of reimbursement for research and development expenses that we incurred , recognition of our share of losses in connection with sanofi 's commercialization of zaltrap , recognition of a substantive milestone payment , and recognition of revenue related to non-refundable up-front payments of $ 105.0 million related to the zaltrap collaboration and $ 85.0 million related to the antibody collaboration . replace_table_token_8_th in august 2012 , the fda approved zaltrap for treatment , in combination with folfiri , of patients with mcrc that is resistant to or has progressed following an oxaliplatin-containing regimen . regeneron 's share of the loss in connection with commercialization of zaltrap , as shown in the table below , represents our 50 % share of zaltrap net product sales less cost of goods sold and shared commercialization and other expenses . our share of the loss increased in 2012 , compared to 2011 , due to an increase in commercialization activities in preparation for potential regulatory approvals . sanofi provides us with an estimate of our share of the profit or loss from commercialization of zaltrap for the most recent fiscal quarter . sanofi 's estimates of net products sales and related expenses for such quarter are reconciled to their actual net product sales and related expenses in the subsequent fiscal quarter , and our portion of the profit or loss is adjusted accordingly , as necessary . replace_table_token_9_th in 2012 , we earned a $ 50.0 million substantive milestone payment from sanofi upon fda approval of zaltrap . sanofi 's reimbursement of our zaltrap research and development and other expenses decreased in 2012 compared to 2011 , primarily due to a decrease in research and development activities and lower costs related to manufacturing zaltrap prior to regulatory approval . recognition of deferred revenue related to the up-front payments from sanofi increased in 2012 from 2011 due to shortening the estimated performance period over which this deferred revenue is being
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eco technology s.p.a. ( โ pirelli โ ) to acquire all of the outstanding equity interests in s.c. pirelli & c. eco technology ro srl ( โ s.c . pirelli โ ) , pirelli 's romanian subsidiary , which , among other assets , has a manufacturing facility in bumbesti , romania . the fixed assets of s.c. pirelli that are used for its diesel particulate filter business , including the buildings at the romanian manufacturing facility , are anticipated to have a net book value of romanian leu ( ron ) 66,978,129 ( equivalent to approximately euro 15.6 million or $ 21 million ) at december 31 , 2011 as determined in accordance with international financial reporting standards ( ifrs ) . the land on which the manufacturing facility is located is under a long-term lease , and s.c. pirelli will have the right to recover the investment made with respect to the buildings at the manufacturing site ( net of accumulated depreciation over a period of 30 years ) . the letter of intent contemplates that we will pay $ 15 million in cash to pirelli as consideration for such purchase . at the time of the purchase , it is contemplated that the subsidiary will have no debt or other liabilities and that pirelli will indemnify us against any such pre-closing debt and liabilities to the extent not reflected on the closing balance sheet . 23 the letter of intent also contemplates that pirelli will invest $ 19 million in shares of our common stock at a per share price equal to the lower of $ 3.90 and the weighted average price of a share of our common stock for the 10 business days preceding the closing date of the transactions contemplated by the letter of intent . pirelli will also receive one share of voting preferred stock , which will permit pirelli to appoint one member of our board of directors . this share of preferred stock will automatically convert into one share of our common stock upon pirelli ceasing to own in the aggregate 50 % of the shares ( as adjusted for stock splits and stock dividends ) of our common stock acquired in connection with these transactions . if the maximum number of shares offered in this offering are sold , and assuming that the shares will be issued to pirelli at a per share price of $ 3.90 , pirelli will beneficially own approximately 14.0 % of our outstanding shares of common stock . it is contemplated that pirelli and we will enter into an agreement for the supply of diesel particulate filters to pirelli and for the assembly of retrofit systems for pirelli . it is also contemplated that pirelli will guarantee to cover up to ron 6.6 million of fixed costs and euro 560,000 of salary in 2012 and ron 6.15 million of fixed costs and euro 660,000 of salary in 2013 if the ebitda of s.c. pirelli is negative for such years . furthermore , it is contemplated that pirelli will support our research and development and worldwide sales efforts for filters and membranes . in connection with such transactions , it is contemplated that pirelli and aldo petersen will enter into a shareholder agreement pursuant to which each party will have rights of first refusal and tag along rights on sales of our common stock by the other party . all shares acquired by pirelli in connection with the transactions contemplated by the letter of intent will be subject to a lock-up provision for one year from the closing date of such transactions . mr. petersen is also contemplated to enter into a lock-up agreement restricting his ability to transfer the shares beneficially owned by him for one year from the closing date of the transactions contemplated by the letter of intent . it is contemplated that pirelli will be granted registration rights in respect of the shares of our common stock that it acquires pursuant to the above transactions upon the expiration of the lock-up period . pirelli is also contemplated to receive certain veto rights in respect of strategic decisions relating to s.c. pirelli . the transactions contemplated by the letter of intent are subject to the execution of definitive agreements mutually agreeable to both parties and there is no assurance that such agreements will be executed or that the contemplated transactions will occur as described above or at all . subcontract with scandinavian brake systems we have recently entered into a new subcontract agreement with scandinavian brake systems to utilize the production capacity of their notox division . the new subcontract arrangement , which extends until the end of 2014 , is expected to significantly increase our production capacity . we believe that the additional production capacity provided under this subcontract will allow us to meet our capacity requirements until the end of the subcontract period . opening of singapore office on january 17 , 2012 , we announced the establishment of a representative office in singapore . the new singapore office will service the south east asian markets covering our entire product portfolio . march 2012 registered offering of common stock on march 2 , 2012 , we completed the initial closing of a registered public offering of our common stock . as part of the initial closing , we issued 2,511,500 shares of our common stock in a registered direct placement of our shares at a per share price of $ 3.25. the net proceeds to us from the initial closing are approximately $ 7.4 million . we intend to use the net proceeds from the offering for the development and marketing of our products , the engineering , development and testing of our membranes , and the opening of local sales offices in certain countries outside of the u.s. and denmark . pending application of such proceeds , we expect to invest the proceeds in short-term , interest-bearing , investment-grade marketable securities or money market obligations . sunrise securities corp. acted as the exclusive placement agent for this transaction . story_separator_special_tag as part of the compensation for the placement agent , we also issued to the placement agent and certain of its agents for $ 100 , warrants to purchase an aggregate of 125,575 shares of our common stock ( equal to 5 % of the shares of common stock sold by the placement agent and its agents in the offering ) . the warrants will have an exercise price equal to $ 4.06 ( or 125 % of the offering price of the shares sold in the offering ) and may be exercised on a cashless basis . the warrants are exercisable for a period of five years commencing after the effective date of the registration statement related to the offering . the warrants are subject to a lock-up restriction for 180 days pursuant to finra rule 5110 ( g ) . the warrants are not redeemable by us . 24 story_separator_special_tag new roman ; font-size : 10pt '' > 26 results of operations for the year ended december 31 , 2010 compared to the year ended december 31 , 2009 the following table sets forth our revenues , expenses and net income for the year ended december 31 , 2010 and 2009. replace_table_token_3_th revenues our net sales for the year ended december 31 , 2010 were $ 15,728,817 compared to $ 12,897,223 for the year ended december 31 , 2009 , representing a year over year increase in sales of $ 2,831,594 , or 22.0 % . this increase is mainly due to the expansion of our sales team and marketing efforts , which resulted in increased sales of our products including an increase in sales of dpfs of $ 2,739,257 and sic filters of $ 92,337 for the year ended december 31 , 2010. gross profit gross profit for the year ended december 31 , 2010 was $ 3,673,844 compared to $ 3,873,934 for same period in 2009 , representing a decrease of $ 200,090 , or 5.2 % . the decrease was mainly due to an increase in depreciation of $ 186,802 in 2010 compared to 2009 and a change in the product mix sold during the respective periods . 27 expenses our total operating expenses for the year ended december 31 , 2010 were $ 3,646,770 , representing an increase of $ 591,730 , or 19.4 % compared to $ 3,055,040 for the year ended december 31 , 2009. this increase is mainly due to our increased investment in additional sales and marketing personnel in an effort to increase sales of our products and in research and development . selling expenses for the year ended december 31 , 2010 were $ 1,476,656 compared to $ 1,421,246 for the year ended december 31 , 2009 , representing an increase of $ 55,410 , or 3.9 % . we believe the increase was mainly due to general increases in cost levels from year to year . general and administrative expenses for the year ended december 31 , 2010 were $ 1,748,596 compared to $ 1,394,082 for the year ended december 31 , 2009 , representing an increase of $ 354,514 , or 25.4 % . this increase is mainly due to our increased investment in sales and marketing , which we believe will enable us to grow our business . research and development expenses for the year ended december 31 , 2010 were $ 421,518 compared to $ 239,712 for the year ended december 31 , 2009 , representing an increase of $ 181,806 , or 75.8 % . these increased costs were as a result of our determination to continue to invest in improving our existing products and to develop new products using our patented technology . we believe that investing in research and development will enable us to continue to grow our business organically . net income net income attributable to liqtech denmark for the year ended december 31 , 2010 was a loss of $ 6,629 compared to a profit of $ 329,502 for the year ended december 31 , 2009 , representing a decrease of $ 336,131 , or 102.0 % . this decrease was attributable to a $ 200,090 decrease in our gross profit and an increase of $ 591,730 in total operating expenses . the largest contributor to the increase in expenses was general and administrative expenses , which increased by $ 354,514 or 25.4 % compared to the year ended december 31 , 2009. liquidity and capital resources we have historically satisfied our capital and liquidity requirements through internally generated cash from operations and our available lines of credit . at december 31 , 2011 , we had cash of $ 1,033,056 and working capital of $ 1,878,203 and at december 31 , 2010 we had cash of $ 559,259 and working capital of $ 3,028,137. at december 31 , 2011 , our working capital decreased by $ 1,149,934 due to the notes payable to related parties classified as a current liability . these notes will be paid when we collect the $ 3,328,183 of notes receivable classified as equity in the accompanying financial statements . excluding these notes payable to related parties from the calculation of working capital , working capital at december 31 , 2011 was $ 5,206,385 representing a $ 2,178,248 increase compared to december 31 , 2010. on march 2 , 2012 , we completed the closing of a registered public offering of our common stock . as part of the initial closing , we issued 2,511,500 shares of our common stock in a registered direct placement of our shares at a per share price of $ 3.25. the net proceeds to us from the initial closing are approximately $ 7.4 million . we intend to use the net proceeds from the offering for the development and marketing of our products , the engineering , development and testing of our membranes , and the opening of local sales offices in certain countries outside of the u.s. and denmark .
| expenses total operating expenses for the year ended december 31 , 2011 was $ 3,930,738 , representing an increase of $ 283,968 , or 7.8 % , compared to $ 3,646,770 for the same period in 2010. selling expenses for the year ended december 31 , 2011 was $ 1,484,992 compared to $ 1,476,656 for the same period in 2010 , representing an increase of $ 8,336 or 0.6 % . the increase is due to generally increasing costs and an investment in more sales resources in the last part of the period . general and administrative expenses for the year ended december 31 , 2011 was $ 1,943,333 compared to $ 1,748,596 for the same period in 2010 , representing an increase of $ 194,737 , or 11.1 % . the increase is mainly due to generally increasing costs including an additional $ 123,984 of non-cash compensation expense for options granted to employees and management which were not a part of the costs for year ended december 31 , 2010. furthermore , the company has increasing legal and accounting costs due to the public listing of the company in august 2011. research and development expenses for the year ended december 31 , 2011 was $ 502,413 compared to $ 421,518 for the same period in 2010 , representing an increase of $ 80,895 , or 19.2 % . the increase is due to general increasing costs and our increasing investments into sic filters , especially in north america , especially in the last part of the period . net income net income attributable to the company for the year ended december 31 , 2011 was a profit of $ 917,211 compared to a loss of $ 6,629 for the comparable period in 2010 , representing an increase of $ 923,840. this increase was primarily attributable to an increase of $ 1,353,967 in our gross profit and an increase in total other income of $ 458,002 , and it was partly offset by an increase of $ 283,968 in operating expenses , an increase in income tax expense of $ 213,977 and an increase in net loss attributable to the non-controlled interest in subsidiaries of $ 390,184 .
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gross profit increased as a percentage of net sales to 31.0 % in fiscal 2010 from 29.2 % in fiscal 2009 . by reportable segment and in total , gross profit as a percentage of net sales was : replace_table_token_11_th dsw segment merchandise margin , defined as gross profit excluding occupancy and warehousing expenses , a non-gaap measure , was 44.7 % as a percentage of net sales for both fiscal 2010 and 2009. sales volume exceeded our expectations during the spring 22 season of fiscal 2010 , which resulted in a reduction of markdown activity and improved merchandise margins . this improvement was offset in the fall season due to a challenging comparison against record merchandise margin rates in the comparable period . the reduction in the fall season margin rate was expected as a result of our inventory being positioned to achieve double digit comparable sales growth . store occupancy expense for the dsw segment decreased as a percentage of net sales to 11.1 % for fiscal 2010 from 12.9 % for last year primarily as a result of increased average store sales and decreased in dollars as a result of expense saving initiatives . gross profit for the leased business division increased as a percentage of net sales for fiscal 2010 due to a reduction in markdown activity driven by continued enhancements to the clearance markdown process and better alignment our inventory position to sales demand . operating expenses . operating expenses as a percentage of net sales were 21.7 % and 27.5 % for fiscal 2010 and fiscal 2009 , respectively . we increased our marketing expenses to drive sales and have continued investing in our infrastructure resulting in additional depreciation expense . operating expenses related to pre-merger rvi decreased $ 62.8 million primarily due to a reduction of bad debt expense of $ 2.7 million during fiscal 2010 due to an initial distribution from the debtors ' estates , compared to an increase in bad debt expense of $ 57.3 million during fiscal 2009 due to the bankruptcy filing of filene 's basement on may 4 , 2009 for notes receivable held by rvi . this was partially offset by $ 4.0 million accrued for the complaint filed by value city holdings , inc. , and related entities . change in fair value of derivatives . during fiscal 2010 and 2009 , the company recorded a non-cash charge of $ 14.6 million and $ 16.8 million , respectively , representing the changes in fair value of warrants . during fiscal 2010 and 2009 , the company recorded a non-cash charge of $ 34.4 million and $ 49.7 million , respectively , representing the change in the fair value of the conversion feature of the pies . the company utilizes the black-scholes pricing model to estimate the fair value of the derivatives . the change in the fair value of the derivatives is primarily due to the increases in the rvi and dsw stock prices . interest expense , net . interest expense , net of interest income , was 0.6 % and 0.7 % as a percentage of net sales for fiscal 2010 and 2009 , respectively . the increase in interest income was primarily a result of the reversal of interest reserves related to uncertain tax positions which were released during fiscal 2010. non-operating income ( expense ) , net . non-operating income , net of non-operating expense , for fiscal 2010 resulted from a gain on the sale of a fully impaired auction rate security which was sold during fiscal 2010 . non-operating expense for fiscal 2009 resulted from other-than-temporary impairments related to auction rate securities partially offset by realized gains related to the sale of preferred shares . income taxes . fiscal 2010 reflects a 53.6 % effective tax rate as compared to a 22.5 % fiscal 2009 effective rate . the 2010 and 2009 tax rates reflect the impact of a non-cash charge for the change in fair value on the mark to market accounting for the warrants . income from discontinued operations - value city department stores . the $ 2.7 million and $ 9.5 million reduction in the loss from discontinued operations in fiscal 2010 and fiscal 2009 , respectively , was primarily due to revaluation of guarantees due to changes in facts and circumstances related to the guarantees . ( loss ) income from discontinued operations - filene 's basement . the $ 3.9 million increase in the gain from discontinued operations during fiscal 2010 is primarily due to an initial distribution from the debtor 's estates . in fiscal 2009 , the income from filene 's basement of $ 50.4 million was comprised of the gain on the disposition of filene 's basement of $ 81.9 million partially offset by the loss from filene 's basement operations of $ 31.5 million . the gain on the disposition of filene 's basement was due to the write-off of the investment in filene 's basement partially offset by the recording of guarantees , other expenses relating to the disposition of filene 's basement and income tax benefit of $ 2.9 million in the aggregate . noncontrolling interests . for fiscal 2010 and fiscal 2009 , net income was impacted by $ 40.7 million and $ 20.4 million , respectively , to reflect that portion of the income attributable to dsw minority shareholders . non-gaap financial measures dsw utilizes merchandise margin , a non-gaap financial measure , to explain its gross profit performance . management believes this non-gaap measure is an indication of the company 's performance as the measure provides a consistent means of comparing performance between periods and competitors as retailers differ on their inclusion in cost of sales . management uses this non-gaap measure to assist in the evaluation of the performance of our segments and to make operating decisions . within management 's 23 discussion and analysis , dsw discloses merchandise margin , store occupancy expenses and warehousing expense , which reconcile to gross profit . story_separator_special_tag liquidity and capital resources overview our primary ongoing cash flow requirements are for inventory purchases , capital expenditures made in connection with our store expansion , improving our information systems , the remodeling of existing stores and infrastructure growth . our working capital and inventory levels typically build seasonally . we believe that we have sufficient financial resources and access to financial resources at this time . we are committed to a cash management strategy that maintains liquidity to adequately support the operation of the business , our growth strategy and to withstand unanticipated business volatility . we believe that cash generated from dsw operations , together with our current levels of cash and investments as well as availability under our revolving credit facility , should be sufficient to maintain our ongoing operations , support seasonal working capital requirements , fund capital expenditures related to projected business growth for the foreseeable future and continue payments of dividends to our shareholders . net working capital . net working capital is defined as current assets less current liabilities . net working capital increased $ 239.9 million to $ 560.5 million as of january 28 , 2012 from $ 320.6 million as of january 29 , 2011 . the increase in net working capital was primarily due to the settlement of the pies , a current liability as of january 29 , 2011 , and an increase in deferred tax assets related to the release of the valuation allowance for expected fiscal 2012 net operating loss usage . as of january 28 , 2012 and january 29 , 2011 , the current ratio was 2.8 and 1.8 , respectively . operating activities net cash provided by operations in fiscal 2011 increased to $ 214.2 million from $ 127.0 million for fiscal 2010 . the increase in our income from continuing operations is $ 148.5 million , which was higher than our increase in net cash provided by operations , as it was driven by a non-cash deferred income tax benefit . the merger allows dsw the opportunity to utilize rvi 's federal net operating losses and tax credits to offset future taxable income , which generated significant cash tax savings in fiscal 2011 and should continue to generate cash tax savings in the next several years . net cash provided by operations in fiscal 2010 was $ 127.0 million , compared to $ 134.4 million for fiscal 2009 . net income ( loss ) , net of noncontrolling interests , after adjusting for non-cash charges , increased but was offset by income tax related items and the planned inventory increase net of the related increase in accounts payable . we operate all our stores , our distribution and fulfillment centers and our office facilities from leased facilities . all lease obligations are accounted for as operating leases . we disclose the minimum payments due under operating leases in the notes to the consolidated financial statements included elsewhere in this annual report on form 10-k. although our plan for continued expansion could place increased demands on our financial , managerial , operational and administrative resources and result in increased demands on management , we do not believe that our anticipated growth plan will have an unfavorable impact on our operations or liquidity . uncertainty in the united states economy could result in reductions in customer traffic and comparable sales in our existing stores with the resultant increase in inventory levels and markdowns . reduced sales may result in reduced operating cash flows if we are not able to appropriately manage inventory levels or leverage expenses . these potential negative economic conditions may also affect future profitability and may cause us to reduce the number of future store openings , impair goodwill or impair long-lived assets . investing activities for fiscal 2011 , cash used in investing activities amounted to $ 139.6 million compared to $ 176.1 million for fiscal 2010 . during fiscal 2011 , $ 393.8 million of cash was used to purchase available-for-sale and held-to-maturity securities while $ 329.1 million of cash was generated by the sale of available-for-sale and held-to-maturity securities . we have increased our investment in longer term investments to increase our return . during fiscal 2011 , we incurred $ 76.9 million in capital expenditures , of which $ 58.5 million related to stores and $ 18.4 million related to information technology and business infrastructure . for fiscal 2010 , cash used in investing activities amounted to $ 176.1 million compared to $ 87.3 million for fiscal 2009 . during fiscal 2010 , $ 302.4 million of cash was used to purchase available-for-sale and held-to-maturity securities while $ 173.0 million of cash was generated by the sale of available-for-sale and held-to-maturity securities . during fiscal 2010 , we incurred $ 52.3 million in capital expenditures , of which $ 34.6 million related to stores , $ 8.4 million related to supply chain projects and warehouses 24 and $ 9.3 million related to information technology and infrastructure . we expect to spend approximately $ 120 million for capital expenditures in fiscal 2012 . our future investments will depend primarily on the number of stores we open and remodel , infrastructure and information technology programs that we undertake and the timing of these expenditures . we plan to open approximately 35 to 40 stores in fiscal 2012 . in addition to our investments in new stores and remodeling stores , we will invest in the reconfiguration of the columbus distribution center and the expansion of the dsw.com fulfillment center to support business growth . in fiscal 2011 , we opened 17 new dsw stores . during fiscal 2011 , the average investment required to open a typical new dsw store was approximately $ 2.1 million , prior to construction and tenant allowances . of this amount , gross inventory typically accounted for $ 0.7 million , fixtures and leasehold improvements typically accounted for $ 1.1 million and new store advertising and other new store expenses typically accounted for $ 0.3 million .
| by reportable segment and in total , gross profit as a percentage of net sales was : replace_table_token_9_th dsw segment merchandise margin , defined as gross profit excluding occupancy and warehousing expenses , a non-gaap measure , was 45.5 % and 44.7 % as a percentage of net sales for fiscal 2011 and fiscal 2010 , respectively , due to an increase in initial markup and a decrease in markdown activity . the increase in initial markup was due to cost mitigation with our vendors and selective price increases . the reduction in markdown activity was the result of the composition and mix of sales . store occupancy expense for the dsw segment decreased as a percentage of net sales to 10.2 % for fiscal 2011 from 11.1 % for fiscal 2010 primarily as a result of increased average store sales . warehousing expense increased as a percentage of net sales to 1.9 % for fiscal 2011 from 1.7 % for fiscal 2010 primarily to due to expenses related to size replenishment and to support dsw.com sales growth . gross profit for the leased business division decreased as a percentage of net sales for fiscal 2011 and was unfavorably impacted by markdowns related to filene 's basement 's bankruptcy and subsequent liquidation . we incur occupancy expense of approximately 20 % of net sales for our leased business division . operating expenses . operating expenses as a percentage of net sales were 22.2 % and 21.7 % for fiscal 2011 and fiscal 2010 , respectively . the deleverage in operating expenses was driven by dsw and rvi merger-related transaction costs and other rvi-related expenses of $ 17.3 million incurred during fiscal 2011 compared to $ 4.0 million incurred during fiscal 2010 . change in fair value of derivatives . during fiscal 2011 and 2010 , the company recorded a non-cash charge of $ 12.3 million and $ 14.6 million , respectively , representing the changes in fair value of outstanding warrants . during fiscal 2011 and 2010 , the company recorded a non-cash charge of $ 41.7 million and $ 34.4 million , respectively , representing the change in the fair value of the conversion feature of
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on march 12 , 2014 , we announced the closing of the ipo of 4,312,500 shares of common stock , including the full exercise of the underwriters ' over-allotment at a public offering price of $ 8.00 per share . total gross proceeds from the ipo were $ 34.5 million before deducting underwriting discounts and commissions and other offering expenses payable by us resulting in net proceeds of $ 30.3 million . we have incurred losses and generated negative cash flows from operations since inception . as of december 31 , 2014 , we had an accumulated deficit of $ 34.1 million . substantially all of our operating losses resulted from costs incurred in connection with our development programs , including our non-clinical and formulation development activities , manufacturing and clinical trials . we expect to incur increasing expenses over the next several years to develop dex-in , including completion of the ongoing phase ii post op day 1 , and planned phase iii pivotal and safety trials . after an interim analysis in september 2014 , recro closed its post op day 0 phase ii clinical trial of dex-in in the treatment of acute post-operative pain following bunionectomy surgery . while the trial was not expected to reach statistical significance , a trend toward analgesia was observed in a subset of patients . in october 2014 , we commenced a post op day 1 phase ii clinical trial of dex-in in the treatment of acute post-operative pain following bunionectomy surgery . in addition , based on the availability of additional financial resources , we plan to advance development of our proprietary formulations of dex for additional indications and development of our second proprietary compound , fado . based upon additional financial resources and potential strategic interest , we may develop and commercialize our proprietary formulations of dex ourselves or with a partner . on march 7 , 2015 , we entered into a definitive agreement under which we will acquire assets from alkermes , including worldwide rights to iv/im meloxicam , a proprietary , phase iii-ready , long-acting cox-2 nsaid for moderate to severe acute pain , as well as a contract manufacturing facility , royalty and formulation business in gainesville . 60 under the terms of the agreement , we will pay alkermes $ 50.0 million at closing , and acquire the rights to iv/im meloxicam and ownership of a cgmp manufacturing facility and related business located in gainesville . alkermes is entitled to receive up to an additional $ 120.0 million in milestone payments upon the achievement of certain regulatory and net sales milestones and royalties on future product net sales , in each case , related to iv/im meloxicam . at closing , we will issue to alkermes a seven-year warrant to purchase an aggregate of 350,000 shares of our common stock . the $ 50.0 million up-front payment will be funded via a five-year senior secured term loan with orbimed , which carries interest at libor plus 14.0 % , with a 1.0 % libor floor . the acquisition is subject to customary closing conditions , including antitrust regulatory approval , and is anticipated to close in the second quarter of 2015. we expect that annual operating results of operations will fluctuate for the foreseeable future due to several factors including the outcome and extent of clinical trial activities and timing and extent of research and development efforts . as a result , we expect to continue to incur significant and increasing operating losses for the foreseeable future . financial overview research and development expenses research and development expenses currently consist of costs incurred in connection with the development of dex in different delivery forms . these expenses consist primarily of : expenses incurred under agreements with cros , investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies ; the cost of acquiring and manufacturing clinical trial materials ; the cost of manufacturing validation tests , if these materials are manufactured prior to obtaining regulatory approval ; costs related to facilities , depreciation and other allocated expenses ; costs associated with non-clinical activities and regulatory approvals ; and salaries and related costs for personnel in research and development functions . we expense research and development costs as incurred . advanced payments for goods and services that will be used in future research and development activities are initially recorded as prepaid expenses and expensed as the activity is performed or when the goods have been received . since inception , we have developed and evaluated a series of dex product candidates through phase i pharmacokinetic and efficacy trials and a placebo controlled phase ii efficacy trial . our current priority is the development of dex-in for acute pain following surgery . dex-in is currently being evaluated in a post op day 1 phase ii clinical trial . in addition to the development of dex-in , we intend to strategically invest in our product pipeline , including the development of other indications for dex-in as well as other formulations of dex and fado . the commitment of funding for each subsequent stage of our development programs is dependent upon , among other things , the receipt of successful clinical data . the majority of our external costs relate to clinical trial sites , analysis and testing of the product and patent costs . we currently rely on mcg , a related party , for a portion of our research and development activities . costs related to facilities , depreciation , and support are not charged to specific programs . story_separator_special_tag the successful development of our product candidates is highly uncertain and subject to a number of risks including , but not limited to : the duration of clinical trials varies substantially according to the type , complexity and novelty of the product candidate ; 61 the fda and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic pharmaceutical products , typically requiring lengthy and detailed laboratory and clinical testing procedures , sampling activities and other costly and time-consuming procedures ; data obtained from nonclinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activity . data obtained from these activities also are susceptible to varying interpretations , which could delay , limit or prevent regulatory approval ; the costs , timing and outcome of regulatory review of a product candidate are uncertain ; the emergence of competing technologies and products and other adverse market developments could impede our commercial efforts ; and the risks disclosed in the section titled ยrisk factorsย of this report . development timelines , probability of success and development costs vary widely . as a result of the uncertainties discussed above , we anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical data of each product candidate , as well as ongoing assessments of such product candidate 's commercial potential . accordingly , we can not currently estimate with any degree of certainty the amount of time or costs that we will be required to expend in the future on our product candidates to complete current or future clinical or pre-commercial stages prior to their regulatory approval , if such approval is ever granted . as a result of these uncertainties surrounding the timing and outcome of any approvals , we are currently unable to estimate precisely when , if ever , dex-in or any of our other product candidates will generate revenues and cash flows . we expect our research and development costs related to dex-in to be substantial for the foreseeable future as we advance this product candidate through clinical trials , manufacturing scale-up and other pre-approval activities . we may elect to seek out collaborative relationships in order to provide us with a diversified revenue stream and to help facilitate the development and commercialization of our product candidate pipeline . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive and finance functions . other general and administrative expenses include professional fees for legal , including patent related expenses , consulting , auditing and tax services , and stock compensation expense . our general and administrative expenses in 2014 were higher than in 2013 as we had greater expenses relating to our operations as a public company , including increased payroll and increased consulting , legal and compliance , accounting , insurance and investor relations costs . we also expect that our patent costs will increase if our patents are issued , as the annuity fees will be higher than our current expenses and , if additional formulation technology is developed for our product candidates , patent expenses could increase further . interest expense interest expense consisted of accrued interest on our 8 % convertible promissory notes , or bridge notes , issued to our investors scp vitalife . upon the closing of the ipo , these bridge notes , including accrued interest , were converted into shares of common stock . since the conversion price of our bridge notes allowed the note holders to convert at 75 % of the initial offering price per share in the ipo , we recorded a non-cash interest charge of approximately $ 4.1 million upon the closing of the ipo . net operating losses and tax carryforwards as of december 31 , 2014 , we had approximately $ 16.8 million of federal net operating loss carryforwards . we also had federal and state research and development tax credit carryforwards of $ 729,012 available to offset 62 future taxable income . u.s. tax laws limit the time during which these carryforwards may be utilized against future taxes . these federal and state net operating loss and federal and state tax credit carryforwards will begin to expire at various dates beginning in 2028 , if not utilized . as a result , we may not be able to take full advantage of these carryforwards for federal and state tax purposes . the closing of the ipo , together with private placements and other transactions that have occurred since our inception , may trigger , or may have already triggered , an ยownership changeย pursuant to section 382 of the internal revenue code of 1986. if an ownership change is triggered , it will limit our ability to use some of our net operating loss carryforwards . in addition , since we will need to raise substantial additional funding to finance our operations , we may undergo further ownership changes in the future , which could further limit our ability to use net operating loss carryforwards . as a result , if we generate taxable income , our ability to use some of our net operating loss carryforwards to offset u.s. federal taxable income may be subject to limitations , which could result in increased future tax liabilities to us .
| 63 we will need to raise additional funds in order to continue our clinical trials beyond clinical trials of dex-in for acute pain following surgery , to commercialize any product candidates or technologies and to enhance our sales and marketing efforts for additional products we may acquire . insufficient funds may cause us to delay , reduce the scope of or eliminate one or more of our development , commercialization or expansion activities . our future capital needs and the adequacy of our available funds will depend on many factors , including the cost of clinical studies and other actions needed to obtain regulatory approval of our products in development . if additional funds are required , we may raise such funds through public or private sales of equity or debt securities or from bank or other loans or through strategic research and development , licensing and or marketing arrangements from time to time . financing may not be available on acceptable terms , or at all , and our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition or results of operations . additional equity financing , if available , may be dilutive to the holders of our common stock and may involve significant cash payment obligations and covenants that restrict our ability to operate our business . on february 2 , 2015 , we entered into a purchase agreement with aspire capital in which aspire capital is committed to purchase , at our election , up to an aggregate of $ 10.0 million of shares of our common stock over the 24-month term of the agreement . on the execution of the agreement , we issued 96,463 shares of its common stock to aspire capital . the shares may be sold by us to aspire capital on any business day we select in two ways : ( 1 ) through a regular purchase of up to 50,000 shares at a known price based on the market price of our common stock prior
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while the ultimate responsibility resides with management , for material acquisitions , we retain the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities , including intangible assets and postretirement benefit plan assets and liabilities . acquired intangible assets , excluding goodwill , are valued using a discounted cash flow methodology based on future cash flows specific to the type of intangible asset purchased . this methodology incorporates various estimates and assumptions , the most significant being projected revenue growth rates , earnings margins , and forecasted cash flows based on the discount rate and terminal growth rate . management projects revenue growth rates , earnings margins and cash flows based on the historical operating results of the acquired entity adjusted for synergies anticipated to be achieved through integration , expected future performance , operational strategies , and the general macroeconomic environment . we review finite-lived intangible assets for triggering events such as significant changes in operations , customers or future revenue that might indicate the need to impair the assets acquired or change the useful lives of the assets acquired . there was no impairment or change in useful lives recognized on other intangible assets acquired in fiscal years 2012 , 2011 or 2010. estimated values for inventory acquired is subject to reliable estimates , as of the acquisition date , of future sales volumes , replacement costs , costs of selling effort , anticipated selling prices , normal profit margins , the percent complete , and costs to complete work-in-process inventory . estimated values for accounts receivable are subject to reliable estimates of collectability . assumed liabilities are valued based on estimates of anticipated expenditures to be incurred to satisfy the assumed obligations , including estimation of any warranty or other contractual liabilities assumed , which require the exercise of professional judgment . valuation of postretirement benefit plan assets and liabilities is dependent on similar assumptions and estimates as those used to value our non-acquisition postretirement benefit plan assets and liabilities . assumed contracts may have favorable or unfavorable terms that must be valued as of the acquisition date . such valuation is subject to management judgment regarding the evaluation and interpretation of contract terms in relation to other economic circumstances , such as the market rates for office space leases . if we assume a performance obligation to customers as of the acquisition date , a deferred revenue obligation is recognized . judgment is required to evaluate whether a future performance obligation exists and to assign a value to the performance obligation . valuation of gain and loss contingencies , if not resolved during the purchase measurement period , requires exercise of management judgment . we measure pre-acquisition contingencies at their acquisition date fair value if their fair value can be determined during the measurement period . if we can not determine the fair value of the pre-acquisition contingency during the measurement period , we recognize an acquired asset or assumed liability if it is probable that an asset existed or that a liability had been incurred at the acquisition date and the amount of the asset or liability can be reasonably estimated . assumed acquired tax liabilities for uncertain tax positions are dependent on assessing the past practices of the acquisition target based on review of actual tax filings and information obtained through due diligence procedures . evaluation of the validity of tax positions taken by the acquisition target are subject to management judgment . inventory inventories are valued at the lower of cost or market value . inventory cost is determined using methods that approximate the first-in , first-out basis . we include product costs , labor and related fixed and variable overhead in the cost of inventories . 29 inventory market values are determined by giving substantial consideration to the expected product selling price . we estimate expected selling prices based on our historical recovery rates , general economic and market conditions , the expected channel of disposition , and current customer contracts and preferences . actual results may differ from our estimates due to changes in resale or market value and the mix of these factors . management monitors inventory for events or circumstances , such as negative margins , recent sales history suggesting lower sales value , or changes in customer preferences , which would indicate the market value of inventory is less than the carrying value of inventory , and management records adjustments as necessary . when inventory is written down below cost , such reduced amount is considered the cost for subsequent accounting purposes . our recording of inventory at the lower of cost or market value has not historically required material adjustments once initially established . the carrying value of inventory was $ 398,229 and $ 381,555 at september 30 , 2012 and september 30 , 2011 , respectively . if economic conditions , customer product requirements , or other factors significantly reduce future customer demand for our products from forecast levels , then future adjustments to the carrying value of inventory may become necessary . we attempt to maintain inventory quantities at levels considered necessary to fill expected orders in a reasonable time frame , which we believe mitigates our exposure to future inventory carrying cost adjustments . postretirement benefits the company provides various benefits to certain employees through defined benefit pension plans and other postretirement benefit plans . a september 30 measurement date is utilized to value plan assets and obligations for all woodward defined benefit pension and other postretirement benefit plans . for financial reporting purposes , net periodic benefits expense and related obligations are calculated using a number of significant actuarial assumptions , including anticipated discount rates , rates of compensation increases , long-term return on defined benefit plan investments , and anticipated healthcare cost increases . based on these actuarial assumptions , at september 30 , 2012 , our recorded liabilities included $ 36,973 for underfunded defined benefit pension plans and $ 37,550 for unfunded other postretirement benefit plans . story_separator_special_tag changes in net periodic expense or the amounts of recorded liabilities may occur in the future due to changes in these assumptions . estimates of the value of postretirement benefit obligations , and related net periodic benefits expense , are dependent on actuarial assumptions , including future interest rates , compensation rates , healthcare cost trends , and returns on defined benefit plan investments . primary actuarial assumptions for our defined benefit pension plans were determined as follows : the discount rate assumption is intended to reflect the rate at which the retirement benefits could be effectively settled based upon the assumed timing of the benefit payments . in the united states , we used a bond portfolio matching analysis based on recently traded , non-callable bonds rated aa or better that have at least $ 50 million outstanding . in fiscal year 2012 , we refined our existing estimation process for determining the discount rates in the united kingdom and japan and used cash flow matching to develop a single rate equivalent for a theoretical portfolio of non-callable , aa-rated bonds for each jurisdiction . in fiscal years 2011 and 2010 , we used the iboxx aa-rated corporate bond index ( applicable for bonds over 15 years ) to determine a blended rate to use as the benchmark in the united kingdom , and we used standard & poors aa-rated corporate bond yields ( applicable for bonds over 10 years ) as the benchmark in japan . in switzerland , we used high quality swap rates plus a credit spread of 0.46 % and 0.36 % , in fiscal years 2012 and 2011 , respectively , as high quality swaps are available in switzerland at various durations and trade at higher volumes than bonds . our assumed rates do not differ significantly from any of these benchmarks . these rates are sensitive to changes in interest rates . a decrease in the discount rate would increase our obligation and future expense . compensation increase assumptions are based upon historical experience and anticipated future management actions . an increase in the rate would increase our obligation and expense . in determining the long-term rate of return on plan assets , we assume that the historical long-term compound growth rates of equity and fixed-income securities will predict the future returns of similar investments in the plan portfolio . investment management and other fees paid out of the plan assets are factored into the determination of asset return assumptions . this rate is impacted by changes in general market conditions , but because it represents a long-term rate , it is not significantly impacted by short-term market volatility . changes in our allocation of plan assets would also impact this rate . for example , a shift to more fixed-income securities would lower the rate . a decrease in the rate would increase our obligation and expense . primary actuarial assumptions for our other postretirement benefit plans were determined as follows : the discount rate assumption is intended to reflect the rate at which the postretirement benefits could be effectively settled based upon the assumed timing of the benefit payments . in the united states , we used a bond portfolio matching analysis based on recently traded , non-callable bonds rated aa or better that have at least $ 50 million outstanding . in fiscal year 2012 , we refined our existing estimation process for determining the discount rates in the united kingdom and used cash flow matching to develop a single rate equivalent for a theoretical portfolio of non-callable , aa-rated bonds . in fiscal years 2011 and 2010 , we used the iboxx aa-rated corporate bond index ( applicable for bonds over 15 years ) to determine a blended rate to use as the benchmark in the united kingdom . our assumed rate did not differ significantly from this benchmark . these rates are sensitive to changes in interest rates . a decrease in the discount rate would increase our obligation and future expense . 30 the assumed health care trend rate represents the rate at which health care costs are assumed to increase and is based on historical and expected experience . changes in our projections of future health care costs due to general economic conditions and those specific to health care ( e.g. , technology driven cost changes ) will impact this trend rate . an increase in the trend rate would increase our obligation and expense . variances from our fiscal year end estimates for these variables could materially affect our recognized postretirement benefit obligation liabilities . on a near-term basis , such changes are unlikely to have a material impact on reported earnings , since such adjustments are recorded to other comprehensive earnings and recognized into expense over a number of years . significant changes in estimates could , however , materially affect the carrying amounts of benefit obligation liabilities , including accumulated benefit obligations , which could affect compliance with the provisions of our debt arrangements and future borrowing capacity . the following information illustrates the sensitivity of the net periodic benefit cost and the projected accumulated benefit obligation to a change in the discount rate assumed . replace_table_token_7_th it should be noted that economic factors and conditions often affect multiple assumptions simultaneously , and the effects of changes in assumptions are not necessarily linear due to factors such as the 10 % corridor applied to the larger of the postretirement benefit obligation or the fair market value of plan assets when determining amortization of actuarial net gains or losses . a one-percentage-point change in assumed health care cost trend rates would have the following effects : replace_table_token_8_th reviews for impairment of goodwill at september 30 , 2012 , we had $ 461,374 of goodwill , representing 25 % of our total assets . at september 30 , 2011 , we had $ 462,282 of goodwill , representing 26 % of our total assets .
| the amended revolver extended the prior revolving credit facility 's maturity to january 2017. the borrowing capacity increased from $ 225,000 to $ 400,000 and the option , subject to the lenders ' participation , to expand the commitment increased from $ 125,000 to $ 200,000 , for a total borrowing capacity of up to $ 600,000. at september 30 , 2012 , we held $ 61,829 in cash and cash equivalents , and had total outstanding debt of $ 392,204. at september 30 , 2012 , under our $ 400,000 amended revolver , we had additional borrowing availability of $ 394,080 , net of outstanding letters of credit , and had additional borrowing availability of $ 20,587 under various foreign credit facilities . the following table sets forth selected consolidated statement of earnings data as a percentage of net sales for each period indicated : replace_table_token_11_th 2012 results of operations 2012 sales compared to 2011 consolidated net sales increased 9.0 % from $ 1,711,702 in fiscal year 2011 to $ 1,865,627 in fiscal year 2012. details of the changes in consolidated net sales are as follows : replace_table_token_12_th the increase in net sales in fiscal year 2012 was primarily attributable to sales volume increases in our energy segment . inverters for wind turbines , control systems for small and large natural gas engines , and industrial gas turbines were leading contributors to increased sales in our energy segment . increased sales within our aerospace segment in fiscal year 2012 were primarily attributable to strong military and commercial aftermarket and commercial oem sales , along with increased sales in military oem . 36 price changes : increases in selling prices were driven primarily by price increases related to both oem and aftermarket sales within our aerospace segment . selling prices in the energy segment were relatively unchanged from the prior year , consistent with prevailing market conditions . foreign currency exchange rates : during the fiscal year ended september 30 , 2012 , our net sales were negatively impacted by $ 20,810 due to changes in foreign currency exchange rates , compared to the same period of fiscal year 2011. our worldwide sales activities are primarily denominated in u.s. dollars ( ยusdย ) , european monetary units ( the ยeuroย ) , great britain pounds ( ยgbpย ) , japanese yen ( ยjpyย ) and chinese yuan ( ยcnyย ) . as the usd , euro , gbp , jpy
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completion of the separation will not require a stockholder vote but will be subject to customary closing conditions , including final approval of our board of directors , the receipt of a favorable opinion with respect to the tax-free nature of the transaction , and the effectiveness of a form 10 registration statement with the u.s. securities and exchange commission . revenue and cost of revenue we derive our technology solutions revenue primarily through the distribution of peripherals , it systems , system components , software , networking , communications and security equipment and ce and complementary products , and the delivery of servers and networking solutions for our design and integration solutions customers ' data centers . in our concentrix segment , we provide high value business outsourcing services and solutions to improve customer experience of our clients . our concentrix customer contracts typically consist of a master services agreement or statement of work , which contains the terms and conditions of each program or service we offer . our agreements can range from less than one year to over five years and are subject to early termination by our customers or us for any reason , typically with 30 to 90 days ' notice . in fiscal years 2019 and 2018 , approximately 34 % and 28 % of our consolidated revenue , respectively , was generated from our international operations . as a result , our revenue growth has been impacted by fluctuations in foreign currency exchange rates . upon 27 table of content completion of the planned separation of our concentrix segment , we expect this trend to reverse , with a greater proportion of our revenue generated in the united states . the market for it products and services is generally characterized by declining unit prices and short product life cycles . our overall business is also highly competitive on the basis of price . we set our sales price based on the market supply and demand characteristics for each particular product or bundle of products we distribute and solutions we provide . from time to time , we also participate in the incentive and rebate programs of our oem suppliers . these programs are important determinants of the final sales price we charge to our reseller customers . to mitigate the risk of declining prices and obsolescence of our distribution inventory , our oem suppliers generally offer us limited price protection and return rights for products that are marked down or discontinued by them . we carefully manage our inventory to maximize the benefit to us of these supplier provided protections . a significant portion of our technology solutions cost of revenue is the purchase price we pay our oem suppliers for the products we sell , net of any incentives , rebates , price protection and purchase discounts received from our oem suppliers . cost of products revenue also consists of provisions for inventory losses and write-downs , freight expenses associated with the receipt in and shipment out of our inventory , and royalties due to oem vendors . in addition , cost of revenue includes the cost of material , labor and overhead for our systems design and integration solutions . in our concentrix segment , cost of revenue consists primarily of personnel costs related to contract delivery . revenue and cost of revenue in our technology solutions segment relate to products , and revenue and cost of revenue in our concentrix segment relate to services . margins the technology solutions industry in which we operate is characterized by low gross profit as a percentage of revenue , or gross margin , and low income from operations as a percentage of revenue , or operating margin . our technology solutions gross margin has fluctuated annually due to changes in the mix of products we offer , customers we sell to , incentives and rebates received from our oem suppliers , competition , seasonality , replacement of lower margin business , inventory obsolescence , and lower costs associated with increased efficiencies . generally , when our revenue becomes more concentrated on limited products or customers , our technology solutions gross margin tends to decrease due to increased pricing pressure from oem suppliers or reseller customers . concentrix gross margins , which are higher than those in our technology solutions segment , can be impacted by the mix of customer contracts , additional lead time for programs to be fully scalable and transition and initial set-up costs . our operating margin has also fluctuated in the past , based primarily on our ability to achieve economies of scale , the management of our operating expenses , changes in the relative mix of our technology solutions and concentrix revenue , and the timing of our acquisitions and investments . economic and industry trends our technology solutions revenue is highly dependent on the end-market demand for it and ce products . this end-market demand is influenced by many factors including the introduction of new it and ce products and software by oems , replacement cycles for existing it and ce products , seasonality and overall economic growth and general business activity . a difficult and challenging economic environment may also lead to consolidation or decline in the it and ce distribution industry and increased price-based competition . business in our system design and solutions is highly dependent on the demand for cloud infrastructure , and the number of key customers and suppliers in the market . our technology solutions business includes operations in the united states , canada , japan and latin america , so we are affected by demand for our products in those regions and the strengthening or weakening of local currencies relative to the u.s. dollar . the customer experience services industry in which our concentrix segment operates is competitive . customers ' performance measures are based on competitive pricing terms and quality of services . accordingly , we could be subject to pricing pressure and may experience a decline in our average selling prices for our services . story_separator_special_tag our concentrix business is largely concentrated in the united states , the united kingdom , the philippines , india , canada , china and japan . accordingly , we would be impacted by economic strength or weakness in these geographies and by the strengthening or weakening of local currencies relative to the u.s. dollar . during the three-year period ended november 30 , 2019 , the economic environment was generally stable . critical accounting policies and estimates the discussions and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements , which have been prepared in conformity with gaap . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities , disclosure of any contingent assets and liabilities at the financial statement date , and reported amounts of revenue and expenses during the reporting period . on an ongoing basis , we review and evaluate our estimates and assumptions . our estimates are based on our historical experience and a variety of other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making our judgment about the carrying values of assets and liabilities that are not readily available from other sources . actual results could differ from these estimates under different assumptions or conditions . 28 table of content we believe the following critical accounting policies involve the more significant judgments , estimates and or assumptions used in the preparation of our consolidated financial statements . revenue recognition . on december 1 , 2018 , we adopted asc topic 606 applying the full retrospective method . see note 2 to the consolidated financial statements for information regarding the impact of adopting this new revenue standard . we generate revenue primarily from ( i ) the sale of various it products through our technology solutions business unit and ( ii ) the provision of business outsourcing services focused on customer experience through our concentrix business unit . revenue from our technology solutions segment is categorized as products revenue in our consolidated statements of operations . revenue from our concentrix segment is categorized as services revenue in the consolidated statements of operations . we recognize revenue from the sale of it hardware and software as control is transferred to customers , which is at the time when the product is shipped or delivered . products sold by us are delivered via shipment from our facilities , drop-shipment directly from the vendor , or by electronic delivery of software products . we account for a contract with a customer when it has written approval , the contract is committed , the rights of the parties , including payment terms , are identified , the contract has commercial substance and consideration is probable of collection . binding purchase orders from customers together with agreement to our terms and conditions of sale by way of an executed agreement or other signed documents are considered to be the contract with a customer . in situations where arrangements include customer acceptance provisions , revenue is recognized when we can objectively verify the products comply with specifications underlying acceptance and the customer has control of the goods . revenue is presented net of taxes collected from customers and remitted to government authorities . we generally invoice a customer upon shipment , or in accordance with specific contractual provisions . payments are due as per contract terms and do not contain a significant financing component . provisions for sales returns and allowances are estimated based on historical data and are recorded concurrently with the recognition of revenue . a liability is recorded at the time of sale for estimated product returns based upon historical experience and an asset is recognized for the amount expected to be recorded in inventory upon product return . these provisions are reviewed and adjusted periodically . revenue is reduced for early payment discounts and volume incentive rebates offered to customers , which are considered variable consideration , at the time of sale based on an evaluation of the contract terms and historical experience . we recognize revenue on a net basis on certain contracts , where our performance obligation is to arrange for the products or services to be provided by another party or the rendering of logistics services for the delivery of inventory for which we do not assume the risks and rewards of ownership , by recognizing the margins earned in revenue with no associated cost of revenue . such arrangements , which are not material to our consolidated revenue or our โ products โ or โ services โ revenue , include supplier service contracts , post-contract software support services and extended warranty contracts . we consider shipping and handling activities as costs to fulfill the sale of products . shipping revenue is included in net sales when control of the product is transferred to the customer , and the related shipping and handling costs are included in cost of products sold . for the concentrix segment , we recognize revenue from services contracts over time as the promised services are delivered to clients for an amount that reflects the consideration to which we are entitled in exchange for those services . we account for a contract with a customer when it has written approval , the contract is committed , the rights of the parties , including payment terms , are identified , the contract has commercial substance and consideration is probable of collection . revenue is presented net of taxes collected from customers and remitted to government authorities . we generally invoice a customer after performance of services , or in accordance with specific contractual provisions . payments are due as per contract terms and do not contain a significant financing component . service contracts may be based on a fixed price or on a fixed unit-price per transaction or other objective measure of output .
| generally , when the dollar either strengthens or weakens against other currencies , the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates . non-gaap operating income , which is operating income , adjusted to exclude acquisition-related and integration expenses , restructuring costs and amortization of intangible assets . non-gaap operating margin , which is non-gaap operating income , as defined above , divided by revenue . adjusted earnings before interest , taxes , depreciation and amortization , or adjusted ebitda , which is non-gaap operating income , as defined above , plus depreciation . non-gaap diluted earnings per common share ( โ eps โ ) , which is diluted eps excluding the per share , tax effected impact of ( i ) acquisition-related and integration expenses , ( ii ) restructuring costs , ( iii ) amortization of intangible assets , ( iv ) a gain upon the settlement of contingent consideration related to the acquisition of westcon-comstor americas in fiscal year 2017 , and ( v ) a gain recorded upon realization of a contingent asset related to the westcon-comstor americas acquisition , and the per share amount of the net impact of the adjustments related to the tax cuts and jobs act of 2017. we believe that providing this additional information is useful to the reader to better assess and understand our base operating performance , especially when comparing results with previous periods and for planning and forecasting in future periods , primarily because management typically monitors the business adjusted for these items in addition to gaap results . management also uses these non-gaap measures to establish operational goals and , in some cases , for measuring performance for compensation purposes . as these non-gaap financial measures are not calculated in accordance with gaap , they may not necessarily be comparable to similarly titled measures employed by other companies . these non-gaap financial measures should not be considered in isolation or as a substitute for the comparable gaap measures and should be used as a complement to , and in conjunction with , data presented in accordance with gaap . 31 table
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immediately prior to the consummation of the ipo , all of our outstanding shares of convertible preferred stock were converted into 14.3 million shares of our common stock . on september 20 , 2017 , we entered into a sales agreement ( the `` sales agreement '' ) with cowen and company , llc ( `` cowen '' ) to sell shares of the company 's common stock , from time to time , with aggregate gross sales proceeds of up to $ 125,000,000 , through an at-the-market equity offering program under which cowen will act as our sales agent . the issuance and sale of shares of common stock by us pursuant to the sales agreement are deemed an `` at-the-market '' offering under the securities act of 1933 , as amended . cowen is entitled to compensation for its services equal to up to 3.0 % of the gross proceeds of any shares of common stock sold through cowen under the sales agreement . during the year ended december 31 , 2017 , we received net proceeds of approximately $ 0.7 million from the sale of 52,569 shares of common stock pursuant to the sales agreement . as of december 31 , 2017 , we had capital resources consisting of cash , cash equivalents and marketable securities of approximately $ 90.1 million . we do not expect our existing capital resources to be sufficient to enable us to fund the completion of our clinical trials and remaining development program of cpi-444 through commercialization . in addition , our operating plan may change as a result of many factors , including those described in the section of this report entitled `` risk factors '' and others currently unknown to us , and we may need to seek additional funds sooner than planned , through public or private equity , debt financings or other sources , such as strategic collaborations . such financing would result in dilution to stockholders , imposition of debt covenants and repayment obligations or other restrictions that may affect our business . if we raise additional capital through strategic collaboration agreements , we may have to relinquish valuable rights to our product candidates , including possible future revenue streams . in addition , additional funding may not be available to us on acceptable terms or at all and any additional fundraising efforts may divert our management from its day-to-day activities , which may adversely affect our ability to develop and commercialize our product candidates . furthermore , even if we believe we have sufficient funds for our current or future operating plans , we may seek additional capital due to favorable market conditions or strategic considerations . 82 we currently have no manufacturing capabilities and do not intend to establish any such capabilities . we have no commercial manufacturing facilities for our product candidates . as such , we are dependent on third parties to supply our product candidates according to our specifications , in sufficient quantities , on time , in compliance with appropriate regulatory standards and at competitive prices . components of results of operations revenue to date , we have not generated any revenues . we do not expect to receive any revenues from any product candidates that we develop unless and until we obtain regulatory approval and commercialize our products or enter into revenue-generating collaboration agreements with third parties . research and development expenses our research and development expenses consist primarily of costs incurred to conduct research and development of our product candidates . we record research and development expenses as incurred . research and development expenses include : employee-related expenses , including salaries , benefits , travel and non-cash stock-based compensation expense ; external research and development expenses incurred under arrangements with third parties , such as contract research organizations , preclinical testing organizations , contract manufacturing organizations , academic and non-profit institutions and consultants ; costs to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use ; license fees ; and other expenses , which include direct and allocated expenses for laboratory , facilities and other costs . we plan to increase our research and development expenses substantially as we continue the development of our product candidates . our current planned research and development activities include the following : enrollment and completion of our phase 1/1b clinical trial of cpi-444 ; process development and manufacturing of drug supply for cpi-444 ; process development and manufacturing of drug supply for cpi-006 and conducting a phase 1/1b clinical trial for cpi-006 ; process development and manufacturing of drug supply for our itk product candidate to support ind-enabling studies ; and preclinical studies under our other programs in order to select development product candidates . in addition to our product candidates that are in clinical development , we believe it is important to continue substantial investment in potential new product candidates to build the value of our product candidate pipeline and our business . our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties related to timing and cost to completion . the duration , costs and timing of clinical trials and development of product candidates will depend on a variety of factors , including many of which are beyond our control . the process of conducting the necessary clinical research to 83 obtain regulatory approval is costly and time consuming , and the successful development of our product candidates is uncertain . the risks and uncertainties associated with our research and development projects are discussed more fully in `` part 1 , item 1aยrisk factors . '' as a result of these risks and uncertainties , we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects or if , when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval . story_separator_special_tag we may never succeed in achieving regulatory approval for any of our product candidates . general and administrative expenses general and administrative expenses include personnel costs , expenses for outside professional services and allocated expenses . personnel costs consist of salaries , benefits and stock-based compensation . outside professional services consist of legal , accounting and audit services and other consulting fees . allocated expenses consist of rent expense related to our office and research and development facility . we expect that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of one or more of our product candidates . story_separator_special_tag deficit of $ 67.9 million as of december 31 , 2016. we have financed our operations primarily through sales of our common stock in conjunction with the initial public offering ( `` ipo '' ) and convertible preferred stock . in march 2016 , we consummated our ipo and sold 4,700,000 shares of our common stock at a price of $ 15.00 per share , and in april 2016 , sold 502,618 shares at a price of $ 15.00 per share pursuant to the partial exercise of the underwriters ' option to purchase additional shares of common stock . we received net proceeds of approximately $ 70.6 million , after deducting underwriting discounts , commissions and estimated offering expenses . immediately prior to the consummation of our ipo , all outstanding shares of the convertible preferred stock were converted into common stock on a one-for-one basis . on september 20 , 2017 , we entered into a sales agreement ( the `` sales agreement '' ) with cowen and company , llc ( `` cowen '' ) to sell shares of the company 's common stock , from time to time , with aggregate gross sales proceeds of up to $ 125,000,000 , through an at-the-market equity offering program under which cowen will act as our sales agent . the issuance and sale of shares of common stock by us pursuant to the sales agreement are deemed an `` at-the-market '' offering under the securities act of 1933 , as amended . cowen is entitled to compensation for its services equal to up to 3.0 % of the gross proceeds of any shares of common stock sold through cowen under the sales agreement . during the year ended december 31 , 2017 , we received net proceeds of approximately $ 0.7 million from the sale of 52,569 shares of common stock pursuant to the sales agreement . we believe our current cash , cash equivalents and marketable securities will be sufficient to fund our planned expenditures and meet our obligations through at least the next twelve months from the 86 issuance of these financial statements . the amounts and timing of our actual expenditures depend on numerous factors , including : the initiation , progress , timing , costs and results of clinical trials for cpi-444 ; the timing , progress , costs and results of preclinical and clinical development activities for our other product candidates ; the number and scope of preclinical and clinical programs we decide to pursue ; the costs involved in prosecuting , maintaining and enforcing patent and other intellectual property rights ; the cost and timing of regulatory approvals ; our efforts to enhance operational systems and hire additional personnel , including personnel to support development of our product candidates and satisfy our obligations as a public company ; and other factors described in the section of this report entitled `` risk factors . '' we expect to increase our spending in connection with the development and commercialization of our product candidates . until such time , if ever , as we can generate substantial revenue from product sales , we expect to fund our operations and capital funding needs through equity and or debt financings . we may also enter into additional collaboration arrangements or selectively partner for clinical development and commercialization . the sale of additional equity would result in dilution to our stockholders . the incurrence of debt financing would result in debt service obligations and the governing documents would likely include operating and financing covenants that would restrict our operations . in addition , sufficient additional funding may not be available on acceptable terms , or at all . if we are not able to secure adequate additional funding , we may be forced to make reductions in spending , extend payment terms with suppliers , liquidate assets where possible and or suspend or curtail planned programs . any of these actions could have a material effect on our business , financial condition and results of operations . summary of statement of cash flows the following table summarizes our cash flows for the periods indicated ( in thousands ) : replace_table_token_8_th cash flows from operating activities cash used in operating activities during the year ended december 31 , 2017 was $ 46.2 million , which primarily consisted of a net loss of $ 55.7 million , adjusted by non-cash charges of $ 6.9 million , primarily consisting of $ 6.2 million of stock compensation expense and $ 0.8 million of depreciation expense , an increase of $ 3.1 million in accounts payable and accrued and other liabilities , primarily associated with our increased research and development activities . 87 cash used in operating activities during the year ended december 31 , 2016 was $ 27.9 million , which primarily consisted of a net loss of $ 36.4 million , adjusted by non-cash charges of $ 5.1 million and a net change of $ 3.4 million in our net operating assets . the non-cash charges were primarily associated with stock-based compensation expense of $ 3.8 million . the change in our net operating assets and liabilities was primarily attributable to an increase in accounts payable and accrued and other liabilities of $ 3.4 million , which was primarily due to the timing of payments to vendors .
| million ) . for the year ended december 31 , 2016 , the increase in cpi-444 costs of $ 8.1 million as compared to the year ended december 31 , 2015 , primarily consisted of an increase of $ 6.5 million in clinical trial costs related to our phase 1/1b clinical trial that started in 2016 , an increase of $ 1.1 million in drug manufacturing costs to support our clinical trial , and an increase of $ 1.1 million of biology research activities which increases were partially offset by a $ 1.0 million license payment to vernalis in 2015. for the year ended december 31 , 2016 , the increase in cpi-006 costs of $ 2.5 million as compared to the year ended december 31 , 2015 , primarily consisted of an increase of $ 2.2 million in drug manufacturing costs . for the year ended december 31 , 2016 , the increase in itk costs of $ 1.1 million as compared to the year ended december 31 , 2015 , primarily consisted of an increase of $ 0.5 million in manufacturing costs and $ 0.6 million in outside biology and pre-clinical costs . for the year ended december 31 , 2016 , the increase in other program costs of $ 0.4 million as compared to the year ended december 31 , 2015 , primarily consisted of an increase in outside chemical synthesis and testing of research compounds . for the year ended december 31 , 2016 , the increase in unallocated costs of $ 5.9 million as compared to the year ended december 31 , 2015 , primarily consisted of an increase of $ 4.5 million in personnel and related costs due to an increase in headcount ( including an increase in stock compensation expense of $ 1.4 million ) , an increase of $ 0.9 million in facility and related overhead costs and an increase of $ 0.4 million in laboratory supplies and materials . general and administrative expenses for
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the holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow . the holders of a majority of the private units or shares issued in payment of working capital loans made to us can elect to exercise these registration rights at any time after we consummate a business combination . in addition , the holders have certain โ piggy-back โ registration rights with respect to registration statements filed subsequent to our consummation of our initial business combination . we will bear the expenses incurred in connection with the filing of any such registration statements . as of may 31 , 2017 , ren hua zheng , our director , had loaned to us $ 175,000 to repay the then outstanding $ 175,000 loan , which had been used to cover expenses related to the ipo and was repaid on june 1 , 2017. the loan was converted into the subscription of private units at a price of $ 10.00 on the consummation of the ipo . no compensation or fees of any kind , including finder 's fees , consulting fees or other similar compensation , will be paid to our insiders or any of the members of our management team , for services rendered to us prior to , or in connection with the consummation of our initial business combination ( regardless of the type of transaction that it is ) . however , such individuals will receive reimbursement for any out-of-pocket expenses incurred by them in connection with activities on our behalf , such as identifying potential target businesses , performing business due diligence on suitable target businesses and business combinations as well as traveling to and from the offices , plants or similar locations of prospective target businesses to examine their operations . there is no limit on the amount of out-of-pocket expenses reimbursable by us ; provided , however , that to the extent such expenses exceed the available proceeds not deposited in the trust account and the interest income earned on the amounts held in the trust account , such expenses would not be reimbursed by us unless we consummate an initial business combination story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we were formed on may 19 , 2016 for the purpose of entering into a merger , share exchange , asset acquisition , stock purchase , recapitalization , reorganization or other similar business combination with one or more target businesses . our efforts to identify a prospective target business will not be limited to any particular industry or geographic region , although have focused our search on target businesses being operated by and or serving ethnic minorities in the united states , especially within asian-american communities .. we intend to utilize cash derived from the proceeds of our public offering in effecting our initial business combination . 21 we presently have no revenue , have had losses since inception from incurring formation costs and have had no operations other than the active solicitation of a target business with which to complete a business combination . we have relied upon the sale of our securities and loans from our officers and directors to fund our operations . on august 14 , 2017 , we consummated our ipo of 4,000,000 units . each unit consists of one share of common stock , and one right to receive 1/10 of a share of common stock at the closing of our initial business combination . the units were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 40,000,000. we granted the underwriters a 45-day option to purchase up to 600,000 additional units to cover over-allotments , if any . simultaneously with the closing of the ipo , we consummated a private placement of 320,000 units at a price of $ 10.00 per private unit , generating total proceeds of $ 3,200,000. subsequently , the underwriters exercised the over-allotment option in part and , on august 21 , 2017 , the underwriters purchased 425,000 over-allotment option units , which were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 4,250,000. on august 21 , 2017 , simultaneously with the sale of the over-allotment units , we consummated the private sale of an additional 21,250 private units , generating gross proceeds of $ 212,500. on august 22 , 2017 , the underwriters canceled the remainder of the over-allotment option . in connection with the cancellation of the remainder of the over-allotment option , we canceled an aggregate of 43,753 shares of common stock issued to our initial stockholders prior to the ipo and private placements . a total of $ 45,135,000 of the net proceeds from the sale of units in the ipo ( including the over-allotment option units ) and the private placements on august 14 , 2017 and august 21 , 2017 were placed in a trust account established for the benefit of the company 's public stockholders . our management has broad discretion with respect to the specific application of the net proceeds of the ipo and the private placements , although substantially all of the net proceeds are intended to be applied generally towards consummating a business combination . recent developments on march 28 , 2018 , we entered into a merger agreement ( the โ merger agreement โ ) with hf group merger sub inc. , our wholly-owned subsidiary ( the โ merger sub โ ) and hf group holding corporation ( โ hf โ ) story_separator_special_tag the holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow . the holders of a majority of the private units or shares issued in payment of working capital loans made to us can elect to exercise these registration rights at any time after we consummate a business combination . in addition , the holders have certain โ piggy-back โ registration rights with respect to registration statements filed subsequent to our consummation of our initial business combination . we will bear the expenses incurred in connection with the filing of any such registration statements . as of may 31 , 2017 , ren hua zheng , our director , had loaned to us $ 175,000 to repay the then outstanding $ 175,000 loan , which had been used to cover expenses related to the ipo and was repaid on june 1 , 2017. the loan was converted into the subscription of private units at a price of $ 10.00 on the consummation of the ipo . no compensation or fees of any kind , including finder 's fees , consulting fees or other similar compensation , will be paid to our insiders or any of the members of our management team , for services rendered to us prior to , or in connection with the consummation of our initial business combination ( regardless of the type of transaction that it is ) . however , such individuals will receive reimbursement for any out-of-pocket expenses incurred by them in connection with activities on our behalf , such as identifying potential target businesses , performing business due diligence on suitable target businesses and business combinations as well as traveling to and from the offices , plants or similar locations of prospective target businesses to examine their operations . there is no limit on the amount of out-of-pocket expenses reimbursable by us ; provided , however , that to the extent such expenses exceed the available proceeds not deposited in the trust account and the interest income earned on the amounts held in the trust account , such expenses would not be reimbursed by us unless we consummate an initial business combination story_separator_special_tag the following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this report . certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties . overview we were formed on may 19 , 2016 for the purpose of entering into a merger , share exchange , asset acquisition , stock purchase , recapitalization , reorganization or other similar business combination with one or more target businesses . our efforts to identify a prospective target business will not be limited to any particular industry or geographic region , although have focused our search on target businesses being operated by and or serving ethnic minorities in the united states , especially within asian-american communities .. we intend to utilize cash derived from the proceeds of our public offering in effecting our initial business combination . 21 we presently have no revenue , have had losses since inception from incurring formation costs and have had no operations other than the active solicitation of a target business with which to complete a business combination . we have relied upon the sale of our securities and loans from our officers and directors to fund our operations . on august 14 , 2017 , we consummated our ipo of 4,000,000 units . each unit consists of one share of common stock , and one right to receive 1/10 of a share of common stock at the closing of our initial business combination . the units were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 40,000,000. we granted the underwriters a 45-day option to purchase up to 600,000 additional units to cover over-allotments , if any . simultaneously with the closing of the ipo , we consummated a private placement of 320,000 units at a price of $ 10.00 per private unit , generating total proceeds of $ 3,200,000. subsequently , the underwriters exercised the over-allotment option in part and , on august 21 , 2017 , the underwriters purchased 425,000 over-allotment option units , which were sold at an offering price of $ 10.00 per unit , generating gross proceeds of $ 4,250,000. on august 21 , 2017 , simultaneously with the sale of the over-allotment units , we consummated the private sale of an additional 21,250 private units , generating gross proceeds of $ 212,500. on august 22 , 2017 , the underwriters canceled the remainder of the over-allotment option . in connection with the cancellation of the remainder of the over-allotment option , we canceled an aggregate of 43,753 shares of common stock issued to our initial stockholders prior to the ipo and private placements . a total of $ 45,135,000 of the net proceeds from the sale of units in the ipo ( including the over-allotment option units ) and the private placements on august 14 , 2017 and august 21 , 2017 were placed in a trust account established for the benefit of the company 's public stockholders . our management has broad discretion with respect to the specific application of the net proceeds of the ipo and the private placements , although substantially all of the net proceeds are intended to be applied generally towards consummating a business combination . recent developments on march 28 , 2018 , we entered into a merger agreement ( the โ merger agreement โ ) with hf group merger sub inc. , our wholly-owned subsidiary ( the โ merger sub โ ) and hf group holding corporation ( โ hf โ )
| we intend to use substantially all of the net proceeds of the ipo , including the funds held in the trust account , in connection with our initial business combination and to pay our expenses relating thereto , including a deferred underwriting commission payable to chardan capital markets , llc in an amount equal to 2.5 % of the total gross proceeds raised in the offering upon consummation of our initial business combination . to the extent that our capital stock is used in whole or in part as consideration to effect our initial business combination , the remaining proceeds held in the trust account as well as any other net proceeds not expended will be used as working capital to finance the operations of the target business . such working capital funds could be used in a variety of ways including continuing or expanding the target business ' operations , for strategic acquisitions and for marketing , research and development of existing or new products . such funds could also be used to repay any operating expenses or finders ' fees which we had incurred prior to the completion of our initial business combination if the funds available to us outside of the trust account were insufficient to cover such expenses . 22 we anticipate that the funds held outside of our trust account will be sufficient to allow us to operate 12 months from the filing date of this form 10-k , assuming that a business combination is not consummated during that time . over this time period , we will be using these funds for identifying and evaluating prospective business combination candidates , performing business due diligence on prospective target businesses , traveling to and from the offices , plants or similar locations of prospective target businesses , reviewing corporate documents and material agreements of prospective target businesses , selecting the target business to consummate our initial business combination with and structuring , negotiating and consummating the business combination . if our estimates of the costs
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because of our limited experience with international operations , our international expansion efforts may not be successful in creating additional demand for our platform outside of the united states or in effectively selling subscriptions to our platform in any or all of the international markets we enter . recent business developments in april 2017 , we closed a follow-on offering ( the โ offering โ ) , in which we issued and sold 959,618 shares of common stock inclusive of the underwriters ' option to purchase additional shares , which was exercised in full . the price per share to the public was $ 25.25. we received aggregate proceeds of $ 24.0 million from the offering , net of underwriters ' discounts and commissions , before deducting offering costs of approximately $ 0.8 million and inclusive of approximately $ 1.0 million received from selling stockholders due to the exercise of 244,387 options at an average per share exercise price of $ 3.93. in may 2017 , we acquired substantially all of the issued and outstanding capital stock held by shareholders of trade extensions tradeext ab , a swedish corporation that specializes in strategic sourcing . we paid aggregate consideration of approximately $ 40.9 million in cash , of which $ 7.2 million is being held in escrow for 18 months after the transaction closing date to secure the indemnification obligations of the trade extensions shareholders . in addition , approximately $ 4.1 million in the form of 148,476 shares of our common stock was issued to certain key employees of trade extensions , which stock is subject to service vesting conditions including continued employment with coupa . the value assigned to the common stock issued will be recorded as post-acquisition compensation expense and has been excluded from the purchase consideration . in december 2017 , we completed the acquisition of simeno holdings ag ( โ simeno โ ) , a cross-catalog search and advanced catalog management company . simeno creates localized content from third-party supplier sites to power cross-catalog searches , including content from many of the leading b2b marketplaces . the acquisition increased our local presence in key german and swiss markets . the aggregate consideration for the acquisition was $ 8.7 million , paid in cash , of which $ 1.5 million is being held back for a period of 24 months after the transaction closing date to secure the indemnification obligations of the simeno shareholders . in january 2018 , we raised approximately $ 200.4 million in net proceeds ( after adjusting for debt issuance costs , including the underwriting discount , and the net cash used to purchase the capped call , discussed below ) upon completion of a private offering of convertible senior notes ( โ convertible notes โ ) . the convertible notes pay semi-annual interest in cash at a rate of 0.375 % per annum on january 15 and july 15 of each year , beginning on july 15 , 2018. the convertible notes will mature on january 15 , 2023 unless redeemed , repurchased or converted prior to such date . prior to the close of business on the business day immediately preceding october 15 , 2022 , the convertible notes will be convertible at the option of holders during certain periods , upon satisfaction of certain conditions . on or after october 15 , 2022 , the notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date . upon conversion , we will pay or deliver , as the case may be , cash , shares of our common stock , or a combination of cash and shares of our common stock , at our election . it is our current intent to settle the principal balance of the convertible notes in cash and any conversion obligation in excess of the principal portion in shares of our common stock . 42 in conjunction with the issuance of the convertible notes , we entered into a capped call option on our stock with certain counterparties . by entering into the capped call , we mitigate potential dilution resulting fr om conversion of the convertible notes , effectively increasing the conversion price of the convertible notes . the capped call exercise price is equal to the convertible note 's initial conversion price of $ 44.5068 per share and has a cap price of $ 63.821 p er share which equates to a 43.4 % premium over the strike price and is subject to certain adjustments under the terms of the capped call transactions . our business model our business model focuses on maximizing the lifetime value of a customer relationship , and we continue to make significant investments in order to grow our customer base . due to our subscription model , we recognize subscription revenues ratably over the term of the subscription period . as a result , the profitability of a customer to our business in any particular period depends in part upon how long a customer has been a subscriber on our platform . in general , the associated upfront costs with respect to new customers are higher in the first year than the aggregate revenues we recognize from those new customers in the first year . we believe that , over time , as our customer base grows and a relatively higher percentage of our subscription revenues are attributable to renewals versus new customers or upsells to existing customers , associated sales and marketing expenses and other allocated upfront costs as a percentage of revenues will decrease , subject to investments we plan to make in our business . over the lifetime of the customer relationship , we also incur sales and marketing costs to manage the account , renew or upsell the customer to more modules and more users . however , these costs are significantly less than the costs initially incurred to acquire the customer . story_separator_special_tag we calculate the lifetime value of our customers and associated customer acquisition costs for a particular year by comparing ( i ) gross profit from net new subscription revenues for the year multiplied by the inverse of the estimated subscription renewal rate to ( ii ) total sales and marketing expense incurred in the preceding year . on this basis , we estimate that for each of fiscal 2018 , 2017 and 2016 , the calculated lifetime value of our customers has exceeded six times the associated cost of acquiring them . key metrics we review the following key metrics to evaluate our business , measure our performance , identify trends affecting our business , formulate business plans and make strategic decisions : replace_table_token_9_th cumulative spend under management cumulative spend under management represents the aggregate amount of money that has been transacted through our core coupa platform for all of our customers collectively since we launched our core platform . we calculate this metric by aggregating the actual transaction data , such as invoices , purchase orders and expenses , from customers on our core coupa platform . cumulative spend under management does not include spending data associated with modules from acquired companies , including spend360 , trade extensions , and simeno . the cumulative spend under management metrics presented above do not directly correlate to our revenue or results of operations because we do not generally charge our customers based on actual usage of our core platform . however , we believe the cumulative spend under management metrics do illustrate the adoption , scale and value of our platform , which we believe enhances our ability to maintain existing customers and attract new customers . 43 backlog and deferred revenue backlog represents future non-cancellable amounts to be invoiced under our agreements . we generally sign multiple-year subscription contracts and invoice an initial annual amount at contract signing followed by subsequent annual invoices . at any point in the contract term , there can be amounts that we have not yet been contractually able to invoice . until such time as these amounts are invoiced , they are not recorded in revenues , deferred revenue , accounts receivable or elsewhere in our consolidated financial statements , and are considered by us to be backlog . we expect backlog to fluctuate up or down from period to period for several reasons , including the timing and duration of customer contracts , varying billing cycles and the timing and duration of customer renewals . we reasonably expect approximately half of our backlog as of january 31 , 2018 , will be invoiced during the fiscal year ended january 31 , 2019 , primarily due to the fact that our contracts are typically three years in length . in addition , our deferred revenue consists of amounts that have been invoiced but that have not yet been recognized as revenues as of the end of a reporting period . we generally sign multiple year subscription contracts for our platform and invoice an initial amount at contract signing followed by subsequent annual invoices . the majority of our deferred revenue balance consists of subscription revenues that are recognized ratably over the contractual period . together , the sum of deferred revenue and backlog represents the total billed and unbilled contract value yet to be recognized in revenues and provides visibility into future revenue streams . total customers we define a customer as a separate and distinct buying entity , such as a company , an educational or government institution , or a distinct business unit of a large corporation that has an active contract with us or our partner to access our services . we believe the number of total customers is a key indicator of our market penetration , growth and future revenues . our ability to attract new customers is primarily affected by the effectiveness of our marketing programs and our direct sales force . accordingly , we have aggressively invested in and intend to continue to invest in our direct sales force . in addition , we are continuing to pursue additional partnerships with global systems integrators and other strategic partners . components of results of operations revenues we offer subscriptions to our cloud-based bsm platform , including procurement , invoicing and expense management . we derive our revenues primarily from subscription fees and professional services fees . subscription revenues consist primarily of fees to provide our customers access to our cloud-based platform , which includes routine customer support at no additional cost . professional services fees include deployment services , optimization services , and training . subscription revenues are a function of the number of customers , the number of users at each customer , the number of modules subscribed to by each customer , the price of our modules , and renewal rates . subscription revenues accounted for approximately 88 % , 88 % and 90 % , respectively , of our revenues for the fiscal years ended january 31 , 2018 , 2017 and 2016. subscription fees are recognized ratably as revenues over the contract term beginning on the date the application is made available to the customer . our new business subscriptions typically have a term of three years . we generally invoice our customers in annual installments at the beginning of each year in the subscription period . amounts that have been invoiced are initially recorded as deferred revenue and are recognized ratably over the subscription period . amounts that have not been invoiced are not reflected in our consolidated financial statements . professional services revenues consist primarily of fees associated with the implementation and configuration of our subscription service . professional services are generally sold on a fixed-fee or time-and-materials basis . revenue for time-and-material arrangements is recognized as the services are performed .
| subscription services revenues were $ 117.8 million , or 88 % of total revenues , for the fiscal year ended january 31 , 2017 , compared to $ 75.7 million , or 90 % of total revenues , for the fiscal year ended january 31 , 2016. this increase was primarily due to the acquisition of new customers , an increase in average subscription revenue per customer and add-on subscription revenue from 47 the sale of additional users or modules to existing customers . professional se rvices revenues were $ 16.0 million for the fiscal year ended january 31 , 2017 compared to $ 8.0 million for the fiscal year ended january 31 , 2016. this increase of $ 8.0 million , or 100 % , was primarily due to an increase in the number of completed new-custo mer implementation projects . during the fourth quarter of the fiscal year ended january 31 , 2017 , we developed the ability to accurately estimate professional services costs on a project basis . as such , revenue for fixed - fee and other types of arrangements entered into after the third quarter of the fiscal year ended january 31 , 2017 is recognized as services are performed under the proportional performance method of accounting . this change did not have a material impact on the revenues recognized during th e fiscal year ended january 31 , 2017 since it only has been applied prospectively to arrangements entered into during the fourth quarter of the fiscal year ended january 31 , 2017. cost of revenues replace_table_token_13_th cost of subscription services was $ 36.5 million for the fiscal year ended january 31 , 2018 , compared to $ 25.1 million for the fiscal year ended january 31 , 2017 , an increase of $ 11.4 million , or 46 % . the increase in cost of subscription services was primarily due to an increase of $ 4.0 million in employee related expenses largely due to higher stock-based compensation costs , an increase of $ 2.4 million in hosting
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retirement benefits retirement benefits in the form of mandatory government sponsored defined contribution plans are charged to the either expenses as incurred or allocated to inventory as part of overhead . income taxes the company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years . under the asset and liability approach , deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . a valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the company is able to realize their benefits , or that future realization is uncertain . f- 10 comprehensive income the company uses financial accounting standards board ( โ fasb โ ) asc topic 220 , โ reporting comprehensive income . โ comprehensive income is comprised of net income and all changes to the statements of stockholders ' equity , except the changes in paid-in capital and distributions to stockholders due to investments by stockholders . earnings per share the company computes earnings per share ( โ eps โ ) in accordance with asc topic 260 , โ earnings per share โ . basic eps is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period . diluted eps presents the dilutive effect on a per share basis from the potential conversion of convertible securities or the exercise of options and or warrants ; the dilutive effects of potentially convertible securities are calculated using the as-if method ; the potentially dilutive effect of options or warrants are calculated using the treasury stock method . securities that are potentially an anti-dilutive effect ( i.e . those that increase income per share or decrease loss per share ) are excluded from the calculation of diluted eps . financial instruments the company 's financial instruments , including cash and equivalents , accounts and other receivables , accounts and other payables , accrued liabilities and short-term debt , have carrying amounts that approximate their fair values due to their short maturities . asc topic 820 , โ fair value measurements and disclosures , โ requires disclosure of the fair value of financial instruments held by the company . asc topic 825 , โ financial instruments , โ defines fair value , and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures . the carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest . the three levels of valuation hierarchy are defined as follows : โ level 1 - inputs to the valuation methodology used quoted prices for identical assets or liabilities in active markets . โ level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . โ level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement . the company analyzes all financial instruments with features of both liabilities and equity under asc 480 , โ distinguishing liabilities from equity , โ and asc 815. commitments and contingencies liabilities for loss contingencies arising from claims , assessments , litigation , fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated . recent accounting pronouncements in february 2018 , the fasb issued asu 2018-02 , income statement - reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income . the amendments in this update affect any entity that is required to apply the provisions of topic 220 , income statement โ reporting comprehensive income , and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by gaap . the amendments in this update are effective for all entities for fiscal years beginning after december 15 , 2018 , and interim periods within those fiscal years . early adoption of the amendments in this update is permitted , including adoption in any interim period , ( 1 ) for public business entities for reporting periods for which financial statements have not yet been issued and ( 2 ) for all other entities for reporting periods for which financial statements have not yet been made available for issuance . the amendments in this update should be applied either in the period of adoption or retrospectively to each period ( or periods ) in which the effect of the change in the u.s. federal corporate income tax rate in the tax cuts and jobs act is recognized . the story_separator_special_tag overview we are headquartered in gaithersburg , md . after a series of acquisitions and dispositions in 2018 and 2019 , our primary business , which is carried out by taishan muren and xianning bozhuang , is : โ to develop and market products , such as sauces and tea products , from herbs and spices , in china ; and โ to sell brown rice syrup and tea bags developed using our unique recipes in china ; โ to sell various black tea products in china . 7 story_separator_special_tag roman , times , serif ; margin : 0pt 0 '' > investing activities net cash used in investing activities for 2019 was $ 0.5 million story_separator_special_tag retirement benefits retirement benefits in the form of mandatory government sponsored defined contribution plans are charged to the either expenses as incurred or allocated to inventory as part of overhead . income taxes the company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future years . under the asset and liability approach , deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . a valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before the company is able to realize their benefits , or that future realization is uncertain . f- 10 comprehensive income the company uses financial accounting standards board ( โ fasb โ ) asc topic 220 , โ reporting comprehensive income . โ comprehensive income is comprised of net income and all changes to the statements of stockholders ' equity , except the changes in paid-in capital and distributions to stockholders due to investments by stockholders . earnings per share the company computes earnings per share ( โ eps โ ) in accordance with asc topic 260 , โ earnings per share โ . basic eps is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period . diluted eps presents the dilutive effect on a per share basis from the potential conversion of convertible securities or the exercise of options and or warrants ; the dilutive effects of potentially convertible securities are calculated using the as-if method ; the potentially dilutive effect of options or warrants are calculated using the treasury stock method . securities that are potentially an anti-dilutive effect ( i.e . those that increase income per share or decrease loss per share ) are excluded from the calculation of diluted eps . financial instruments the company 's financial instruments , including cash and equivalents , accounts and other receivables , accounts and other payables , accrued liabilities and short-term debt , have carrying amounts that approximate their fair values due to their short maturities . asc topic 820 , โ fair value measurements and disclosures , โ requires disclosure of the fair value of financial instruments held by the company . asc topic 825 , โ financial instruments , โ defines fair value , and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures . the carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest . the three levels of valuation hierarchy are defined as follows : โ level 1 - inputs to the valuation methodology used quoted prices for identical assets or liabilities in active markets . โ level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets , and inputs that are observable for the asset or liability , either directly or indirectly , for substantially the full term of the financial instrument . โ level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement . the company analyzes all financial instruments with features of both liabilities and equity under asc 480 , โ distinguishing liabilities from equity , โ and asc 815. commitments and contingencies liabilities for loss contingencies arising from claims , assessments , litigation , fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated . recent accounting pronouncements in february 2018 , the fasb issued asu 2018-02 , income statement - reporting comprehensive income ( topic 220 ) : reclassification of certain tax effects from accumulated other comprehensive income . the amendments in this update affect any entity that is required to apply the provisions of topic 220 , income statement โ reporting comprehensive income , and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by gaap . the amendments in this update are effective for all entities for fiscal years beginning after december 15 , 2018 , and interim periods within those fiscal years . early adoption of the amendments in this update is permitted , including adoption in any interim period , ( 1 ) for public business entities for reporting periods for which financial statements have not yet been issued and ( 2 ) for all other entities for reporting periods for which financial statements have not yet been made available for issuance . the amendments in this update should be applied either in the period of adoption or retrospectively to each period ( or periods ) in which the effect of the change in the u.s. federal corporate income tax rate in the tax cuts and jobs act is recognized . the story_separator_special_tag overview we are headquartered in gaithersburg , md . after a series of acquisitions and dispositions in 2018 and 2019 , our primary business , which is carried out by taishan muren and xianning bozhuang , is : โ to develop and market products , such as sauces and tea products , from herbs and spices , in china ; and โ to sell brown rice syrup and tea bags developed using our unique recipes in china ; โ to sell various black tea products in china . 7 story_separator_special_tag roman , times , serif ; margin : 0pt 0 '' > investing activities net cash used in investing activities for 2019 was $ 0.5 million
| million , or 82 % , to a net income of $ 2.9 million in 2019 from $ 16.8 million in net income in 2018.such decrease was primarily the result of provision for bad debts and disposal and discontinue of certain subsidiaries and vies . non-controlling interest our non-controlling interest was $ 0 million in 2019 and negative $ 3.8 million in 2018. such decrease was primarily the result of disposal of shandong greenpia . income/loss attributable to common stockholders income attributable to common stockholders decreased approximately $ 17.6 million , or 86 % , to $ 2.9 million in 2019 from $ 20.6 million in 2018 , mainly due to provision for bad debts and disposal and discontinue of certain subsidiaries and vies . liquidity and capital resources in the reporting period in 2019 , our primary sources of financing have been cash generated from operations and private placements . we raised funds in the following private placement in the second quarter of 2019 : on june 17 , 2019 , the company entered into a securities purchase agreement , pursuant to which five individuals residing in the prc agreed to purchase an aggregate of 1,300,000 shares of the company 's common stock , par value $ 0.001 per share , for an aggregate purchase price of $ 5,460,000 , representing a purchase price of $ 4.20 per share . general management anticipates that our existing capital resources and anticipated cash flows from operations are adequate to satisfy our liquidity requirements for the next 12 months . our primary capital needs have been to fund our working capital requirements . in the past , our primary sources of financing have been cash generated from operations and financing activities . as of december 31 , 2019 , we had cash and cash equivalents ( including restricted cash ) of $ 7.40 million , as compared to $ 1.06 million as of december 31 , 2018. the debt to assets ratio was 19.9 %
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33 depreciation and amortization depreciation and amortization increase d $ 30 million , or 10 % , primarily due to having an average of 137 owned and capital leased aircraft in 2014 compared to 125 in 2013. we also had an additional $ 13 million in amortization expense during 2014 as a result of a change in the expected useful lives of certain software . 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 2014 was 7.8 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 11.0 additional total operating aircraft in 2014 compared to 2013 . in 2014 , maintenance , materials and repairs decrease d by $ 14 million , or 3 % compared to 2013 as we had higher engine related costs for our embraer 190 aircraft in 2013. in the latter half of 2013 , we finalized a flight-hour based maintenance and repair agreement for these engines and in 2014 we amended our flight-hour based agreements to include other certain services . these amendments are expected to result in better planning of maintenance activities . while our maintenance costs will increase as our fleet ages , we expect we will benefit from these new maintenance agreements for our fleet . 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 livetv , professional fees , on-board supplies , shop and office supplies , bad debts , communication costs and taxes other than payroll and fuel taxes . other operating expenses increase d by $ 81 million , or 14 % , compared to 2013 mainly due to an increase in outside services . as our capacity and number of departures grew in 2014 , our related variable handling costs also increased . additionally , we had higher personnel expenses relating to the harsh winter weather in the first quarter of the year such as lodging and per diem . non-recurring items in 2014 included the sale of an engine for a gain of $ 3 million and a gain of $ 4 million relating to a one-time legal settlement . in 2013 , we had a gain of approximately $ 2 million relating to the sale of three spare engines as well as a gain of approximately $ 7 million relating to the sale of livetv 's investment in the airfone business . income taxes our effective tax rate was 36 % in 2014 and 40 % in 2013 . our 2014 effective tax rate differs from the statutory income tax rate primarily due to the release of the $ 19 million tax benefit related to the utilization of a capital loss carryforward . this capital loss carryforward was able to be utilized due to the sale of our subsidiary , livetv . the rate is also affected by state income taxes and the non-deductibility of certain items for tax purposes . the relative size of these items compared to our 2014 pre-tax income of $ 623 million and our 2013 pre-tax income of $ 279 million also affect the rate . 34 year 2013 compared to year 2012 overview we reported net income of $ 168 million , an operating income of $ 428 million and an operating margin of 7.9 % for the year ended december 31 , 2013 . this compares to net income of $ 128 million , an operating income of $ 376 million and an operating margin of 7.5 % for the year ended december 31 , 2012 . diluted earnings per share were $ 0.52 for 2013 compared to $ 0.40 for the same period in 2012 . operating revenues replace_table_token_12_th passenger revenue accounted for 91 % of our total operating revenues in 2013 and was our primary source of revenue . revenues generated from international routes , including puerto rico , accounted for 28 % of our passenger revenues in 2013 compared to 27 % in 2012. in 2013 , the increase in passenger revenues of 9 % was mainly attributable to the increased capacity and increase in yield . our largest ancillary product remained the evenmore space seats , generating approximately $ 170 million in revenue . this was an increase of approximately 13 % over 2012. operating expenses replace_table_token_13_th 35 aircraft fuel and related taxes aircraft fuel and related taxes remained our largest expense category , representing 38 % of our total operating expenses in 2013 compared to 39 % in 2012. even though the average fuel price decreased 2 % in 2013 to $ 3.14 per gallon , our fuel expenses increased by $ 93 million as we consumed 41 million more gallons of aircraft fuel compared to 2012 , mainly due to our increased capacity . in 2013 , we recorded $ 10 million in fuel hedge losses compared to 2012 when we recorded $ 10 million in effective fuel hedge gains . fuel derivatives not qualifying as cash flow hedges in 2013 resulted in losses of less than $ 1 million compared to $ 3 million in losses in 2012 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 2013 and 2012 and were recorded in interest income and other . story_separator_special_tag 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 . salaries , wages and benefits salaries , wages and benefits were our second largest expense , representing approximately 23 % of our total operating expenses in 2013 and 2012. during 2013 , the average number of full-time equivalent employees increased by 5 % and the average tenure of our crewmembers increased to 6.1 years , both of which contributed to a $ 91 million , or 9 % , increase compared to 2012. retirement plus contributions , which equate to 5 % of all of our eligible crewmembers wages , increased by $ 4 million and our 3 % retirement contribution for a certain portion of our faa-licensed crewmembers , which we refer to as retirement advantage , increased by $ 6 million . our increased profitability resulted in $ 12 million of profit sharing expense in 2013 compared to $ 3 million in 2012. 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 2013 was 7.1 years and we had an average of 11.3 additional operating aircraft in 2013 compared to 2012. in 2013 , maintenance materials and repairs increased by $ 94 million as we had higher engine related costs for our embraer 190 aircraft . in the latter half of 2013 , we finalized a flight-hour based maintenance and repair agreement for these engines , which is expected to result in better planning of maintenance activities . other operating expenses other operating expenses increased by $ 52 million , or 9 % , compared to 2012 due to an increase in outside services . as our capacity and number of departures grew in 2013 , our related variable handling costs also increased . additionally we had higher information technology related costs due to increases in volume and usage . non-recurring items in 2013 included a gain of approximately $ 2 million relating to the sale of three spare aircraft engines as well as a gain of approximately $ 7 million relating to the sale of livetv 's investment in the airfone business . in 2012 we sold six spare engines and two embraer 190 aircraft resulting in gains of approximately $ 10 million as well as the termination of a customer by livetv resulting in a gain of approximately $ 8 million . income taxes our effective tax rate was 40 % in 2013 and 39 % in 2012. our effective tax rate differs from the statutory income tax rate primarily due to state income taxes and the non-deductibility of certain items for tax purposes . it is also affected by the relative size of these items to our 2013 pre-tax income of $ 279 million and our 2012 pre-tax income of $ 209 million . non-gaap financial measures we sometimes use non-gaap measures that are derived from the consolidated financial statements , but that are not presented in accordance with generally accepted accounting principles in the u.s. , or u.s. gaap . we believe these non-gaap measures provide a meaningful comparison of our results to others in the airline industry and our prior year results . investors should consider these non-gaap financial measures in addition to , and not as a substitute for , our financial performance measures prepared in accordance with u.s. gaap . further , our non-gaap information may be different from the non-gaap information provided by other companies . 36 costs per available seat mile ( non-gaap ) costs per available seat mile , or casm , is a common metric used in the airline industry . our casm for 2014 and 2013 are summarized in the table below . we exclude aircraft fuel and related taxes and profit sharing from operating cost per available seat mile to determine casm ex-fuel and profit sharing . we believe that casm ex-fuel and profit sharing provides investors the ability to measure financial performance excluding items beyond our control , such as ( i ) fuel costs , which are subject to many economic and political factors beyond our control , and ( ii ) profit sharing , which is sensitive to volatility in earnings . we believe this measure is more indicative of our ability to manage costs and is more comparable to measures reported by other major airlines . we are unable to reconcile such projected casm ex-fuel and profit sharing as the nature or amount of excluded items are only estimated at this time . replace_table_token_14_th net income and pre-tax income , excluding special items ( non-gaap ) we exclude special items from net income and pre-tax income as we believe the exclusion of these items is helpful to investors to evaluate jetblue 's recurring core operational performance in the periods shown . therefore , we adjust for these amounts . special items excluded in the tables below showing the reconciliation of net income and pre-tax income include the gain on the sale of jetblue 's wholly-owned subsidiary livetv due to the non-recurring nature of this item . replace_table_token_15_th ( a ) the capital gain generated from the sale of livetv allowed jetblue to utilize a capital loss carryforward which resulted in the release of a valuation allowance related to the capital loss deferred tax asset of $ 19 million . 37 quarterly results of operations the following table sets forth selected financial data and operating statistics for the four quarters ended december 31 , 2014. the information for each of these quarters is unaudited and has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this form 10-k. replace_table_token_16_th 38 ( 1 ) in the second quarter of 2014 , we had a gain of approximately $ 242 million on the sale of livetv .
| this prepayment used some of the proceeds from the sale of livetv in 2014. we have increased the number of unencumbered aircraft and spare engines in 2014 bringing total unencumbered aircraft to 39 and spare engines to 33 as of december 31 , 2014. in 2014 , the holders of our 6.75 % convertible debentures due 2039 ( series a ) converted their securities into approximately 15.5 million shares of our common stock . during 2014 , we repurchased approximately 7.1 million shares of our common stock for approximately $ 73 million under our share repurchase program . aircraft during 2014 , we took delivery of nine airbus a321 aircraft . in november 2014 , we amended our purchase agreement with airbus by deferring 13 airbus a321 aircraft orders and eight airbus a320 aircraft orders from 2016-2020 to 2020-2023. of these deferrals , ten airbus a321 aircraft orders were converted to airbus a321 new engine option ( a321neo ) orders and five airbus a320neo aircraft orders were converted to airbus a321neo aircraft orders . we additionally converted three airbus a320 aircraft orders in 2016 to airbus a321 aircraft orders . airport infrastructure investments during 2014 , we completed our construction of t5i , the new international arrival extension to t5 at jfk . the creation of a new dedicated site to handle u.s. customs and border protection checks at t5 will eliminate the need for our international customers to arrive at jfk 's t4 . we expect this will result in a more efficient process and a better jetblue experience for both our customers and crewmembers . t5i opened to our customers in november 2014 . 30 network as part of our ongoing network initiatives and route optimization efforts we continued to make schedule and frequency adjustments throughout 2014. we added five new bluecities to our network : savannah , ga , port of spain , trinidad and tobago , detroit , mi , hyannis , ma ( seasonal ) and willemstad ,
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investment securities with significant declines in fair value are evaluated to determine whether they should be considered other-than-temporarily impaired . an unrealized loss is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security . the credit loss component of an other-than-temporary impairment write-down is recorded in earnings , while the remaining portion of the impairment loss is recognized in other comprehensive income ( loss ) , provided the company does not intend to sell the underlying debt security , and it is not more likely than not that the company will be required to sell the debt security prior to recovery of the full value of its amortized cost basis . ยท retirement benefits - the company provides defined benefit pension benefits to eligible employees and post-retirement health and life insurance benefits to certain eligible retirees . the company also provides deferred compensation and supplemental executive retirement plans for selected current and former employees and officers . expense under these plans is charged to current operations and consists of several components of net periodic benefit cost based on various actuarial assumptions regarding future experience under the plans , including , but not limited to , discount rate , rate of future compensation increases , mortality rates , future health care costs and the expected return on plan assets . ยท provision for income taxes โ the company is subject to examinations from various taxing authorities . such examinations may result in challenges to the tax return treatment applied by the company to specific transactions . management believes that the assumptions and judgments used to record tax-related assets or liabilities have been appropriate . should tax laws change or the taxing authorities determine that management 's assumptions were inappropriate , an adjustment may be required which could have a material effect on the company 's results of operations . ยท intangible assets โ as a result of acquisitions , the company has acquired goodwill and identifiable intangible assets . goodwill represents the cost of acquired companies in excess of the fair value of net assets at the acquisition date . goodwill is evaluated at least annually , or when business conditions suggest impairment may have occurred and will be reduced to its carrying value through a charge to earnings if impairment exists . core deposits and other identifiable intangible assets are amortized to expense over their estimated useful lives . the determination of whether or not impairment exists is based upon discounted cash flow modeling techniques that require management to make estimates regarding the amount and timing of expected future cash flows . it also requires them to select a discount rate that reflects the current return requirements of the market in relation to present risk-free interest rates , required equity market premiums and company-specific risk indicators , all of which are susceptible to change based on changes in economic and market conditions and other factors . future events or changes in the estimates used to determine the carrying value of goodwill and identifiable intangible assets could have a material impact on the company 's results of operations . a summary of the accounting policies used by management is disclosed in note a , โ summary of significant accounting policies โ , starting on page 54. story_separator_special_tag align= '' left '' style= '' display : block ; margin-left : 0pt ; text-indent : 0pt ; margin-right : 0pt '' > net income for 2010 was $ 63.3 million , up $ 21.9 million , or 53 % from 2009 's earnings of $ 41.4 million . earnings per share for 2010 were $ 1.89 , up 50 % from 2009 's earnings per share . the 2010 results included $ 1.4 million , or $ 0.03 per share of acquisition expenses principally related to the wilber acquisition . the 2009 results included a $ 3.1 million or $ 0.07 per share non-cash charge for impairment of goodwill associated with the company 's wealth management business as well as a $ 1.4 million or $ 0.03 per share special charge related to the planned early termination of its core banking system services contract in 2010. additionally , during 2009 , fdic insurance costs increased $ 6.9 million or $ 0.16 per share as compared to 2008 and included a $ 2.5 million one-time special assessment charge . 22 table 1 : condensed income statements replace_table_token_4_th the primary factors explaining 2011 earnings performance are discussed in detail in the remaining sections of this document and are summarized as follows : ยท as shown in table 1 above , net interest income increased $ 27.7 million , or 15.3 % , due to a $ 656.4 million increase in average earning assets combined with a three-basis point increase in the net interest margin . average loans grew $ 280.3 million due to the acquisition of wilber and strong growth in the consumer mortgage portfolio aided by long-term interest rates remaining low and growth in the indirect consumer installment portfolio . the average book value of investments increased $ 333.5 million or 19 % in 2011 due to the investments acquired from wilber and organic deposit growth . short-term cash equivalents increased $ 101.4 million as compared to 2010. average interest-bearing deposits increased $ 516.7 million or 16 % due to the wilber acquisition and organic growth . average borrowings decreased slightly from the prior year . ยท the loan loss provision of $ 4.7 million decreased $ 2.5 million , or 34 % , from the prior year level . net charge-offs of $ 5.0 million declined by $ 1.6 million from 2010 , decreasing the net charge-off ratio ( net charge-offs / total average loans ) to 0.15 % for the year . story_separator_special_tag nonperforming loans as a percentage of total loans and nonperforming assets as a percentage of loans and other real estate owned , increased in the fourth quarter primarily due to two commercial lending relationships , but remain well below averages for the company 's peers . additional information on trends and policy related to asset quality is provided in the asset quality section on pages 36 through 40 . ยท noninterest income for 2011 of $ 89.2 million increased by $ 0.4 million , or 0.5 % , from 2010 's level due to growth in financial services revenue , partially offset by lower fees from banking services . fees from banking services were $ 2.4 million or 4.8 % , lower primarily due to decreased activity in the secondary mortgage banking business and lower deposit service fees due to lower utilization of overdraft protection programs , partially offset by higher debit card related revenues . financial services revenue was up $ 2.8 million , or 7.2 % , with solid growth in almost all lines of business . ยท total operating expenses increased $ 13.5 million , or 7.6 % , in 2011 to $ 190.4 million , primarily due to the additional operating costs associated with the wilber acquisition , partially offset by lower fdic insurance costs and lower amortization of intangibles . ยท the company 's combined effective federal and state income tax rate increased 2.7 percentage points in 2011 to 29.4 % , reflective of a higher proportion of income from fully taxable sources . selected profitability and other measures return on average assets , return on average equity , dividend payout and equity to asset ratios for the years indicated are as follows : table 2 : selected ratios replace_table_token_5_th 23 as displayed in table 2 above , the returns on average assets increased in 2011 as compared to both 2010 and 2009 and the return on equity was down slightly from 2010 and up significantly from 2009. the increase in comparison to both years was a result of net income growing at a faster pace than average assets due to increasing net interest margins , non-interest income growth , lower provision for loan losses and operating expense containment . the return on equity declined in 2011 despite strong earnings growth because of the equity issued in conjunction with the wilber acquisition , build up of capital through earnings retention and a substantial increase in the equity components of the investment market value adjustment due mostly to a decrease in medium to long-term interest rates . the dividend payout ratio for 2011 increased slightly from 2010 as dividends declared increased 15.7 % primarily as a result of a 6.4 % increase in the dividends declared per share as well as the additional 3.4 million shares issued in conjunction with the wilber acquisition in the second quarter of 2011 , while net income increased a slightly smaller 15.5 % from 2010. the dividend payout ratio for 2010 was below 2009 primarily due to the significant increase in net income partially offset by a smaller increase in the dividend declared . in 2010 net income increased 53 % while dividends declared increased 8.2 % as a result of a 6.8 % increase in the dividend per share and a 1.6 % increase in the number of shares outstanding . net interest income net interest income is the amount that interest and fees on earning assets ( loans and investments ) exceeds the cost of funds , which consists primarily of interest paid to the company 's depositors and interest on external borrowings . net interest margin is the difference between the gross yield on earning assets and the cost of interest-bearing funds as a percentage of earning assets . as disclosed in table 3 , net interest income ( with nontaxable income converted to a fully tax-equivalent basis ) totaled $ 225.1 million in 2011 , up $ 28.2 million , or 14 % , from the prior year . a $ 656.4 million increase in average interest-earning assets and a three-basis point increase in the net interest margin more than offset a $ 510.5 million increase in average interest-bearing liabilities . as reflected in table 4 , the volume changes increased net interest income by approximately $ 26.7 million , while the higher net interest margin had a $ 1.5 million favorable impact . the net interest margin increased three basis points from 4.04 % in 2010 to 4.07 % in 2011. this increase was primarily attributable to a 29-basis point decrease in interest-bearing liability yields having a greater impact than a 22-basis point decrease in the earning-asset yields . the yield on loans decreased five basis points in 2011 , due to new volume coming on at lower yields in the current low-rate environment than the loans maturing or being prepaid and variable and adjustable rate loans repricing downward . the yield on investments , including cash equivalents , decreased from 4.70 % in 2010 to 4.27 % in 2011 , with the yield decline being muted by the effective deployment of cash into higher yielding securities . the decreased cost of funds was reflective of disciplined deposit pricing , whereby interest rates on selected categories of deposit accounts were lowered throughout 2010 and 2011 in response to market conditions . the net interest margin in 2010 was 4.04 % , compared to 3.80 % in 2009. this 24-basis point increase was primarily attributable to a 43-basis point decrease in interest-bearing liability yields having a greater impact than a 13-basis point decrease in earning-asset yields . the decreased cost of funds was reflective of deposit rate reductions throughout 2009 and 2010. additionally , the proportion of customer deposits in higher cost time deposits declined 7.1 percentage points during 2010 , while the percentage of deposits in non-interest bearing and lower cost checking and money market accounts increased throughout 2009 and 2010. the yield on loans decreased 15 basis points in 2010 , mostly as a result of the low interest rate environment .
| the acquisition added approximately $ 462 million of loans , $ 297 million of investment securities and $ 772 million of deposits . on november 30 , 2011 , the company , through its bpas subsidiary , acquired certain assets and liabilities of cai , a provider of actuarial , consulting and retirement plan administration services , with offices in new york city and northern new jersey . the transaction adds valuable service capacity and enhances distribution prospects in support of the company 's broader-based employee benefits business , including daily valuation plan and collective investment fund administration . the transaction is expected to add approximately $ 4 million of revenue to this business line in 2012. the company reported net income for the year ended december 31 , 2011 of $ 73.1 million or 16 % above 2010 's reported net income of $ 63.3 million . earnings per share of $ 2.01 for the full year 2011 were $ 0.12 or 6.3 % above the prior year level . the increase was due to higher revenue from both increased net interest income , as a result of earning asset growth , a higher net interest margin , and non-interest income . also contributing to higher net income was a lower provision for loan losses . these were partially offset by higher operating expenses and a higher effective income tax rate due to a higher proportional level of fully taxable income . the 2011 results included $ 4.8 million or $ 0.09 per share of acquisition expenses related to the company 's merger with wilber in early april 2011 , as compared to $ 1.4 million or $ 0.03 per share of acquisition expenses in 2010. asset quality remained favorable in 2011 , with lower loan net charge-offs and a lower provision for loan losses . year-end non-performing loan ratios and loan delinquency ratios increased , but remained much better than peer company averages . the company experienced year-over-year growth in interest-earning assets , reflective of the wilber acquisition which added approximately $ 462 million of loans and $ 297 million of investments in the second quarter
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new casinosย we opened our new casino at the nemacolin woodlands resort on july 1 , 2013 and we opened our new casino in cape girardeau , missouri on october 30 , 2012. we incurred preopening expenses of $ 4.0 million and $ 5.8 million in fiscal 2014 and 2013 , respectively , related to these properties prior to their respective openings . income tax ( provision ) benefitย our income tax ( provision ) benefit from continuing operations was impacted by changes in the deferred tax liability attributable to the amortization of indefinite-lived intangibles and expenses for state jurisdictions where taxable income is generated . our income tax ( provision ) benefit from continuing operations was ( $ 1.1 ) million for fiscal 2015 and $ 18.5 million for fiscal 2014. included in our fiscal 2015 provision was the benefit from reversing a florida state income tax valuation allowance of $ 2.3 million . included in our fiscal 2014 benefit was $ 12.0 million from reversing a valuation allowance as a result of our davenport property sale as well as the reversal of a previously unrecognized tax benefit of $ 7.7 million as a result of a favorable ruling in a tax court matter . items impacting current and future operationsย during the fiscal years ended april 26 , 2015 , april 27 , 2014 , and april 28 , 2013 , we have commenced construction or completed transactions as follows : construction disruption bettendorf land-based constructionย in may 2015 , we began construction of a land-based facility in bettendorf , iowa , to replace our current riverboat casino . while the actual construction 30 should not impact the current casino operations , we may experience periodic disruption in accessibility to the property , which may have an impact on operating results during the estimated 12-14 month construction period . discontinued operations sale of davenport casinoย on december 4 , 2013 , we entered into a definitive asset purchase agreement to sell substantially all of the assets and for the assumption of certain liabilities related to our casino located in davenport , iowa , ( `` davenport '' ) . we completed the sale on february 3 , 2014 for net cash proceeds of $ 48.7 million . sale of biloxi casinoย on november 29 , 2012 , we completed the sale of our biloxi , mississippi casino operations . our fiscal 2013 results include a loss from biloxi 's discontinued operations of $ 1.6 million which included a $ 1.5 million valuation allowance reflecting a credit against the purchase price to satisfy our obligation to repair the property after hurricane isaac , as required by the purchase agreement . story_separator_special_tag 2014. excluding increased year-over-year marketing and administrative expenses of $ 1.8 million at our nemacolin property , the $ 4.1 million of costs incurred to defeat the colorado referendum and the $ 1.2 million credit related to the property tax settlement in waterloo , marketing and administrative expenses decreased $ 4.9 million , or 2.2 % , reflecting changes in our marketing programs as well as savings from cost reduction initiatives . corporate and development ยduring fiscal 2015 , our corporate and development expenses were $ 29.1 million compared to $ 28.5 million for fiscal 2014. fiscal 2015 includes $ 2.3 million in severance expenses . fiscal 2014 includes a gain of $ 1.0 million from the sale of our corporate aircraft . depreciation and amortization ยdepreciation and amortization expense for fiscal 2015 compared to fiscal 2014 decreased $ 2.0 million , primarily related certain assets becoming fully depreciated . 34 other income ( expense ) , income taxes and discontinued operations interest expense , interest income , derivative income , income tax benefit ( provision ) and income from discontinued operations , net of income taxes for the fiscal years 2015 and 2014 are as follows : replace_table_token_7_th interest expense ยinterest expense increased $ 2.8 million , or 3.4 % , in fiscal 2015 compared to fiscal 2014. without the reversal of $ 7.6 million of interest expense related to litigation included in fiscal 2014 , interest expense would have decreased by $ 4.8 million primarily due to lower average outstanding borrowings under our credit facility . loss on early extinguishment of debt ยin april 2015 , we purchased $ 237.8 million of our 7.75 % senior notes pursuant to a tender offer and recorded a $ 13.8 million loss on early extinguishment of debt primarily reflecting the tender fees and the non-cash write-off of related deferred financings costs . fiscal 2014 compared to fiscal 2013 revenues and operating expenses for the fiscal years 2014 and 2013 are as follows : replace_table_token_8_th 35 casino ยcasino revenues increased $ 37.1 million , or 3.8 % , in fiscal 2014 compared to fiscal 2013. excluding casino revenues of $ 54.9 million at our cape girardeau and nemacolin properties during the comparative periods for which they were not open during the prior year , our casino revenues decreased $ 17.8 million , or 1.8 % . casino revenues decreased at our natchez , lula and kansas city properties by $ 12.2 million due to market conditions and weather . casino revenues decreased at our iowa and boonville properties by $ 12.5 million due to disruptions and weather . these decreases were offset by a $ 14.2 million increase at our pompano property resulting from focused marketing efforts and overall market growth . the majority of our casino revenues are derived from slot machines ( representing approximately 90.0 % of our casino revenues in each fiscal 2014 and 2013 ) and , to a lesser extent , table games , which is highly depended upon the volume and spending limits of customers at our properties . key performance indicators related to casino revenue are slot handle and table game drop ( volume indicators ) and `` win '' or `` hold '' percentage . slot handle is the gross amount wagered for the period cited . story_separator_special_tag the win or hold percentage is the net amount of gaming wins and losses , with liabilities recognized for accruals related to the anticipated payout of progressive jackpots . our slot hold percentages have been relatively consistent over the past several years . given the stability in our slot hold percentages , we have not experienced significant impacts to earnings from fluctuations in slot hold . table game win is the amount of drop that is retained and recorded as casino gaming revenue , with liabilities recognized for funds deposited by customers before gaming play occurs , for unredeemed gaming chips , and for accruals related to the anticipated payout of progressive jackpots . as we are focused on regional gaming markets , our table hold percentages are fairly stable as the majority of these markets do not regularly experience high-end play which can lead to volatility in win percentages . therefore , changes in table game win percentages do not typically have a material impact to our earnings . our typical property slot hold percentage is in the range of 6 % to 10 % of slot handle , and our typical table game win percentage is in the range of 15 % to 25 % of table game drop . casino operating expenses increased $ 7.9 million , or 5.3 % for fiscal 2014 compared to fiscal 2013. excluding casino operating expenses of $ 4.6 million and $ 5.7 million at our cape girardeau and nemacolin properties , respectively , during the comparative period for which they were not open during the prior year , casino operating expenses decreased $ 2.4 million , or 1.6 % proportionately with the change in casino revenues . gaming taxes ยstate and local gaming taxes increased $ 13.5 million , or 5.7 % , for fiscal 2014 compared to fiscal 2013. excluding gaming taxes of $ 7.9 million and $ 10.7 million at our cape girardeau and nemacolin properties , respectively , during the comparative period for which they were not open during the prior year , gaming taxes decreased $ 5.1 million , or 2.1 % , commensurate with casino revenues . rooms ยrooms revenue increased $ 0.6 million , or 1.9 % , in fiscal 2014 compared to fiscal 2013 , primarily a result of construction disruption at our lake charles and black hawk properties during hotel renovations in fiscal 2013. rooms expense increased $ 0.4 million , or 5.5 % , in fiscal 2014 compared to fiscal 2013. food , beverage , pari-mutuel and other ยfood , beverage , pari-mutuel and other revenues increased $ 7.0 million , or 5.4 % , in fiscal 2014 compared to fiscal 2013. excluding food , beverage and other revenues of $ 3.7 million and $ 3.0 million at our cape girardeau and nemacolin properties , respectively , during the comparative period for which they were not open during the prior year , food , beverage , pari-mutuel and other revenues increased $ 0.3 million , or 0.2 % . 36 food , beverage , pari-mutuel and other operating expenses increased $ 3.0 million , or 6.7 % , in fiscal 2014 compared to fiscal 2013. excluding food , beverage and other expenses of $ 1.2 million and $ 1.3 million at our cape girardeau and nemacolin properties , respectively , during the comparative period for which they were not open during the prior year , food , beverage , pari-mutuel and other expenses increased $ 0.5 million , or 1.2 % . promotional allowances ยpromotional allowances increased $ 13.5 million , or 6.6 % , in fiscal 2014 compared to fiscal 2013. excluding promotional allowances of $ 5.0 million and $ 6.2 million at our cape girardeau and nemacolin properties , respectively , during the comparative period for which they were not open during the prior year , promotional allowances increased $ 2.3 million , or 1.2 % . marine and facilities ยmarine and facilities expenses increased $ 3.1 million , or 5.7 % , for fiscal 2014 compared to fiscal 2013. excluding marine and facilities expenses of $ 1.6 million and $ 1.2 million at our cape girardeau and nemacolin properties , respectively , marine and facilities expenses decreased $ 0.3 million , or 0.5 % . marketing and administrative ยmarketing and administrative expenses increased $ 8.3 million , or 3.7 % , for fiscal 2014 compared to fiscal 2013. excluding marketing and administrative expenses of $ 7.9 million and $ 9.0 million at our cape girardeau and nemacolin properties , marketing and administrative expenses decreased $ 8.6 million , or 3.8 % , reflecting changes in our marketing programs as well as savings from cost reduction initiatives . corporate and development ยduring fiscal 2014 , our corporate and development expenses were $ 28.5 million compared to $ 34.0 million for fiscal 2013. fiscal 2014 includes a gain of $ 1.0 million from the sale of our corporate aircraft and fiscal 2013 included $ 1.5 million of non-recurring debt refinancing costs . the remaining decrease is a reduction of stock compensation expense of $ 0.6 million and as a result of savings achieved through cost reduction initiatives . depreciation and amortization ยdepreciation and amortization expense for fiscal 2014 compared to fiscal 2013 increased $ 9.7 million , primarily related to the depreciation at our cape girardeau and nemacolin properties . other income ( expense ) , income taxes and discontinued operations interest expense , interest income , derivative income , income tax benefit ( provision ) and income from discontinued operations , net of income taxes for the fiscal years 2014 and 2013 are as follows : replace_table_token_9_th interest expense ยinterest expense decreased $ 8.1 million , or 9.1 % , in fiscal 2014 compared to fiscal 2013. the decrease is primarily a result of the reversal of $ 7.4 million in interest expense related to the greek litigation proceedings and the reversal of $ 0.2 million in interest expense related to the silver land legal proceedings during fiscal 2014 .
| slot handle is the gross amount wagered for the period cited . the win or hold percentage is the net amount of gaming wins and losses , with liabilities recognized for accruals related to the anticipated payout of progressive jackpots . our slot hold percentages have been relatively consistent over the past several years . the introduction of newer slot machines and changes in the denominational mix of our slot product may result in an increase in our slot hold percentage over time . we may also adjust our slot hold percentages to remain competitive within our markets . table game win is the amount of drop that is retained and recorded as casino gaming revenue , with liabilities recognized for funds deposited by customers before gaming play occurs , for unredeemed gaming chips , and for accruals related to the anticipated payout of progressive jackpots . as we are focused on regional gaming markets , our table hold percentages are fairly stable as the majority of these markets do not regularly experience high-end play which can lead to volatility in win percentages . 33 therefore , changes in table game win percentages do not typically have a material impact to our earnings . our typical property slot hold percentage is in the range of 6 % to 10 % of slot handle , and our typical table game win percentage is in the range of 15 % to 25 % of table game drop . casino operating expenses increased $ 3.0 million , or 1.9 % for fiscal 2015 compared to fiscal 2014. our increased casino operating expenses are reflective of our overall increase in casino revenues . gaming taxes ยstate and local gaming taxes increased $ 13.6 million , or 5.4 % , for fiscal 2015 compared to fiscal 2014 commensurate with a 5.0 % increase in casino revenues with consideration to various state gaming tax rates across our casino properties . rooms ยrooms revenue decreased $ 0.9 million , or 2.7 % , in fiscal 2015 compared to fiscal 2014 , primarily a result
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cost of software-enabled services revenues increased $ 552.7 million , or 31.5 % , primarily due to our acquisitions , which contributed $ 615.4 million to the increase in costs , partially offset by a decrease in costs of software-enabled services revenues as a result of the elimination of redundant positions and other cost saving measures enacted during 2018 and 2019. the favorable impact from foreign currency translation reduced costs by $ 14.9 million . costs of license , maintenance and related revenues increased $ 7.9 million or 2.7 % , primarily due to our acquisitions , which contributed $ 19.6 million in costs , partially offset by decreases in amortization expense of intangible assets acquired . the favorable impact from foreign currency translation reduced costs by $ 2.0 million in costs . fiscal 2018 versus fiscal 2017 . our total cost of revenues increased $ 1,164.7 million , or 131.4 % , primarily due to our acquisitions , which contributed $ 1,136.7 million to the increase . included in these costs are severance charges of $ 38.8 million in 2018 related to the elimination of redundant positions within the acquired businesses . the unfavorable impact from foreign currency translation added $ 0.7 million in costs . cost of software-enabled services revenues increased $ 1,124.9 million , or 179.1 % , primarily due to our acquisitions , which added $ 1,088.6 million in costs , as well as increased costs to support the growth in software-enabled services revenues . the unfavorable impact from foreign currency translation added $ 0.2 million in costs . costs of license , maintenance and related revenues increased $ 39.8 million or 15.4 % , primarily due to our acquisitions , which added $ 48.0 million in costs , partially offset by decreases in personnel-related costs and independent contractors . the unfavorable impact from foreign currency translation added $ 0.5 million in costs . 37 operating expenses selling and marketing expenses consist primarily of the personnel costs associated with the selling and marketing of our products , including salaries , commissions , travel and entertainment . such expenses also include amortization of intangible assets , the cost of branch sales offices , trade shows and marketing and promotional materials . research and development expenses consist primarily of personnel costs attributable to the enhancement of existing products and the development of new software products . general and administrative expenses consist primarily of personnel costs related to management , accounting and finance , information management , human resources and administration and associated overhead costs , as well as fees for professional services . transaction expenses consist of certain costs associated with our acquisition of dst , including costs to enter into our credit agreement , investment banker advisory fees , legal and other professional fees . the following table sets forth operating expenses as a percentage of our total revenues for the periods indicated : replace_table_token_7_th the following table sets forth operating expenses ( dollars in millions ) and percent change in operating expenses for the periods indicated : replace_table_token_8_th fiscal 2019 versus 2018 . o perating expenses increased $ 165.9 million , or 17.6 % , primarily due to our acquisitions , which contributed $ 353.6 million to the increase in expenses , and increases in personnel-related and legal costs . these increases were partially offset by a decrease in stock-based compensation expense , the absence of transaction expenses in 2019 and a decrease in expenses as a result of the elimination of redundant positions and other cost saving measures enacted during 2018 and 2019. the favorable impact from foreign currency translation reduced costs by $ 5.8 million . fiscal 2018 versus 2017 . the increase in total operating expenses in 2018 was primarily due to our acquisitions , which added expenses of $ 522.6 million . included in these costs are severance charges of $ 23.8 million in 2018 , related to the elimination of redundant positions within the acquired businesses . the impact from foreign currency translation increased costs by $ 0.5 million in 2018. total operating expenses in 2018 also increased due to higher personnel-related costs , higher non-income based taxes , higher professional fees and increased stock-based compensation expense partially offset by lower software maintenance costs , legal settlements paid and lower rent and occupancy costs . comparison of fiscal 2019 , 2018 and 2017 for interest , taxes and other interest income . we had interest income of $ 4.7 million in 2019 compared to $ 9.1 million in 2018 and $ 1.2 million in 2017. the decrease in interest income in 2019 primarily resulted from lower average cash balances relative to the prior year . the increase in interest income in 2018 primarily resulted from higher average cash balances relative to the prior year . interest expense . we had interest expense of $ 409.6 million in 2019 compared to $ 280.1 million in 2018 and $ 108.6 million in 2017. the increase in interest expense in 2019 reflects the full year effect of our borrowings under our credit agreement in connection with the acquisitions of dst , eze and intralinks during 2018 and , to a lesser extent , higher average interest rates associated with the issuance of our 5.5 % senior notes . the increase in interest expense in 2018 was primarily due to increased borrowings in connection with our acquisitions of dst , eze and intralinks and , to a lesser extent , higher average interest rates . these 38 increases were partially offset by the impact of repayments of the prior credit agreement . these facilities are discussed further in โ liquidity and capital resources โ . other income ( expense ) , net . other income ( expense ) , net for 2019 consisted primarily of investment gains , partially offset by foreign currency transaction losses . other income ( expense ) , net for 2018 consisted primarily of dividend income and foreign currency transaction gains partially offset by investment losses . equity in earnings of unconsolidated affiliates , net . story_separator_special_tag we had equity in earnings of unconsolidated affiliates , net of $ 3.6 million for 2019 and $ 2.1 million for 2018 , respectively . this is primarily related to our proportionate share of ifds l.p. 's net income , offset by amortization of basis differences . loss on extinguishment of debt , net . we recorded a $ 7.1 million loss on extinguishment of debt in 2019 in connection with the repayment of a portion of our term loans with the proceeds from the issuance of our senior notes . the loss on extinguishment of debt includes costs incurred by us which did not meet the criteria for capitalization . the senior notes are discussed further in โ liquidity and capital resources. โ we recorded a $ 43.3 million loss on extinguishment of debt in 2018 related to the amendment and restatement of our credit agreement . the loss on extinguishment of debt includes the write-off of a portion of the unamortized capitalized financing fees and unamortized original issue discount related to the prior credit agreement and senior notes for amounts accounted for as a debt extinguishment and a make-whole premium paid in connection with the redemption of the senior notes . we recorded a $ 2.3 million loss on extinguishment of debt in 2017 in connection with the amendment of our senior secured credit facility . the loss on extinguishment of debt includes the write-off of a portion of the unamortized capitalized financing fees related to the senior secured credit facility for amounts accounted for as a debt extinguishment , as well as the new financing fees related to the senior secured credit facility for amounts accounted for as a debt modification . provision ( benefit ) for income taxes . the following table sets forth the provision ( benefit ) for income taxes ( dollars in millions ) and effective tax rates for the periods indicated : replace_table_token_9_th our 2019 , 2018 and 2017 effective tax rates differ from the statutory rate primarily due to the effect of our foreign operations , permanent book to tax differences and the effect of the tax act . our effective tax rate for 2019 includes benefits related to stock-based awards , the utilization of foreign net operating losses against which valuation allowances were previously recorded and releases of uncertain tax positions due to closed audits and statute of limitation expirations . the increase in the effective tax rate from 2017 to 2018 was due primarily to the unfavorable impact of certain provisions in the u.s. federal tax legislation enacted in 2017 , commonly referred to as the tax cuts and jobs act ( โ tax act โ ) , as well as the absence of the net favorable impact of the tax act in 2017. these increases were partially offset by the relative favorable impact of excess tax benefits from stock-based awards compared to the prior year and the favorable impact of a revaluation on existing state deferred tax liabilities due to acquisitions . in 2017 , we recorded a provisional tax benefit for the impact of the tax act of $ 88.0 million . we did not make any material adjustments as a result of completing our accounting related to the tax act . see notes 2 and 16 to the consolidated financial statements for additional information . our effective tax rate includes the effect of operations outside the u.s. , which historically have been taxed at rates lower than the u.s. statutory rate . while we have income from multiple foreign sources , the majority of our non-u.s. operations are in india and the u.k. , where the statutory rates were 29.1 % and 19.0 % , respectively , in 2019 , 30.5 % and 19.0 % , respectively , in 2018 , and 34.6 % and 19.3 % , respectively , in 2017. a future proportionate change in the composition of income before income taxes from foreign and domestic tax jurisdictions could impact our periodic effective tax rate . liquidity and capital resources our principal cash requirements are to finance the costs of our operations pending the billing and collection of client receivables , to fund payments with respect to our indebtedness , to invest in research and development , to acquire complementary businesses or assets and to pay dividends on our common stock . we expect our cash on hand , cash flows from operations , and cash available under our credit agreement to provide sufficient liquidity to fund our current obligations , projected working capital requirements and capital spending for at least the next twelve months . 39 in november 201 9 , we purchased algorithmics for approximately $ 89 . 6 million , plus the costs of effecting the transaction and the assumption of certain liabilities . we funded this purchase with cash on hand . in 2019 , we paid quarterly cash dividends totaling $ 107.7 million . our cash , cash equivalents and restricted cash and cash equivalents , including amounts held on behalf of clients , at december 31 , 2019 were $ 1,789.4 million , an increase of $ 676.1 million from $ 1,113.3 million at december 31 , 2018. the increase in cash was primarily due to the increase in cash and cash equivalents associated with funds held on behalf of clients . see notes 8 , 10 and 11 to our consolidated financial statements for further discussion of acquisitions , debt and equity , respectively . client funds obligations include our transfer agency client balances invested overnight as well as our contractual obligations to remit funds to satisfy client pharmacy claim obligations and are recorded on the condensed consolidated balance sheet when incurred , generally after a claim has been processed by us . our contractual obligations to remit funds to satisfy client obligations are primarily sourced by funds held on behalf of clients . we had $ 1,729.9 million and $ 1,014.7 million of client funds obligations at december 31 , 2019 and 2018 , respectively .
| our revenues increased $ 1,211.8 million , or 35.4 % , primarily due to our acquisitions , which included dst and caceis in the second quarter of 2018 and eze and intralinks in the fourth quarter of 2018 , along with our acquisitions of investrack and algorithmics in the fourth quarter of 2019 , which , combined , contributed $ 1,140.5 million to the increase in revenues . excluding the impact of acquisitions , revenues increased primarily due to an increase in revenues for institutional and investment management products and advisory and wealth management products . the unfavorable impact from foreign currency translation reduced revenues by $ 22.2 million . software-enabled services revenues increased $ 1,070.3 million , or 38.2 % , primarily due to the acquisitions , which contributed $ 1,095.5 million to the increase in revenues , as well as from a continued increase in demand for services for advisory and wealth managers . these increases were partially offset by the unfavorable impact from foreign currency translation of $ 17.0 million . license , maintenance and related revenues increased $ 141.5 million , or 22.7 % , primarily due to increased license revenues for institutional and investment management products and advisory and wealth management products , as well as the acquisitions , which contributed $ 45.0 million to the increase in revenues . these increases were partially offset by the unfavorable impact from foreign currency translation of $ 5.2 million . fiscal 2018 versus fiscal 2017 . our revenues increased $ 1,745.8 million , primarily due to revenues related to our acquisitions of intralinks and eze in the fourth quarter of 2018 , caceis and dst in the second quarter of 2018 and commonwealth fund services in the fourth quarter of 2017 , which contributed $ 1,709.9 million in revenues . additionally , revenues increased due to 36 increased demand for our software-enabled services and the favorable impact from foreign currency translation , which added $ 1.2 million . software-enabled services revenues increased $ 1,684.9 million or 151.2 % , primarily due to the acquisitions , which added revenues of $ 1,629.6 million , as well as from a continued increase in demand for our fund administration services and services for advisory and wealth managers . the favorable impact from foreign currency
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during this period , our sales were impacted by the following items : volatility in core automotive , premium audio and consumer accessories sales due to increased competition , lower selling prices , changes in technology and demand , and the volatility of the national and global economy ; the discontinuance and reduction of various high volume/low margin product lines such as camcorders , clock radios , digital players , digital voice recorders , and portable dvd players ; the sale of certain branded product inventory of the company to a third party in order to license the brand name for a commission ; political and economic volatility in venezuela ; and euro devaluation against the u.s. dollar . partially offset by : 23 the introduction of new products and lines across the automotive , premium audio and consumer accessories segments , such as digital antennas and mobile multi-media devices ; mobile ipad and ipod interfaces ; various bluetooth and wireless speaker products ; neckband , on-ear , in-ear and over-ear headphones ; action cameras ; and nursery products . critical accounting policies and estimates general our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires us to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions can be subjective and complex and may affect the reported amounts of assets and liabilities , revenues and expenses reported in those financial statements . as a result , actual results could differ from such estimates and assumptions . the significant accounting policies and estimates which we believe are the most critical in fully understanding and evaluating the reported consolidated financial results include the following : revenue recognition we recognize revenue from product sales at the time title and risk of loss passes to the customer either at fob shipping point or fob destination , based upon terms established with the customer . any customer acceptance provisions , which are related to product testing , are satisfied prior to revenue recognition . we have no further obligations subsequent to revenue recognition except for returns of product from customers . we do accept returns of products , if properly requested , authorized and approved . we continuously monitor and track such product returns and record the provision for the estimated amount of such future returns at point of sale , based on historical experience . sales incentives we offer sales incentives to our customers in the form of ( 1 ) co-operative advertising allowances ; ( 2 ) market development funds ; ( 3 ) volume incentive rebates ; and ( 4 ) other trade allowances . we account for sales incentives in accordance with asc 605-50 `` customer payments and incentives '' ( `` asc 605-50 '' ) . except for other trade allowances , all sales incentives require the customer to purchase our products during a specified period of time . all sales incentives require customers to claim the sales incentive within a certain time period ( referred to as the `` claim period '' ) . all costs associated with sales incentives are classified as a reduction of net sales . the accrual balance for sales incentives at february 28 , 2017 and february 29 , 2016 was $ 13,154 and $ 12,439 , respectively . although we make our best estimate of sales incentive liabilities , many factors , including significant unanticipated changes in the purchasing volume and the lack of claims from customers could have a significant impact on the liability for sales incentives and reported operating results . unearned sales incentives are volume incentive rebates where the customer did not purchase the required minimum quantities of product during the specified time . volume incentive rebates are reversed into income in the period when the customer did not reach the required minimum purchases of product during the specified time . unclaimed sales incentives are sales incentives earned by the customer but the customer has not claimed payment within the claim period ( period after program has ended ) . unclaimed sales incentives are investigated in a timely manner after the end of the program and reversed if deemed appropriate . accounts receivable we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and current credit worthiness , as determined by a review of current credit information . we continuously monitor collections from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified . while such credit losses have historically been within management 's expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that have been experienced in the past . since our accounts receivable are concentrated in a relatively few number of large customers , a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectability of accounts receivable and our results of operations . the company has supply chain financing agreements and factoring agreements with certain financial institutions for the purpose of accelerating receivable collection and better managing cash flow . under the agreements , the company has agreed to sell certain of its accounts receivable balances to these institutions , who have agreed to advance amounts equal to the net accounts receivable 24 balances due , less a discount as set forth in the respective agreements . the balances under these agreements are accounted for as sales of accounts receivable , as they are sold without recourse . cash proceeds from these agreements are reflected as operating activities included in the change in accounts receivable in the company 's consolidated statements of cash flows . story_separator_special_tag total balances sold , net of discounts , for the years ended february 28 , 2017 , february 29 , 2016 and february 28 , 2015 were $ 257,482 , $ 273,883 and $ 182,155 , respectively . fees incurred in connection with the agreements totaled $ 1,170 , $ 1,129 and $ 866 for the years ended february 28 , 2017 , february 29 , 2016 and february 28 , 2015 , respectively , and are recorded as interest expense by the company . inventory we value our inventory at the lower of the actual cost to purchase ( primarily on a weighted moving average basis , with a portion valued at standard cost , which approximates actual costs on the first in , first out basis ) or the current estimated market value of the inventory . market value of inventory does not exceed the net realizable value of the inventory and is not less than the net realizable value of such inventory , less an allowance for a normal profit margin . we regularly review inventory quantities on-hand and record a provision in cost of sales for excess and obsolete inventory based primarily on selling prices , indications from customers based upon current price negotiations , and purchase orders . our industry is characterized by rapid technological change and frequent new product introductions that could result in an increase in the amount of obsolete inventory quantities on-hand . in addition , and as necessary , specific reserves for future known or anticipated events may be established . during the years ended february 28 , 2017 , february 29 , 2016 and february 28 , 2015 , we recorded inventory write-downs of $ 2,371 , $ 1,256 and $ 2,877 , respectively . estimates of excess and obsolete inventory may prove to be inaccurate , in which case we may have understated or overstated the provision required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand or technological developments could have a significant impact on the carrying value of inventory and our results of operations . asset impairments as of february 28 , 2017 , intangible assets totaled $ 176,289 and property , plant and equipment totaled $ 77,922 ( excluding venezuelan investment properties of $ 3,679 , which are discussed below ) . management makes estimates and assumptions in preparing the consolidated financial statements for which actual results will emerge over long periods of time . this includes the recoverability of long-lived assets employed in the business , including assets of acquired businesses . these estimates and assumptions are closely monitored by management and periodically adjusted as circumstances warrant . for instance , expected asset lives may be shortened or an impairment recorded based upon a change in the expected use of the asset or performance of the related asset group . at the present time , management intends to continue the development , marketing and selling of products associated with its intangible assets , and there are no known restrictions on the continuation of their use , other than the ruling received in the fourth quarter of fiscal 2016 ( see note 1 ( k ) ) . certain indefinite lived trademarks were impaired during the second and fourth quarter of fiscal 2016 , resulting in impairment charges of $ 6,210 and $ 2,860 , respectively . no impairment losses were recorded related to indefinite lived intangible assets during fiscal 2015 and fiscal 2017. the cost of other intangible assets with definite lives and long-lived assets are amortized on a straight-line basis over their respective lives . management has determined that the current lives of these assets are appropriate . management has determined that there were no indicators of impairment that would cause the carrying values related to intangible assets with definite lives to exceed their expected future cash flows at february 28 , 2017 . approximately 60.2 % of our indefinite-lived trademarks ( $ 64,961 ) are at risk of impairment as of february 28 , 2017 . the company uses an income approach , based on the relief from royalty method , to value the indefinite-lived trademarks as part of its impairment test . this impairment test involves the use of accounting estimates and assumptions , changes in which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions . the critical assumptions in the discounted cash flow model include revenues , long-term growth rates , royalty rates , and discount rates . management exercises judgment in developing these assumptions . certain of these assumptions are based upon industry projections , facts specific to the trademarks and consideration of our long-term view for the trademark and the markets we operate in . if we were to experience sales declines , a significant change in operating margins which may impact estimated royalty rates , an increase in our discount rates , and or a decrease in our projected long-term growth rates , there would be an increased risk of impairment of these indefinite-lived trademarks . voxx 's goodwill totaled $ 103,212 as of february 28 , 2017 . goodwill is tested for impairment as of the last day of each fiscal year at the reporting unit level . application of the goodwill impairment test requires judgment , including the identification of reporting 25 units , assignment of assets and liabilities to reporting units , assignment of goodwill to reporting units , and estimation of the fair value of each reporting unit . based on the company 's goodwill impairment assessment , all the reporting units with goodwill had estimated fair values as of february 28 , 2017 that exceeded their carrying values .
| remote start products were negatively impacted for the year ended february 28 , 2017 , as a result of warmer winter seasons in both fiscal 2016 and fiscal 2017 , resulting in several customers carrying excess inventory into the company 's fiscal 2017 year and lower overall sales of these products for the year , as well as due to the fact that more vehicles are being built equipped with remote start capabilities . sales of satellite radios during the year ended february 28 , 2017 also decreased as a result of more vehicles being built equipped with these products . the company also experienced decreases in aftermarket overhead and headrest dvd player sales as a result of price reductions and competition within these product lines . finally , during fiscal 2016 , the company sold all of its jensen mobile product inventory , consisting of car speakers and amplifiers , to a third party in order to license the brand name for a commission . this resulted in reduced sales of these products for the year ended february 28 , 2017 of approximately $ 6,500. as an offset to these decreases , the company began a new oem program with subaru , resulting in an increase in domestic oem sales , and has had increased tuner sales internationally for the year ended february 28 , 2017 , primarily due to the start of a new program during the first quarter of fiscal 2017. premium audio sales represented 24.5 % of net sales for the year ended february 28 , 2017 as compared to 20.6 % in the prior year . sales in premium audio increased 18.7 % for the year ended february 28 , 2017 primarily as a result of the introduction of several new products , including various lines of hd wireless desktop and bookshelf size speakers , wireless soundbars and multi-room streaming audio systems . these products were launched between the fourth quarter of fiscal 2016 and the third quarter of fiscal 2017 and have been experiencing strong sales for the segment during the year ended february 28 , 2017 . the company also saw increases in sales in several of its existing lines of home entertainment speakers due to
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in our preparation of the financial statements for the year ended december 31 , 2019 , there were two estimates made which were ( a ) subject to a high degree of uncertainty and ( b ) material to our results , as follows : โ the determination , as set forth in note 3 to our financial statements , that the $ 7,308,224 balance in accounts receivable as of december 31 , 2019 warranted an allowance for doubtful accounts of $ 2,724,389. the determination was based on our review of the statement from harbin medical insurance management center , generally , the center set an insurance claim limit to the hospital , if the hospital receive patients too much , most likely exceed the claim limit , that is excess insurance claim , even in this case , the company still can not refuse to receive patients . the center will pay part of excess insurance claim to hospital from insurance regulatory fund share with all local hospital that have excess insurance claim in next or next two years . in accordance with the principle of prudence , the company makes a determination that more than two years old excess insurance claim without reimbursement should be treated as doubtful accounts . as of december 31 , 2019 , the amount of exceed two years excess insurance claim without reimbursement treated as bad debts was $ 2,700,035 . โ the determination to record depreciation of our principal medical property and equipment over an average useful life of approximately twenty years . ( a quantification of that depreciation is set forth in note 6 to our financial statements . ) the determination was based primarily on our expectation that the useful life of our hospital facilities would exceed thirty years , based on the experience of comparable facilities in our location . 15 results of operations for the years ended december 31 , 2019 and 2018 the following table shows key components of the results of operations during the years ended december 31 , 2019 and 2018 : replace_table_token_1_th story_separator_special_tag justify '' > income tax expense $ 25,084 income tax : 2019 deferred 632,615 tax expense from continuing operation $ 657,699 amounts reconciliation : income tax at statutory rate $ 657,699 tax expense from continuing operation $ 657,699 according to the prc โ notice on preferential corporate income tax ( cit ) treatment for eligible equipment or machinery ( cai shui [ 2018 ] no . 54 ) โ , a 100 % immediate tax deduction for cit purposes is allowed for purchases of equipment on the condition that the unit price of each item of equipment or machinery is individually less than rmb5 million . depreciation for tax purposes is not required . basis differences between tax and gaap for depreciation of property and equipment exist because in 2019 the company purchased eligible equipment for rmb 21.32 million , which produced $ 632,615 in deferred income tax , representing the difference between prc tax treatment and gaap treatment of taxation arising from equipment acquisition . during 2018 , the company incurred $ 2,765,650 in income tax . this included $ 1,318,102 paid with respect to the period from 2015 through 2017 , due to the government 's determination that a tax abatement given to jiarun at its initiation should have been revised in 2015. net income after deducting other income and expenses as well as the provision for income tax , the company 's net income for the year ended december 31 , 2019 was $ 1,268,659 , representing a decrease of $ 1,578,441 or 55 % from the $ 2,847,100 recorded for the year ended december 31 , 2018. the decrease in net income for the year ended december 31 , 2019 was primarily due to aforementioned changes in operating revenue and expenses . 17 liquidity and capital resources our cash flows for the past two years are summarized below : replace_table_token_2_th as of december 31 , 2019 , the company had $ 1,971,129 of cash and cash equivalents , an increase of $ 1,714,679 from our cash balance at december 31 , 2018. the increase occurred because our operations during 2019 yielded $ 11,847,403 in cash . the primary reasons that cash provided by operations so far exceeded our net income of $ 1,268,659 in 2019 were : โ our accounts receivable balance was reduced by $ 3,552,836 , including the $ 2,724,389 increase in our allowance for doubtful accounts . โ our net income was reduced by a depreciation charge of $ 2,212,022 . โ we increased amounts due to related parties by $ 1,701,047 by delaying lease payments due to our chairman , junsheng zhang , and his affiliate . โ we increased our accrued expenses and other current liabilities during 2019 by $ 957,243 . โ we increased our deferred tax payable account by $ 632,615. at the same time , despite the $ 11,847,403 in cash provided by operations , our balance sheet at december 31 , 2019 showed a working capital deficit of $ 1,401,549 , representing a reduction of $ 6,210,834 from our working capital balance at december 31 , 2018. the reduction was primarily attributable to : โ our expenditure of $ 3,962,588 on fixed assets during 2019 ; and โ our use of $ 6,108,976 in cash for financing activities , primarily payments on construction in progress and capital lease obligations . although our current resources and cash flows are adequate to pay our current ongoing obligations , we anticipate that our future liquidity requirements will arise from the need to fund our growth and future capital expenditures . the primary sources of funding for such growth requirements are expected to be additional funds raised from the sale of equity and or debt financing . howev er , we can provide no assurances that we will be able to obtain additional financing on terms satisfactory to us . 18 trends story_separator_special_tag in our preparation of the financial statements for the year ended december 31 , 2019 , there were two estimates made which were ( a ) subject to a high degree of uncertainty and ( b ) material to our results , as follows : โ the determination , as set forth in note 3 to our financial statements , that the $ 7,308,224 balance in accounts receivable as of december 31 , 2019 warranted an allowance for doubtful accounts of $ 2,724,389. the determination was based on our review of the statement from harbin medical insurance management center , generally , the center set an insurance claim limit to the hospital , if the hospital receive patients too much , most likely exceed the claim limit , that is excess insurance claim , even in this case , the company still can not refuse to receive patients . the center will pay part of excess insurance claim to hospital from insurance regulatory fund share with all local hospital that have excess insurance claim in next or next two years . in accordance with the principle of prudence , the company makes a determination that more than two years old excess insurance claim without reimbursement should be treated as doubtful accounts . as of december 31 , 2019 , the amount of exceed two years excess insurance claim without reimbursement treated as bad debts was $ 2,700,035 . โ the determination to record depreciation of our principal medical property and equipment over an average useful life of approximately twenty years . ( a quantification of that depreciation is set forth in note 6 to our financial statements . ) the determination was based primarily on our expectation that the useful life of our hospital facilities would exceed thirty years , based on the experience of comparable facilities in our location . 15 results of operations for the years ended december 31 , 2019 and 2018 the following table shows key components of the results of operations during the years ended december 31 , 2019 and 2018 : replace_table_token_1_th story_separator_special_tag justify '' > income tax expense $ 25,084 income tax : 2019 deferred 632,615 tax expense from continuing operation $ 657,699 amounts reconciliation : income tax at statutory rate $ 657,699 tax expense from continuing operation $ 657,699 according to the prc โ notice on preferential corporate income tax ( cit ) treatment for eligible equipment or machinery ( cai shui [ 2018 ] no . 54 ) โ , a 100 % immediate tax deduction for cit purposes is allowed for purchases of equipment on the condition that the unit price of each item of equipment or machinery is individually less than rmb5 million . depreciation for tax purposes is not required . basis differences between tax and gaap for depreciation of property and equipment exist because in 2019 the company purchased eligible equipment for rmb 21.32 million , which produced $ 632,615 in deferred income tax , representing the difference between prc tax treatment and gaap treatment of taxation arising from equipment acquisition . during 2018 , the company incurred $ 2,765,650 in income tax . this included $ 1,318,102 paid with respect to the period from 2015 through 2017 , due to the government 's determination that a tax abatement given to jiarun at its initiation should have been revised in 2015. net income after deducting other income and expenses as well as the provision for income tax , the company 's net income for the year ended december 31 , 2019 was $ 1,268,659 , representing a decrease of $ 1,578,441 or 55 % from the $ 2,847,100 recorded for the year ended december 31 , 2018. the decrease in net income for the year ended december 31 , 2019 was primarily due to aforementioned changes in operating revenue and expenses . 17 liquidity and capital resources our cash flows for the past two years are summarized below : replace_table_token_2_th as of december 31 , 2019 , the company had $ 1,971,129 of cash and cash equivalents , an increase of $ 1,714,679 from our cash balance at december 31 , 2018. the increase occurred because our operations during 2019 yielded $ 11,847,403 in cash . the primary reasons that cash provided by operations so far exceeded our net income of $ 1,268,659 in 2019 were : โ our accounts receivable balance was reduced by $ 3,552,836 , including the $ 2,724,389 increase in our allowance for doubtful accounts . โ our net income was reduced by a depreciation charge of $ 2,212,022 . โ we increased amounts due to related parties by $ 1,701,047 by delaying lease payments due to our chairman , junsheng zhang , and his affiliate . โ we increased our accrued expenses and other current liabilities during 2019 by $ 957,243 . โ we increased our deferred tax payable account by $ 632,615. at the same time , despite the $ 11,847,403 in cash provided by operations , our balance sheet at december 31 , 2019 showed a working capital deficit of $ 1,401,549 , representing a reduction of $ 6,210,834 from our working capital balance at december 31 , 2018. the reduction was primarily attributable to : โ our expenditure of $ 3,962,588 on fixed assets during 2019 ; and โ our use of $ 6,108,976 in cash for financing activities , primarily payments on construction in progress and capital lease obligations . although our current resources and cash flows are adequate to pay our current ongoing obligations , we anticipate that our future liquidity requirements will arise from the need to fund our growth and future capital expenditures . the primary sources of funding for such growth requirements are expected to be additional funds raised from the sale of equity and or debt financing . howev er , we can provide no assurances that we will be able to obtain additional financing on terms satisfactory to us . 18 trends
| this 48 % increase in our labor costs was primarily caused by the initiation of operations at our two new branch hospitals in late 2018. the increase exceeded the revenue increase attributable to the hospitals , as we incurred labor costs in preparation for full scale operations . โ $ 473,797 increase in office supplies , likewise primarily attributable to the expansion of our operations during 2019 . 16 โ $ 447,257 increase in depreciation and amortization . this increase occurred because we increased the book value of our property and equipment as a result of additional property and equipment placed in service by $ 12,747,808 ( 43 % ) during 2018 and by $ 2,555,443 during 2019 , which led to a 25 % increase in depreciation during 2019. partially offsetting the factors listed above was a $ 408,728 decrease in the cost of medicine . as our sales of medicine decreased by 4 % , the cost of the medicine sold decreased by 5 % . the decrease was attributable to both western medicine and chinese traditional medicines. , after taking these factors into account , we reported $ 4,667,513 in earnings from operations during 2019 , compared to $ 5,992,236 during 2018 ; which represented $ 1,324,723 or 22.11 % decrease . other income ( expenses ) other income ( expenses ) for the year ended december 31 , 2019 , was mainly consisting of $ 2,700,035 doubtful accounts . the determination was based on our review of the statement at the end of december 31 , 2019 from harbin medical insurance management center , generally , the center set an insurance claim limit to the hospital , if the hospital receive patients too much , most likely exceed the limit , that is excess insurance claim , even in this case , the company still can not refuse to receive patients . the center will pay part of excess insurance claim to hospital from insurance regulatory fund share with all local hospitals that have excess insurance claim in next or next two years . in accordance with the principle of prudence , the company makes a determination that more than two years old excess insurance claim without reimbursement should be treated as doubtful accounts . as of december 31 , 2019 ,
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ffo and affo should not be considered as an alternative to net income ( loss ) ( computed in accordance with gaap ) as an indicator of our financial performance or to cash flow from operating activities ( computed in accordance with gaap ) as an indicator of our liquidity , nor is it indicative of funds available to fund our cash needs , including our ability to pay dividends or make distributions . ffo and affo should be considered only as supplements to net income computed in accordance with gaap as measures of operations . 50 the table below is a reconciliation of net loss to ffo and affo for the year ended december 31 , 2017 and period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016. included in our net loss for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 was approximately $ 3.7 million , or $ 3.85 per common share ( basic and diluted ) , of noncash forfeited class b common shares , related to the issuance of class b common stock to our founders at $ 0.001 per share ( par value ) and subsequent redemption of all such shares of class b common stock by us for $ 0.001 per share ( par value ) immediately prior to the completion of our initial public offering in december 2016. as a result of the redemption of all shares of class b common stock , although gaap requires that we record this as stock-based compensation expense , none of the founders received any value from their purchase of the shares of class b common stock , as all such shares of class b common stock were redeemed by us at the original purchase price prior to our initial public offering . replace_table_token_6_th critical accounting policies our consolidated financial statements have been prepared in accordance with gaap , which require 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods . actual results could differ materially from those estimates and assumptions . set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements . our accounting policies are more fully discussed in note 2 to the consolidated financial statements . acquisition of rental property , depreciation and impairment in order to prepare our consolidated financial statements according to the rules and guidelines set forth by gaap , many subjective judgments must be made with regard to critical accounting policies . one of these judgments is our estimate for useful lives in determining depreciation expense for our properties . we depreciate each of our buildings and improvements over its estimated remaining useful life , not to exceed 35 years . we depreciate tenant improvements at our buildings over the shorter of the estimated useful lives or the terms of the related leases . if we use a shorter or longer estimated useful life , it could have a material impact on our consolidated results of operations . 51 management must make significant assumptions in determining the fair value of assets acquired and liabilities assumed . upon acquisition of property , we allocate the purchase price based upon the relative fair values of all assets acquired and liabilities assumed . for transactions that are an asset acquisition , acquisition costs are capitalized as incurred . all of our acquisitions have been recorded as asset acquisitions . another significant judgment must be made as to if , and when , impairment losses should be taken on our properties when events or a change in circumstances indicate that the carrying amount of the asset may not be recoverable . a provision is made for impairment if estimated future operating cash flows ( undiscounted and without interest charges ) plus estimated disposition proceeds ( undiscounted ) are less than the current book value of the property . key inputs that we utilize in this analysis include projected rental rates , estimated holding periods , capital expenditures , and property sales capitalization rates . if a property is held for sale , it is carried at the lower of carrying cost or estimated fair value , less estimated cost to sell . the carrying value of our real estate is anticipated to be the largest component of our consolidated balance sheet . our strategy of primarily holding properties , long-term , directly decreases the likelihood of their carrying values not being recoverable , thus requiring the recognition of an impairment . however , if our strategy , or one or more of the above assumptions were to change in the future , an impairment may need to be recognized . if events should occur that require us to reduce the carrying value of our real estate by recording provisions for impairment , they could have a material impact on our consolidated results of operations . revenue recognition our existing tenant leases and future tenant leases are generally expected to be triple-net leases , an arrangement under which the tenant maintains the property while paying us rent and property management fees . we account for our leases as operating leases . under this method , leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term , unless the collectability of minimum lease payments is not reasonably predictable . rental increases based upon changes in the cpi are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements . contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses will be included in tenant reimbursements in the period when such costs are incurred . story_separator_special_tag ffo and affo should not be considered as an alternative to net income ( loss ) ( computed in accordance with gaap ) as an indicator of our financial performance or to cash flow from operating activities ( computed in accordance with gaap ) as an indicator of our liquidity , nor is it indicative of funds available to fund our cash needs , including our ability to pay dividends or make distributions . ffo and affo should be considered only as supplements to net income computed in accordance with gaap as measures of operations . 50 the table below is a reconciliation of net loss to ffo and affo for the year ended december 31 , 2017 and period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016. included in our net loss for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 was approximately $ 3.7 million , or $ 3.85 per common share ( basic and diluted ) , of noncash forfeited class b common shares , related to the issuance of class b common stock to our founders at $ 0.001 per share ( par value ) and subsequent redemption of all such shares of class b common stock by us for $ 0.001 per share ( par value ) immediately prior to the completion of our initial public offering in december 2016. as a result of the redemption of all shares of class b common stock , although gaap requires that we record this as stock-based compensation expense , none of the founders received any value from their purchase of the shares of class b common stock , as all such shares of class b common stock were redeemed by us at the original purchase price prior to our initial public offering . replace_table_token_6_th critical accounting policies our consolidated financial statements have been prepared in accordance with gaap , which require 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods . actual results could differ materially from those estimates and assumptions . set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements . our accounting policies are more fully discussed in note 2 to the consolidated financial statements . acquisition of rental property , depreciation and impairment in order to prepare our consolidated financial statements according to the rules and guidelines set forth by gaap , many subjective judgments must be made with regard to critical accounting policies . one of these judgments is our estimate for useful lives in determining depreciation expense for our properties . we depreciate each of our buildings and improvements over its estimated remaining useful life , not to exceed 35 years . we depreciate tenant improvements at our buildings over the shorter of the estimated useful lives or the terms of the related leases . if we use a shorter or longer estimated useful life , it could have a material impact on our consolidated results of operations . 51 management must make significant assumptions in determining the fair value of assets acquired and liabilities assumed . upon acquisition of property , we allocate the purchase price based upon the relative fair values of all assets acquired and liabilities assumed . for transactions that are an asset acquisition , acquisition costs are capitalized as incurred . all of our acquisitions have been recorded as asset acquisitions . another significant judgment must be made as to if , and when , impairment losses should be taken on our properties when events or a change in circumstances indicate that the carrying amount of the asset may not be recoverable . a provision is made for impairment if estimated future operating cash flows ( undiscounted and without interest charges ) plus estimated disposition proceeds ( undiscounted ) are less than the current book value of the property . key inputs that we utilize in this analysis include projected rental rates , estimated holding periods , capital expenditures , and property sales capitalization rates . if a property is held for sale , it is carried at the lower of carrying cost or estimated fair value , less estimated cost to sell . the carrying value of our real estate is anticipated to be the largest component of our consolidated balance sheet . our strategy of primarily holding properties , long-term , directly decreases the likelihood of their carrying values not being recoverable , thus requiring the recognition of an impairment . however , if our strategy , or one or more of the above assumptions were to change in the future , an impairment may need to be recognized . if events should occur that require us to reduce the carrying value of our real estate by recording provisions for impairment , they could have a material impact on our consolidated results of operations . revenue recognition our existing tenant leases and future tenant leases are generally expected to be triple-net leases , an arrangement under which the tenant maintains the property while paying us rent and property management fees . we account for our leases as operating leases . under this method , leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term , unless the collectability of minimum lease payments is not reasonably predictable . rental increases based upon changes in the cpi are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements . contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses will be included in tenant reimbursements in the period when such costs are incurred .
| tenant reimbursements related to reimbursements by tenants for property insurance premiums paid at certain properties . expenses . property expenses . property expenses related to property insurance premiums at certain of our properties , which were reimbursed by the tenants . general and administrative expense . general and administrative expense for the year ended december 31 , 2017 was primarily related to compensation and occupancy costs for our employees and corporate office . compensation expense for the year ended december 31 , 2017 included approximately $ 1.7 million in non-cash stock-based compensation . stock-based compensation for equity awards is based on the grant date fair value of restricted stock that was granted to certain of our employees and non-employee members of our board of directors during 2016 and during the year ended december 31 , 2017 , which is recognized over the requisite service period . general and administrative expense for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 was approximately $ 828,000 , of which approximately $ 566,000 was related to consulting services provided by igp advisers llc , a company that was owned by certain of our officers , in connection with our initial public offering , and approximately $ 262,000 was for compensation and occupancy costs related to our employees and corporate office . compensation expense for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 included approximately $ 58,000 in non-cash stock-based compensation . severance . during the year ended december 31 , 2017 , we incurred $ 113,000 in severance expense related to the cessation of employment of one of our executive officers in june 2017. forfeited class b common shares . we recognized non-cash stock-based compensation expense of approximately $ 3.7 million for the period from june 15 , 2016 ( date of incorporation ) through december 31 , 2016 , related to the issuance of class b common stock to our founders at $ 0.001 per share ( par value ) and subsequent
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consequently , we experience seasonal fluctuations in our operating results and cash needs . growth in loan portfolio . the revenue that we derive from interest and fees is largely driven by the balance of loans that we originate and purchase . average finance receivables grew 13.2 % to $ 744.2 million in 2017 , grew 14.7 % to $ 853.8 million in 2018 , and grew 15.5 % to $ 985.7 million in 2019. we source our loans through our branches , direct mail program , retail partners , digital partners , and our consumer website . our loans are made almost exclusively in geographic markets served by our network of branches . increasing the number of loans per branch and the number of branches we operate allows us to increase the number of loans that we are able to service . we opened 7 , 17 , and 3 net new branches in 2019 , 2018 , and 2017 , respectively . we believe that we have the opportunity to add hundreds of additional branches in states where it is currently favorable for us to conduct business , and we have plans to continue to grow our branch network . product mix . we are exposed to different credit risks and charge different interest rates and fees with respect to the various types of loans we offer . our product mix also varies to some extent by state , and we may further diversify our product mix in the future . the interest rates and fees vary from state to state , depending on the competitive environment and relevant laws and regulations . asset quality and allowance for credit losses . our results of operations are highly dependent upon the credit quality of our loan portfolio . the credit quality of our loan portfolio is the result of our ability to enforce sound underwriting standards , maintain diligent servicing of the portfolio , and respond to changing economic conditions as we grow our loan portfolio . the allowance for credit losses calculation uses the current delinquency profile and historical delinquency roll rates as key data points in estimating the allowance . we believe that the primary underlying factors driving the provision for credit losses for each loan type are our underwriting standards , the general economic conditions in the areas in which we conduct business , loan portfolio growth , and the effectiveness of our collection efforts . in addition , the market for repossessed automobiles at auction is another underlying factor that we believe influences the provision for credit losses for automobile purchase loans and , to a lesser extent , large loans . we monitor these factors , and the amount and past due status of all loans one or more days past due , to identify trends that might require us to modify the allowance for credit losses . interest rates . our costs of funds are affected by changes in interest rates , as the interest rates that we pay on certain of our credit facilities are variable . as a component of our strategy to manage the interest rate risk regional management corp. | 2019 annual report on form 10-k | 50 associated with future interest payments on our variable-rate debt , we have purchased interest rate cap contracts . as of december 31 , 2019 , we held three interest rate cap contracts with an aggregate notional principal amount of $ 350.0 million . the interest rate caps have maturities of april 2020 ( $ 100.0 million , 3.25 % strike rate ) , june 2020 ( $ 50.0 million , 2.50 % strike rate ) , and april 2021 ( $ 200.0 million , 3.50 % strike rate ) . as of december 31 , 2019 , the one-month libor was 1.76 % . when the one-month libor exceeds the strike rate , the counterparty reimburses us for the excess over the strike rate . no payment is required by us or the counterparty when the one-month libor is below the strike rate . in addition , as described below , the interest rate on a portion of our long-term debt is fixed . as of december 31 , 2019 , 50.8 % of our long-term debt was at a fixed rate . see note 20 , ยsubsequent events , ย of the notes to consolidated financial statements in part ii , item 8 , ยfinancial statements and supplementary dataย for information regarding the purchase of an interest rate cap contract in march 2020. operating costs . our financial results are impacted by the costs of operations and home office functions . those costs are included in the general and administrative expenses line of our consolidated statements of income . our operating expense ratio ( general and administrative expenses as a percentage of average finance receivables ) was 15.9 % for 2019 , compared to 16.4 % in 2018 and 17.6 % in 2017. we believe that this ratio is generally in line with industry standards for companies of our size , and we expect that it will continue to decline in future years as we continue to grow our loan portfolio and control expense growth . components of results of operations interest and fee income . our interest and fee income consists primarily of interest earned on outstanding loans . accrual of interest income on finance receivables is suspended when an account becomes 90 days delinquent . if the account is charged off , the accrued interest income is reversed as a reduction of interest and fee income . most states allow certain fees in connection with lending activities , such as loan origination fees , acquisition fees , and maintenance fees . some states allow for higher fees while keeping interest rates lower . loan fees are additional charges to the customer and generally are included in the annual percentage rate shown in the truth in lending disclosure that we make to our customers . story_separator_special_tag the fees may or may not be refundable to the customer in the event of an early payoff , depending on state law . fees are accrued to income over the life of the loan on the constant yield method . insurance income , net . our insurance operations are a material part of our overall business and are integral to our lending activities . insurance income , net consists primarily of earned premiums , net of certain direct costs , from the sale of various optional payment and collateral protection insurance products offered to customers who obtain loans directly from us . insurance income , net also includes the earned premiums and direct costs associated with the non-file insurance that we purchase to protect us from credit losses where , following an event of default , we are unable to take possession of personal property collateral because our security interest is not perfected . we do not sell insurance to non-borrowers . direct costs included in insurance income , net are claims paid , claims reserves , ceding fees , and premium taxes paid . we do not allocate to insurance income , net , any other home office or branch administrative costs associated with managing our insurance operations , managing our captive insurance company , marketing and selling insurance products , legal and compliance review , or internal audits . in recent years , as large loans have become a larger percentage of our loan portfolio , the severity of non-file insurance claims has increased and non-file insurance claims expenses have exceeded non-file insurance fees . the resulting net loss from the non-file insurance product has been reflected in our insurance income , net . we evaluated various ways to lower our non-file insurance claims , and we reduced our utilization of non-file insurance beginning in the fourth quarter of 2018. this policy change will cause substantially offsetting increases to insurance income , net and net credit losses in current and future years . regional management corp. | 2019 annual report on form 10-k | 51 as reinsurer , we maintain cash reserves for life insurance claims in an amount determined by the unaffiliated insurance company . as of december 31 , 2019 , the restricted cash balance for these cash reserves was $ 9.9 million . the unaffiliated insurance company maintains the reserves for non-life claims . other income . our other income consists primarily of late charges assessed on customers who fail to make a payment within a specified number of days following the due date of the payment . in addition , fees for extending the due date of a loan , returned check charges , commissions earned from the sale of an auto club product , and interest income from restricted cash are included in other income . provision for credit losses . provisions for credit losses are charged to income in amounts that we estimate as sufficient to maintain an allowance for credit losses at an adequate level to provide for estimated losses on the related finance receivable portfolio . credit loss experience , delinquency of finance receivables , loan portfolio growth , the value of underlying collateral , and management 's judgment are factors used in assessing the overall adequacy of the allowance and the resulting provision for credit losses . our provision for credit losses fluctuates so that we maintain an adequate credit loss allowance that reflects forecasted future credit losses over the estimated loss emergence period ( the interval of time between the event that caused a borrower to default and our recording of the credit loss ) for each finance receivable type . changes in our delinquency and net credit loss rates may result in changes to our provision for credit losses . substantial adjustments to the allowance may be necessary if there are significant changes in economic conditions or loan portfolio performance . general and administrative expenses . our general and administrative expenses are comprised of four categories : personnel , occupancy , marketing , and other . we measure our general and administrative expenses as a percentage of average finance receivables , which we refer to as our operating expense ratio . our personnel expenses are the largest component of our general and administrative expenses and consist primarily of the salaries and wages , overtime , contract labor , relocation costs , bonuses , benefits , and related payroll taxes associated with all of our operations and home office employees . our occupancy expenses consist primarily of the cost of renting our facilities , all of which are leased , as well as the utility , depreciation of leasehold improvements and furniture and fixtures , telecommunication , data processing , and other non-personnel costs associated with operating our business . our marketing expenses consist primarily of costs associated with our direct mail campaigns ( including postage and costs associated with selecting recipients ) , digital marketing , and maintaining our consumer website , as well as some local marketing by branches . these costs are expensed as incurred . other expenses consist primarily of legal , compliance , audit , and consulting costs , non-employee director compensation , amortization of software licenses and implementation costs , electronic payment processing costs , bank service charges , office supplies , and credit bureau charges . we expect legal and compliance costs to remain elevated due to the regulatory environment in the consumer finance industry . for a discussion regarding how risks and uncertainties associated with the current regulatory environment may impact our future expenses , net income , and overall financial condition , see part i , item 1a , ยrisk factors.ย interest expense . our interest expense consists primarily of paid and accrued interest for long-term debt , unused line fees , and amortization of debt issuance costs on long-term debt . interest expense also includes costs attributable to the interest rate caps that we use to manage our interest rate risk . changes in the fair value of the interest rate caps are reflected in interest expense . income taxes .
| net income increased $ 9.4 million , or 26.6 % , to $ 44.7 million during 2019 , from $ 35.3 million in 2018. the increase was primarily due to an increase in revenue of $ 49.0 million , offset by increases in general and administrative expenses of $ 16.7 million , provision for credit losses of $ 12.6 million , interest expense of $ 6.7 million , and income taxes of $ 3.7 million . revenue . total revenue increased $ 49.0 million , or 16.0 % , to $ 355.7 million in 2019 , from $ 306.7 million in 2018. the components of revenue are explained in greater detail below . interest and fee income . interest and fee income increased $ 41.0 million , or 14.7 % , to $ 321.2 million in 2019 , from $ 280.1 million in 2018. the increase was primarily due to a 15.5 % increase in average finance receivables , offset by a 0.2 % decrease in average yield . the following table sets forth the average finance receivables balance and average yield for our loan products : replace_table_token_14_th regional management corp. | 2019 annual report on form 10-k | 54 small loan yields decreased 1.5 % compared to 2018 as more of our small loan customers have originated loans with larger balances and longer maturities , which typically are priced at lower interest rates . large loan yields increased 0.3 % compared to 2018 as a result of adjusted pricing that reflects current market conditions . automobile loan yields decreased 0.8 % compared to 2018. we anticipate that the automobile loan yields will remain at the current level or decline due to higher-yielding loans paying off or renewing into large loans , leaving the lower-yielding loans in the liquidating automobile loan portfolio . when compared to 2018 , retail loan yields remained unchanged . as a result of our focus on large loan growth over the last several years , the large loan portfolio has grown faster than the rest of our loan products , and we expect that this trend will continue in the future . over time , large loan growth will change our product mix , which will reduce our total interest and fee yield . the following table represents the
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in connection with the offering , apam received 644,424 gp units of holdings . during the year ended december 31 , 2018 , certain limited partners of holdings exchanged 1,590,611 common units ( along with a corresponding number of shares of class b or class c common stock of apam ) for 1,590,611 shares of class a common stock . in connection with the exchanges , apam received 1,590,611 gp units of holdings . apam 's equity ownership interest in holdings increased from 67 % at december 31 , 2017 to 70 % at december 31 , 2018 , as a result of these transactions and other equity transactions during the period . financial overview economic environment global equity and debt market conditions can materially affect our financial performance . the following table presents the total returns of relevant market indices for the years ended december 31 , 2018 , 2017 and 2016 : replace_table_token_15_th 37 key performance indicators when we review our business and financial performance we consider , among other things , the following : for the years ended december 31 , 2018 2017 2016 ( dollars in millions ) assets under management at period end $ 96,224 $ 115,494 $ 96,845 average assets under management ( 1 ) $ 113,769 $ 108,754 $ 96,281 net client cash flows $ ( 7,419 ) $ ( 5,408 ) $ ( 4,824 ) total revenues $ 829 $ 796 $ 721 weighted average fee ( 2 ) 72.9 bps 73.1 bps 74.8 bps operating margin 36.8 % 36.0 % 32.5 % adjusted operating margin ( 3 ) 36.8 % 37.6 % 36.4 % ( 1 ) we compute average assets under management by averaging day-end assets under management for the applicable period . ( 2 ) we compute our weighted average fee by dividing annualized investment management fees and performance fees by average assets under management for the applicable period . ( 3 ) adjusted measures are non-gaap measures and are explained and reconciled to the comparable gaap measures in โ -supplemental non-gaap financial information โ below . management fees and assets under management within our consolidated investment products are excluded from the weighted average fee calculations and from total revenues , since any such revenues are eliminated upon consolidation . assets under management within artisan private funds are included in the reported firm-wide , separate account , and institutional assets under management figures reported below . assets under management and investment performance changes to our operating results from one period to another are primarily caused by changes in the amount of our assets under management . changes in the relative composition of our assets under management among our investment strategies and vehicles and the effective fee rates on our products also impact our operating results . the amount and composition of our assets under management are , and will continue to be , influenced by a variety of factors including , among others : investment performance , including fluctuations in both the financial markets and foreign currency exchange rates and the quality of our investment decisions ; flows of client assets into and out of our various strategies and investment vehicles ; our decision to close strategies or limit the growth of assets in a strategy or a vehicle when we believe it is in the best interest of our clients ; as well as our decision to re-open strategies , in part or entirely ; our ability to attract and retain qualified investment , management , and marketing and client service professionals ; industry trends towards products , strategies , vehicles or services that we do not offer ; competitive conditions in the investment management and broader financial services sectors ; and investor sentiment and confidence . 38 the table below sets forth changes in our total assets under management : for the years ended december 31 , 2018 2017 2016 ( in millions ) beginning assets under management $ 115,494 $ 96,845 $ 99,848 gross client cash inflows 18,693 16,380 18,489 gross client cash outflows ( 26,112 ) ( 21,788 ) ( 23,313 ) net client cash flows ( 7,419 ) ( 5,408 ) ( 4,824 ) market appreciation ( depreciation ) ( 1 ) ( 11,851 ) 24,057 1,821 ending assets under management $ 96,224 $ 115,494 $ 96,845 average assets under management $ 113,769 $ 108,754 $ 96,281 ( 1 ) includes the impact of translating the value of assets under management denominated in non-usd currencies into us dollars . the impact was immaterial for the periods presented . net client cash flows for the years ended december 31 , 2018 , 2017 and 2016 included net outflows of approximately $ 852 million , $ 510 million , and $ 294 million , respectively , from artisan funds annual income and capital gains distributions , net of reinvestments . across the firm , we experienced total net outflows of $ 7.4 billion during the year ended december 31 , 2018 . our u.s. mid-cap growth , non-u.s. growth , and u.s. mid-cap value strategies had net outflows of $ 3.6 billion , $ 3.3 billion , and $ 1.4 billion , respectively . in the aggregate , the rest of our strategies had approximately $ 1.0 billion of net inflows during 2018. we expect net outflows from the u.s. mid-cap growth , u.s. mid-cap value , and non-u.s. growth strategies to continue to weigh on our firm-wide net flows . in october 2018 , rezo kanovich joined artisan as a managing director and portfolio manager on the global equity team . effective october 15 , 2018 , he became sole portfolio manager of the non-u.s. small-mid growth strategy ( formerly the non-u.s. small-cap growth strategy ) and the strategy re-opened to new investors . effective october 1 , 2018 , each of the four associate portfolio managers on the global value team were promoted to co-portfolio managers . concurrently , the artisan global value team evolved into two distinct and autonomous investment teams โ the international value team led by david samra and the global value team led by daniel o'keefe . story_separator_special_tag we monitor the availability of attractive investment opportunities relative to the amount of assets we manage in each of our investment strategies . when appropriate , we will close a strategy to new investors or otherwise take action to slow or restrict its growth , even though our aggregate assets under management may be negatively impacted in the short term . we may also re-open a strategy , widely or selectively , to fill available capacity or manage the diversification of our client base in that strategy . we believe that management of our investment capacity protects our ability to manage assets successfully , which protects the interests of our clients and , in the long term , protects our ability to retain client assets and maintain our profit margins . as of the date of this filing , our non-u.s. value and u.s. small-cap growth strategies are closed to most new investors and client relationships . our global opportunities strategy is open across pooled vehicles , but closed to most new separate account clients . we may selectively accept additional separate account clients in that strategy , but we are managing asset flows into that strategy with a bias towards assets from pooled vehicles . our non-u.s. growth and u.s. mid-cap growth strategies were reopened across all vehicles effective february 1 , 2019. our global value strategy was reopened across all vehicles effective february 19 , 2019. when we close or otherwise restrict the growth of a strategy , we typically continue to allow additional investments in the strategy by existing clients and certain related entities . we may also permit new investments by other eligible investors at our discretion . as a result , during a given period we may have net client cash inflows in a closed strategy . however , when a strategy is closed or its growth is restricted we expect there to be periods of net client cash outflows . the table below sets forth the total assets under management for our investment teams and strategies as of december 31 , 2018 , the inception date for each investment composite , and the average annual total returns for each composite ( gross of fees ) and its respective broad-based benchmark ( and style benchmark , if applicable ) over a multi-horizon time period as of december 31 , 2018 . returns for periods less than one year are not annualized . 39 composite inception strategy aum average annual total returns ( gross ) average annual value-added ( 1 ) since inception ( bps ) investment team and strategy date ( in $ mm ) 1 yr 3 yr 5 yr 10 yr inception growth team global opportunities strategy 2/1/2007 $ 14,740 ( 7.92 ) % 8.84 % 7.86 % 16.10 % 9.27 % 537 msci all country world index ( 9.42 ) % 6.59 % 4.26 % 9.45 % 3.90 % global discovery 9/1/2017 112 ( 1.93 ) % 2.94 % 473 msci all country world index ( 9.42 ) % ( 1.79 ) % u.s. mid-cap growth strategy 4/1/1997 9,049 ( 2.74 ) % 5.95 % 5.64 % 16.06 % 14.18 % 463 russell ยฎ midcap index ( 9.06 ) % 7.04 % 6.26 % 14.02 % 9.55 % russell ยฎ midcap growth index ( 4.75 ) % 8.59 % 7.41 % 15.11 % 8.59 % u.s. small-cap growth strategy 4/1/1995 2,350 3.54 % 12.41 % 7.70 % 17.05 % 10.25 % 164 russell ยฎ 2000 index ( 11.01 ) % 7.36 % 4.41 % 11.97 % 8.61 % russell ยฎ 2000 growth index ( 9.31 ) % 7.23 % 5.13 % 13.51 % 7.19 % global equity team global equity strategy 4/1/2010 1,271 ( 1.95 ) % 9.16 % 6.83 % 11.30 % 451 msci all country world index ( 9.42 ) % 6.59 % 4.26 % 6.79 % non-u.s. growth strategy 1/1/1996 21,181 ( 9.80 ) % 2.90 % 1.31 % 9.30 % 9.56 % 534 msci eafe index ( 13.79 ) % 2.87 % 0.53 % 6.31 % 4.22 % non-u.s. small-mid growth strategy ( 2 ) 1/1/2019 515 msci acwi ex us small cap index msci acwi ex us smid index u.s. value team value equity strategy 7/1/2005 2,172 ( 13.73 ) % 9.53 % 5.00 % 11.86 % 7.13 % ( 83 ) russellยฎ 1000 index ( 4.78 ) % 9.08 % 8.21 % 13.27 % 7.96 % russellยฎ 1000 value index ( 8.27 ) % 6.95 % 5.94 % 11.17 % 6.49 % u.s. mid-cap value strategy 4/1/1999 4,405 ( 12.53 ) % 7.19 % 2.91 % 12.14 % 12.03 % 343 russellยฎ midcap index ( 9.06 ) % 7.04 % 6.26 % 14.02 % 8.60 % russellยฎ midcap value index ( 12.29 ) % 6.05 % 5.44 % 13.02 % 8.93 % international value team ( 3 ) non-u.s. value strategy 7/1/2002 17,681 ( 14.71 ) % 4.40 % 2.71 % 11.07 % 11.12 % 575 msci eafe index ( 13.79 ) % 2.87 % 0.53 % 6.31 % 5.37 % global value team ( 3 ) global value strategy 7/1/2007 17,113 ( 12.02 ) % 6.53 % 4.73 % 12.77 % 7.35 % 407 msci all country world index ( 9.42 ) % 6.59 % 4.26 % 9.45 % 3.28 % emerging markets team emerging markets strategy 7/1/2006 179 ( 14.20 ) % 12.33 % 4.17 % 8.66 % 5.03 % 53 msci emerging markets index ( 14.58 ) % 9.24 % 1.65 % 8.02 % 4.50 % credit team high income strategy 4/1/2014 2,803 ( 0.72 ) % 8.08 % 6.03 % 265 ice bofaml us high yield master ii total return index ( 2.26 ) % 7.26 % 3.38 % developing world team developing world strategy 7/1/2015 1,993 ( 14.53 ) % 9.77 % 4.51 % 236 msci emerging markets index ( 14.58 ) % 9.24 % 2.15 % thematic team thematic strategy 5/1/2017 448 11.55 % 24.80 % 1,968 s & p 500 index ( 4.38 ) % 5.12 % other assets under management ( 4 ) 212 total assets under management $ 96,224 ( 1 ) value-added is the amount in basis points by which
| in october 2018 , we onboarded an experienced and recognized leader to assume portfolio management responsibilities of the non-u.s. small-cap growth strategy , which was subsequently re-named the non-u.s. small-mid growth strategy . we also hired two experienced analysts with whom the portfolio manager previously worked . these investments resulted in incremental expense of $ 5 million in 2018. we expect the 2019 incremental expense to be approximately $ 4 million to $ 5 million , net of the investment team revenue share generated by the non-u.s. small-mid growth strategy . restricted share-based award compensation expense increased $ 3.8 million primarily as a result of our february 2018 grant , partially offset by the impact of the company 's 2013 equity grants becoming fully amortized during the year . pre-offering related compensation expense , which consists of the amortization expense on pre-offering class b awards , decreased $ 12.7 million as the remaining awards became fully vested during 2017. as of july 1 , 2017 , all class b awards were fully vested . total salaries , incentive compensation and benefits was 50 % and 49 % of our revenues for the years ended december 31 , 2018 and 2017 , respectively . other operating expenses other operating expenses increased $ 4.2 million for the year ended december 31 , 2018 , compared to the year ended december 31 , 2017 , primarily due to increased occupancy and technology expenses . during 2018 , we incurred approximately $ 3.1 million of incremental occupancy expense related to office relocations of several investment teams . the increased expense includes overlapping rent during the construction of new facilities , accelerated depreciation expense , and accelerated expense for the remaining lease costs to be incurred for an exited location . 50 non-operating income ( expense ) non-operating income ( expense ) consisted of the following : replace_table_token_20_th for year ended december 31 , 2017 , $ 290.4 million of the gain on the tax receivable agreements was due
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we anticipate this acquisition will be accretive for the year ended december 31 , 2018. comverge contributed $ 32.4 million in revenues from the acquisition on june 1 , 2017 through the year ended december 31 , 2017. for further discussion of the comverge acquisition , refer to item 8 : โ financial statements , note 17 : business combinations. โ silver spring networks , inc. acquisition on january 5 , 2018 , we completed our acquisition of silver spring networks , inc. ( ssni ) by purchasing all outstanding shares for $ 16.25 per share , resulting in a total purchase price , net of cash , of approximately $ 810 million . ssni provided internet of important things tm connectivity platforms and solutions to utilities and cities . the acquisition continues our focus on expanding management services and software-as-a-service solutions , which allows us to provide more value to our customers by optimizing devices , network technologies , outcomes and analytics . this entity will operate and be managed as a separate operating segment . as a part of the acquisition of ssni , we entered into a $ 1.15 billion senior secured credit facility ( the 2018 credit facility ) , which amended and restated the senior secured credit facility we entered into in 2015. the 2018 credit facility consists of a $ 650 million u.s. dollar term loan and a multicurrency revolving line of credit with a principal amount of up to $ 500 million . on december 22 , 2017 and january 19 , 2018 , we issued $ 300 million and $ 100 million of 5.00 % senior notes , respectively ( notes ) . the notes were issued pursuant to an indenture dated december 22 , 2017 , mature in 2026 , and are guaranteed by all of our subsidiaries that guarantee our borrowings under the 2018 credit facility . for further discussion of the notes , refer to item 1 : `` financial statements , note 6 : debt and note 19 : subsequent events . '' 2018 restructuring projects on february 22 , 2018 , our board approved a restructuring plan ( 2018 projects ) . the 2018 projects will include activities that continue our efforts to optimize our global supply chain and manufacturing operations , product development , and sales and marketing organizations . we expect to substantially complete the plan by the end of 2020. we estimate pre-tax restructuring charges of $ 100 million to $ 110 million with approximately $ 45 million to $ 50 million of annualized savings when substantially complete . 22 total company gaap and non-gaap highlights and unit shipments replace_table_token_5_th ( 1 ) these measures exclude certain expenses that we do not believe are indicative of our core operating results . see pages 40-42 for information about these non-gaap measures and reconciliations to the most comparable gaap measures . 23 meter and communication module summary we classify meters into two categories : standard metering โ no built-in remote reading communication technology smart metering โ one-way communication of meter data or two-way communication including remote meter configuration and upgrade ( consisting primarily of our openway technology ) in addition , smart meter communication modules can be sold separately from the meter . our revenue is driven significantly by sales of meters and communication modules . a summary of our meter and communication module shipments is as follows : replace_table_token_6_th story_separator_special_tag losses in domestic and foreign jurisdictions , new or revised tax legislation and accounting pronouncements , tax credits ( including research and development and foreign tax ) , state income taxes , adjustments to valuation allowances , and uncertain tax positions , among other items . the tax provision for the year ended december 31 , 2017 was significantly impacted by the inclusion of $ 30.4 million of expense for the provisional determination of the impact to our deferred tax positions of the tax cut and jobs act . we will continue to review any additional guidance issued by the u.s. department of the treasury , internal revenue service , financial accounting standards board , or other regulatory bodies and adjust our provisional amount during the measurement period , which should not extend beyond one year from the enactment date of december 22 , 2017. for additional discussion related to income taxes , see item 8 : โ financial statements and supplementary data , note 11 : income taxes. โ 26 operating segment results for a description of our operating segments , refer to item 8 : โ financial statements and supplementary data , note 16 : segment information โ in this annual report on form 10-k. the following tables and discussion highlight significant changes in trends or components of each operating segment . replace_table_token_10_th 27 electricity : the effects of changes in foreign currency exchange rates and the constant currency changes in certain electricity segment financial results were as follows : replace_table_token_11_th ( 1 ) constant currency change is a non-gaap financial measure and represents the total change between periods excluding the effect of changes in foreign currency exchange rates . revenues - 2017 vs. 2016 electricity revenues for 2017 increased by $ 84.6 million , or 9 % , compared with 2016 . this was a result of increased smart metering revenues in north america and emea regions , higher volumes of prepaid smart metering solutions in our asia pacific region , and improved service revenues in north america . this also included product revenues of $ 12.8 million and service revenues of $ 19.6 million associated with comverge . these improvements were partially offset by a decline in service revenues in emea , and a decline in product revenues in latin america . revenues - 2016 vs. 2015 electricity revenues for 2016 increased by $ 118.1 million , or 14 % , compared with 2015 . story_separator_special_tag this increase was primarily driven by increased smart metering revenues in north america and emea , higher volumes of prepaid smart metering solutions in our asia pacific region , and improved service revenue in north america . these improvements were partially offset by a decline in service revenues in emea , and a decline in product revenues in our latin america region . the total change in electricity revenues was unfavorably impacted by $ 17.6 million due to the effect of changes in foreign currency exchange rates . for the year ended december 31 , 2017 , one customer represented 19 % and two additional customers each represented 11 % of the electricity operating segment revenues . two customers represented 12 % and 10 % of total electricity operating segment revenues , respectively , for the year ended december 31 , 2016. no customer represented more than 10 % of total electricity operating segment revenues in 2015 . gross margin - 2017 vs. 2016 gross margin was 31.2 % in 2017 , compared with 30.1 % in 2016 . the 110 basis point improvement over the prior year was primarily the result of higher volumes and favorable product mix . gross margin - 2016 vs. 2015 gross margin was 30.1 % in 2016 , compared with 27.5 % in 2015 . the 260 basis point improvement over the prior year was primarily the result of increased sales of higher margin smart metering solutions in north america and planned reduction of lower margin product sales . 28 operating expenses - 2017 vs. 2016 operating expenses increased $ 11.0 million , or 5 % . the increase was primarily due to acquisition and integration related expenses associated with the acquisition of comverge , which are included in general and administrative expense . this was partially offset by a decrease in restructuring expenses in 2017 as compared with 2016. operating expenses - 2016 vs. 2015 operating expenses increased by $ 20.0 million , or 10 % . the increase was primarily due to higher restructuring expenses . in addition , general and administrative expenses for the year ended december 31 , 2015 included a recovery of $ 8.2 million related to the settlement of litigation arising from the smartsynch acquisition . these increases were partially offset by a decrease in amortization of intangible assets expense . gas : the effects of changes in foreign currency exchange rates and the constant currency changes in certain gas segment financial results were as follows : replace_table_token_12_th ( 1 ) constant currency change is a non-gaap financial measure and represents the total change between periods excluding the effect of changes in foreign currency exchange rates . revenues - 2017 vs. 2016 revenues decreased by $ 35.9 million , or 6 % , in 2017 compared with 2016 . this was due to a decrease in product revenues in emea and north america due to the completion of significant projects in the prior year , partially offset by an increase in module revenues in north america and product revenues in latin america . revenues - 2016 vs. 2015 revenues increased by $ 25.7 million , or 5 % , in 2016 compared with 2015. this was due to an increase in product revenues in north america , emea , and asia pacific . the total change in gas revenues was unfavorably impacted by $ 7.0 million due to the effect of changes in foreign currency exchange rates . no single customer represented more than 10 % of the gas operating segment revenues in 2017 , 2016 , or 2015 . gross margin - 2017 vs. 2016 gross margin was 35.8 % in 2017 , compared with 36.0 % in 2016 . the decrease of 20 basis points was related to higher warranty expenses and lower volumes , mostly offset by improved product mix . gross margin - 2016 vs. 2015 gross margin was 36.0 % in 2016 , compared with 34.1 % in 2015 . the increase of 190 basis points was related to improved product mix and increased volumes . 29 operating expenses - 2017 vs. 2016 operating expenses decreased by $ 21.2 million , or 15 % , in 2017 . the decrease was primarily due to higher restructuring expenses in 2016. operating expenses - 2016 vs. 2015 operating expenses increased by $ 20.2 million , or 17 % in 2016 . the increase was primarily due to higher restructuring expenses as a result of the announcement of the 2016 projects , partially offset by a decrease in general and administrative expense . water : the effects of changes in foreign currency exchange rates and the constant currency changes in certain water segment financial results were as follows : replace_table_token_13_th ( 1 ) constant currency change is a non-gaap financial measure and represents the total change between periods excluding the effect of changes in foreign currency exchange rates . revenues - 2017 vs. 2016 revenues decreased $ 43.7 million , or 9 % , in 2017 . this decrease was primarily due to lower product revenues in north america and emea . this was partially offset by improved product revenues in latin america . revenues - 2016 vs. 2015 revenues decreased $ 14.1 million , or 3 % , in 2016 . this decrease was primarily due to the effects of changes in foreign currency exchange rates , along with lower meter volumes in emea . this was partially offset by improved product and service revenues in north america and asia pacific . no single customer represented more than 10 % of the water operating segment revenues in 2017 , 2016 , or 2015 . gross margin - 2017 vs. 2016 gross margin increased to 35.7 % in 2017 , compared with 34.2 % in 2016 . the 150 basis point increase was driven by lower warranty expense in 2017 , including an $ 8.0 million insurance recovery in north america associated with warranty expenses previously recognized as a result of our 2015 product replacement notification to customers who had purchased certain communication modules .
| no single customer represented more than 10 % of total revenues for the years ended december 31 , 2017 , 2016 , and 2015 . our 10 largest customers accounted for 33 % , 31 % , and 22 % of total revenues in 2017 , 2016 , and 2015 , respectively . gross margin gross margin was 33.5 % for 2017 , compared with 32.8 % in 2016 . our gross margin associated with product sales improved to 33.5 % in 2017 from 32.3 % in 2016 due to improved product mix , particularly in our electricity segment , and an $ 8.0 million insurance recovery in 2017 associated with warranty expenses previously recognized as a result of our 2015 communication module product replacement notification to customers in our water segment . this recovery contributed 40 basis points to the gross margin improvement . gross margin associated with our service revenues declined to 32.7 % from 37.9 % in 2016 due to lower margin sales in our emea region . gross margin was 32.8 % in 2016 , compared with 29.6 % in 2015 . the increase was primarily driven by the $ 29.4 million warranty charge recognized in 2015 previously discussed . product gross margins increased to 32.3 % in 2016 from 28.4 % in 2015 as a result of the warranty charge in 2015. service gross margin decreased to 37.9 % in 2016 from 40.1 % in 2015 as a result of the closure of a services business in our emea region . operating expenses the following table shows the components of operating expense : replace_table_token_8_th ( 1 ) constant currency change is a non-gaap financial measure and represents the total change between periods excluding the effect of changes in foreign currency exchange rates . 25 operating expenses decreased $ 40.4 million for the year ended december 31 , 2017 as compared with the same period in 2016 . this was primarily related to decreases in restructuring and general and administrative expense , partially offset by an increase in sales and marketing expenses . for the year
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the precice limb lengthening system is sold by our nuvasive specialized orthopedics division . we intend to continue development on a wide variety of projects intended to broaden surgical applications for greater procedural integration of our mas techniques and additional applications of the magec technology . such applications include tumor , trauma , and deformity , as well as increased fixation options , sagittal alignment products , imaging and navigation . we also expect to continue expanding our other product and services offerings as we execute on our strategy to offer customers an end-to-end , integrated procedural solution for spine surgery . we intend to continue to pursue business and technology acquisition targets and strategic partnerships . 42 revenues and operations to date , the majority of our revenues are derived from the sale of implants , biologics and disposables and we expect this trend to continue for the foreseeable future . additionally , with our recent acquisitions of iom service providers , we expect our iom service and support revenue to increase compared to previous periods . we loan our proprietary software-driven nerve monitoring systems and surgical instrument sets at no cost to surgeons and hospitals that purchase disposables and implants for use in individual procedures . in addition , we often place our proprietary software-driven nerve monitoring systems , maxcess and other mas instrument sets with hospitals for an extended period at no up-front cost to them . our implants , biologics and disposables are currently sold and shipped from our distribution and warehousing operations . we generally recognize revenue for implants , biologics and disposables upon receiving a purchase order from the hospital , or acknowledgment from the hospital indicating product use or implantation , or upon shipment to third-party customers who immediately accept title . revenue from iom services is recognized in the period the service is performed for the amount of payment we expect to receive . we sell mas instrument sets , maxcess devices , and our proprietary software-driven nerve monitoring systems , however this does not make up a material part of our business . currently , sales and leases of capital equipment , including our lessray software technology suite , represent a small portion of our consolidated revenues . the majority of our operations are located and the majority of our sales have been generated in the united states . we sell our products in the united states through a sales force comprised primarily of independent sales agents and directly-employed sales representatives . our sales force provides a delivery and consultative service to our surgeon and hospital customers and is compensated based on sales and product placements in their territories . sales force commissions are reflected in the sales , marketing and administrative operating expense line item within our statement of operations . we continue to invest in international expansion with a focus on european , asia-pacific and latin american markets . our international sales force is comprised of directly-employed sales personnel , independent sales agents , as well as exclusive and non-exclusive independent third-party distributors . as of december 31 , 2017 , we did not have any significant backlog . we have operations in puerto rico that have been impacted by hurricanes during the year ended december 31 , 2017. these operations do not constitute a material amount of our assets , liabilities or revenue . the ultimate impact of the hurricanes on the government , the local economy and on individual institutions may affect the realization of our assets as well as our ongoing ability to generate revenue ; however , the assessment is currently underway . we believe the results of our financial position reflect the best estimate of the realizable value of our existing assets . critical accounting policies our discussion and analysis of our financial condition and results of operations is based upon our audited consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states ( gaap ) . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an ongoing basis , we evaluate our estimates including those related to revenue recognition , bad debts , inventories , valuation of financial instruments , goodwill , intangibles , property and equipment , contingent liabilities , stock-based compensation , income taxes , and legal proceedings . we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources . actual results may differ from these estimates . the following accounting policies are critical to the judgments and estimates used in the preparation of our consolidated financial statements . revenue recognition in accordance with the securities and exchange commission 's guidance , we recognize revenue when all four of the following criteria are met : ( i ) persuasive evidence that an arrangement exists ; ( ii ) delivery of the products and or services has occurred ; ( iii ) the selling price is fixed or determinable ; and ( iv ) collectability is reasonably assured . specifically , revenue from the sale of implants and disposables is generally recognized upon receipt of a purchase order from the hospital or acknowledgment from the hospital indicating product use or implantation , or upon shipment to third-party customers who immediately accept title . revenue from our monitoring services is recognized in the period the service is performed for the amount of payment we expect to receive . revenue from the sale of our instrument sets is recognized upon receipt of a purchase order and the subsequent shipment to customers who immediately accept title . instrument sales account for an immaterial amount of annual sales . story_separator_special_tag 43 allowance for doubtful accounts and sales return reserve we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments . the allowance for doubtful accounts is reviewed quarterly and is estimated based on the aging of account balances , collection history and known trends with current customers and in the economy in general . as a result of this review , the allowance is adjusted on a specific identification basis for significant accounts and a general reserve approach for non-significant accounts . we also review the overall quality and age of those invoices not specifically identified . in determining the provision for invoices not specifically reviewed , we analyze historical collection experience and current economic trends . an increase to the allowance for doubtful accounts results in a corresponding charge to sales , marketing and administrative expenses . if the historical data used to calculate the allowance provided for doubtful accounts does not reflect our future ability to collect outstanding receivables or if the financial condition of customers were to deteriorate , resulting in impairment of their ability to make payments , an increase in the provision for doubtful accounts may be required . we maintain a relatively large customer base that mitigates the risk of concentration with any one particular customer . historically , our reserves have been adequate to cover losses . in addition , we establish a reserve for estimated sales returns and pricing adjustments that is recorded as a reduction to revenue . this reserve is maintained to account for future return of products or pricing adjustments on products sold in the current period . this reserve is reviewed quarterly and is estimated based on an analysis of our historical experience and expected future trends . historically , our reserves have been adequate to account for returns and pricing adjustments . inventory net inventory primarily consists of $ 232.4 million finished goods , which includes specialized implants and disposables , and is stated at the lower of cost or market determined by utilizing a standard cost method which approximates the weighted average cost . our inventory balance also includes $ 5.0 million and $ 9.8 million raw materials and work in progress , respectively . we review the components of our inventory on a periodic basis for excess and obsolescence and adjust inventory to its net realizable value as necessary . excess and obsolete inventory we provide an inventory reserve for estimated obsolescence and excess inventory based upon historical turnover and assumptions about future demand for our products and market conditions . our allograft products have shelf lives ranging from two to five years and are subject to demand fluctuations based on the availability and demand for alternative products . our inventory , which consists primarily of disposables and specialized implants , is at risk of obsolescence following the introduction and development of new or enhanced products . our estimates and assumptions for excess and obsolete inventory are reviewed and updated on a quarterly basis . the estimates we use for demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts . increases in the reserve for excess and obsolete inventory result in a corresponding charge to cost of goods sold . historically our reserves have been adequate to cover losses . a stated goal of our business is to focus on continual product innovation and to obsolete our own products . while this provides a competitive edge , it also results in the risk that our products and related capital instruments will become obsolete prior to sale or to the end of their anticipated useful lives . fair value of financial instruments a sc topic 820 , fair value measurements and disclosures , defines fair value and requires us to establish a framework for measuring fair value and disclosure about fair value measurements . the framework requires the valuation of assets and liabilities subject to fair value measurements using a three tiered approach and fair value measurement be classified and disclosed in one of the following three categories . inputs to valuation techniques are observable or unobservable . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions . level 1 : quoted prices ( unadjusted ) in active markets that are accessible at the measurement date for assets or liabilities . level 2 : observable prices that are based on inputs not quoted on active markets , but corroborated by market data . level 3 : unobservable inputs are used when little or no market data is available . carrying value of the financial instruments measured and classified within level 1 is based on quoted prices . the types of instruments that trade in markets that are not considered to be active , but are valued based on quoted market prices , broker or dealer quotations , or alternative pricing sources with reasonable levels of price transparency are generally classified within level 2 of the fair value hierarchy . certain contingent consideration liabilities are classified within level 3 of the fair value hierarchy because they use unobservable inputs . for those liabilities , fair value is determined using a probability-weighted discounted cash flow model , the significant inputs which are not observable in the market . 44 valuation of goodwill and intangible assets with indefinite lives our goodwill represents the excess of the cost over the fair value of net assets acquired from our business combinations . the determination of the value of goodwill and intangible assets arising from business combinations and asset acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired , including capitalized in-process research and development , or ipr & d . intangible assets acquired in a business combination that are used for ipr & d activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts .
| revenue from our spinal hardware product line offerings increased $ 58.0 million , or 9 % , in 2017 compared to 2016. revenue associated with our 2016 acquisitions accounted for approximately 1 % of the increase in spinal hardware revenue for the year ended december 31 , 2017. product volume for our spinal hardware business , excluding the impact from our 2016 acquisitions , increased our revenue by approximately 10 % , offset by unfavorable changes in price of approximately 3 % for the year ended december 31 , 2017 as compared to 2016. foreign currency fluctuation from 2016 to 2017 did not have a material impact on spinal hardware revenue . revenue from our spinal hardware product line offerings increased $ 114.7 million , or 20 % , in 2016 compared to 2015. revenue associated with our 2016 acquisitions accounted for approximately 11 % of the increase in spinal hardware revenue for the year ended december 31 , 2016 as compared to 2015. product volume for our spinal hardware business , excluding the impact from our 2016 acquisitions , increased our revenue by approximately 11 % , offset by unfavorable changes in price of approximately 2 % for the year ended december 31 , 2016 as compared to 2015. foreign currency fluctuation from 2015 to 2016 did not have a material impact on spinal hardware revenue . revenue from our spinal hardware product line offerings for the year ended december 31 , 2016 included a $ 4.8 million purchase order , which did not recur during the year ended december 31 , 2017 , from an organization established by certain former stockholders of ellipse technologies with their stated purpose to be donated for use in spinal deformity procedures for children in underprivileged communities . see note 3 to the consolidated financial statements included in this annual report for further discussion . revenue from our surgical support product line offerings increased $ 9.5 million , or 3 % , in 2017 compared to 2016. revenue associated with our 2016 acquisitions accounted for approximately 10 % of the
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56 the following table sets forth a reconciliation of adjusted ebitda and dcf to the most directly comparable financial measure calculated and presented in accordance with gaap : replace_table_token_3_th ( 1 ) represents foreign exchange transaction amounts associated with activities between our u.s. and canadian subsidiaries . ( 2 ) represents costs incurred associated with unrecovered reimbursable freight costs related to the initial delivery of railcars in support of the hardisty terminal . ( 3 ) represents deferred revenue associated with minimum monthly commitment fees in excess of throughput utilized , which fees are not refundable to our customers . amounts presented are net of : ( a ) the corresponding prepaid gibson pipeline fee that will be recognized as expense concurrently with the recognition of revenue ; ( b ) revenue recognized in the current period that was previously deferred ; and ( c ) expense recognized for previously prepaid gibson pipeline fees , which correspond with the revenue recognized that was previously deferred . refer to the discussion in note 10. deferred revenue of our consolidated financial statements included in part ii , item 8. financial statements and supplementary data of this annual report . ( 4 ) includes amounts we received as a partial refund of approximately $ 3.7 million ( representing c $ 4.9 million ) for our 2015 foreign income taxes . operating and maintenance expenses our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses . given that both our hardisty and casper terminals were constructed in 2014 , we do not expect to incur significant maintenance expenditures in the near term to maintain the operating capacity of these facilities . we record routine maintenance expenses associated with operating our assets in `` operating and maintenance '' costs in our consolidated statements of operations . our operating and maintenance expenses are comprised primarily of pipeline fees , repairs and maintenance expenses , materials and supplies , subcontracted rail expenses , utility costs , insurance premiums and rent for facilities and equipment . in addition , our operating expenses include the cost of leasing railcars from third-party railcar suppliers and the shipping fees charged by railroads , which costs are generally passed through to our customers . although our assets are relatively new , we expect to incur costs to maintain these assets in compliance with sound business practices , our contractual relationships and to comply with regulatory requirements for operating 57 these assets . we expect our expenses to remain relatively stable , but they may fluctuate from period to period depending on the mix of activities performed during a period and the timing of these expenditures . volumes the amount of terminalling services revenue we generate depends on minimum customer commitment fees and the volume of crude oil that we handle at our terminals in excess of those minimum commitments , as well as the volume of biofuels transloaded at our ethanol terminals . these volumes are primarily affected by the supply of and demand for crude oil , refined products and biofuels in the markets served directly or indirectly by our assets . additionally , these volumes are affected by the spreads between the benchmark prices for these products , which are influenced by , among other things , the available takeaway capacity in those markets . although customers at our hardisty and casper terminals have committed to minimum monthly fees under their terminal services agreements with us , which will generate the majority of our terminalling services revenue , our results of operations will also be affected by : our customers ' utilization of our terminals in excess of their minimum monthly volume commitments ; our ability to identify and execute accretive acquisitions and commercialize organic expansion projects to capture incremental volumes ; and our ability to renew contracts with existing customers , enter into contracts with new customers , increase customer commitments and throughput volumes at our terminals , and provide additional ancillary services at those terminals . general trends and outlook san antonio terminal in august 2016 , we received notification from the customer of our san antonio terminal stating their intent to terminate their terminalling services agreement with us in early february 2017 , which was extended in january 2017 to early may 2017. in early february 2017 , the lessor of the real property upon which the san antonio terminal resides indicated their intent to terminate our lease with them concurrently with the conclusion of the extension agreement for terminalling services we have with our customer , at which time we expect to wind down the operations of this terminal . as a result we have recognized a non-cash impairment loss of approximately $ 3.5 million for the year ended december 31 , 2016 , including an asset retirement obligation of $ 1.0 million for amounts we expect to spend to restore the property to its original condition . during the year ended december 31 , 2016 , our san antonio terminal contributed less than 3 % of our adjusted ebitda . except as indicated above , we do not expect the termination of this agreement to have a material impact on our cash flows , financial position , or results of operations . income taxes we completed a study we commissioned in 2015 to evaluate the appropriate return attributable to the activities of our foreign subsidiaries , based upon the performance of risk management and other functions we provide . based upon the results of this study , we adopted a methodology for determining the return attributable to our canadian subsidiaries and concluded the return initially attributed to the activities of our foreign subsidiaries exceeded the amounts considered to be reasonable based on the functions we provide on behalf of these subsidiaries . as a result , we determined that we had over-estimated our foreign income tax liability for 2015 by approximately $ 4.4 million , a majority of story_separator_special_tag 56 the following table sets forth a reconciliation of adjusted ebitda and dcf to the most directly comparable financial measure calculated and presented in accordance with gaap : replace_table_token_3_th ( 1 ) represents foreign exchange transaction amounts associated with activities between our u.s. and canadian subsidiaries . ( 2 ) represents costs incurred associated with unrecovered reimbursable freight costs related to the initial delivery of railcars in support of the hardisty terminal . ( 3 ) represents deferred revenue associated with minimum monthly commitment fees in excess of throughput utilized , which fees are not refundable to our customers . amounts presented are net of : ( a ) the corresponding prepaid gibson pipeline fee that will be recognized as expense concurrently with the recognition of revenue ; ( b ) revenue recognized in the current period that was previously deferred ; and ( c ) expense recognized for previously prepaid gibson pipeline fees , which correspond with the revenue recognized that was previously deferred . refer to the discussion in note 10. deferred revenue of our consolidated financial statements included in part ii , item 8. financial statements and supplementary data of this annual report . ( 4 ) includes amounts we received as a partial refund of approximately $ 3.7 million ( representing c $ 4.9 million ) for our 2015 foreign income taxes . operating and maintenance expenses our management seeks to maximize the profitability of our operations by effectively managing operating and maintenance expenses . given that both our hardisty and casper terminals were constructed in 2014 , we do not expect to incur significant maintenance expenditures in the near term to maintain the operating capacity of these facilities . we record routine maintenance expenses associated with operating our assets in `` operating and maintenance '' costs in our consolidated statements of operations . our operating and maintenance expenses are comprised primarily of pipeline fees , repairs and maintenance expenses , materials and supplies , subcontracted rail expenses , utility costs , insurance premiums and rent for facilities and equipment . in addition , our operating expenses include the cost of leasing railcars from third-party railcar suppliers and the shipping fees charged by railroads , which costs are generally passed through to our customers . although our assets are relatively new , we expect to incur costs to maintain these assets in compliance with sound business practices , our contractual relationships and to comply with regulatory requirements for operating 57 these assets . we expect our expenses to remain relatively stable , but they may fluctuate from period to period depending on the mix of activities performed during a period and the timing of these expenditures . volumes the amount of terminalling services revenue we generate depends on minimum customer commitment fees and the volume of crude oil that we handle at our terminals in excess of those minimum commitments , as well as the volume of biofuels transloaded at our ethanol terminals . these volumes are primarily affected by the supply of and demand for crude oil , refined products and biofuels in the markets served directly or indirectly by our assets . additionally , these volumes are affected by the spreads between the benchmark prices for these products , which are influenced by , among other things , the available takeaway capacity in those markets . although customers at our hardisty and casper terminals have committed to minimum monthly fees under their terminal services agreements with us , which will generate the majority of our terminalling services revenue , our results of operations will also be affected by : our customers ' utilization of our terminals in excess of their minimum monthly volume commitments ; our ability to identify and execute accretive acquisitions and commercialize organic expansion projects to capture incremental volumes ; and our ability to renew contracts with existing customers , enter into contracts with new customers , increase customer commitments and throughput volumes at our terminals , and provide additional ancillary services at those terminals . general trends and outlook san antonio terminal in august 2016 , we received notification from the customer of our san antonio terminal stating their intent to terminate their terminalling services agreement with us in early february 2017 , which was extended in january 2017 to early may 2017. in early february 2017 , the lessor of the real property upon which the san antonio terminal resides indicated their intent to terminate our lease with them concurrently with the conclusion of the extension agreement for terminalling services we have with our customer , at which time we expect to wind down the operations of this terminal . as a result we have recognized a non-cash impairment loss of approximately $ 3.5 million for the year ended december 31 , 2016 , including an asset retirement obligation of $ 1.0 million for amounts we expect to spend to restore the property to its original condition . during the year ended december 31 , 2016 , our san antonio terminal contributed less than 3 % of our adjusted ebitda . except as indicated above , we do not expect the termination of this agreement to have a material impact on our cash flows , financial position , or results of operations . income taxes we completed a study we commissioned in 2015 to evaluate the appropriate return attributable to the activities of our foreign subsidiaries , based upon the performance of risk management and other functions we provide . based upon the results of this study , we adopted a methodology for determining the return attributable to our canadian subsidiaries and concluded the return initially attributed to the activities of our foreign subsidiaries exceeded the amounts considered to be reasonable based on the functions we provide on behalf of these subsidiaries . as a result , we determined that we had over-estimated our foreign income tax liability for 2015 by approximately $ 4.4 million , a majority of
| the activities of our foreign subsidiaries based on the functions we provide and risks we manage on their behalf , which resulted in a reduction of our canadian income tax liabilities for the 2015 and 2016 tax years . 64 year ended december 31 , 2015 compared to the year ended december 31 , 2014 our operating results for the year ended december 31 , 2015 , compared with our operating results for the year ended december 31 , 2014 , were largely driven by the following : a full year of operation of our hardisty terminal , which commenced operation in late june 2014 and contributed approximately $ 23.1 million to the operating income of our terminalling services business for the year ended december 31 , 2015 , compared with a contribution of $ 2.2 million for the year ended december 31 , 2014 ; the casper terminal operations , which we acquired in november 2015 , contributed approximately $ 0.8 million to the operating income of our terminalling services business ; an increased number of railcars in service in our fleet services business resulting from the full year operation of the hardisty terminal . operating income of our fleet services business increased approximately $ 2.9 million for the year ended december 31 , 2015 , compared with the same period of 2014 ; a full year of costs related to our omnibus agreement and public partnership expenses for the year ended december 31 , 2015 , that we did not incur prior to our ipo in october 2014 ; and the favorable impact of gains on the foreign currency derivative instrument contracts we entered into in may 2014 and june 2015 , which were largely offset by the continued deterioration of the canadian dollar relative to the u.s. dollar from december 31 , 2014 to december 31 , 2015 , that reduced the operating results of our canadian subsidiaries when translated
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employee related workers compensation and group insurance costs also increased $ 2,622. in addition , costs related to the corporate repurchase reserve required for vehicle repurchase commitments increased $ 850 primarily due to increased standby repurchase obligations in correlation with increased sales and dealer inventory levels . corporate interest income and other income and expense was $ 4,052 of income in fiscal 2013 compared to $ 4,110 of income for fiscal 2012. the $ 58 decrease in income is primarily due to a decrease in overall interest income of $ 1,070 , primarily due to reduced interest income on our notes receivable due to lower note balances . this decrease was partially offset by an increase of $ 1,012 in other income , principally due to market value appreciation on the company 's deferred compensation plan assets of $ 1,355 in fiscal 2013 as compared with $ 311 in fiscal 2012 , a favorable increase of $ 1,044. the overall annual effective tax rate for fiscal 2013 was 31.7 % on $ 221,972 of income before income taxes , compared to 32.6 % on $ 165,388 of income before income taxes for fiscal 2012. the primary reason for the decrease in the overall effective income tax rate was the larger favorable settlements of certain uncertain tax positions that occurred in the fiscal year ended july 31 , 2013 compared to the fiscal year ended july 31 , 2012. the company also recorded a tax benefit in fiscal 2013 from the retroactive reinstatement of the federal research and development credit and other credits that were enacted on january 2 , 2013. the changes in costs and price within our business due to inflation were not significantly different from inflation in the united states economy as a whole . levels of capital investment , pricing and inventory investment in our business were not materially affected by changes caused by inflation . 20 segment reporting towable recreational vehicles analysis of change in net sales for fiscal 2013 vs. fiscal 2012 replace_table_token_12_th impact of change in mix and price on net sales : % increase towables travel trailers 3.0 fifth wheels 6.7 other 8.5 total towables 3.0 the increase in total towables net sales of 15.9 % compared to the prior year period resulted from a 12.9 % increase in unit shipments and a 3.0 % increase in the impact of the change in the overall net price per unit . the increase in the overall net price per unit within the travel trailer product lines of 3.0 % is primarily due to selective net price increases and changes in product mix . the increase in the overall net price per unit within the fifth wheel product lines of 6.7 % is due to customer preference toward units with additional features and upgrades compared to a year ago . average fifth wheel selling prices have also increased due to the higher concentration of sales of luxury product lines and certain upscale toy hauler lines compared to the prior year . selective net price increases were also implemented since the comparable prior year period . the ยotherย category relates to sales in the park model industry . the overall industry increase in travel trailer and fifth wheel wholesale unit shipments for the twelve month period ended july 31 , 2013 was 13.9 % compared to the same period last year according to statistics published by rvia . cost of products sold increased $ 296,153 to $ 2,298,977 , or 86.7 % of towable net sales , for fiscal 2013 compared to $ 2,002,824 , or 87.6 % of towable net sales , for fiscal 2012. the change in material , labor , freight-out and warranty comprised $ 279,878 of the $ 296,153 increase in cost of products sold and was due to increased sales volume . material , labor , freight-out and warranty as a combined percentage of towable net sales decreased to 81.2 % in fiscal 2013 from 81.9 % in fiscal 2012. this 0.7 % decrease as a percentage of towable net sales is primarily due to the favorable impact of selective net price increases in fiscal 2013. total manufacturing overhead increased $ 16,275 to $ 146,665 in fiscal 2013 compared to $ 130,390 in fiscal 2012 as a result of the increase in sales volume . variable costs in manufacturing overhead increased $ 16,147 to $ 136,251 or 5.1 % of towable net sales for fiscal 2013 compared to $ 120,104 or 5.3 % of towable net sales for fiscal 2012 due to increased production . fixed costs in manufacturing overhead , which consists primarily of facility costs , property taxes and depreciation , increased $ 128 to $ 10,414 in fiscal 2013 from $ 10,286 in fiscal 2012 . 21 towable gross profit increased $ 68,237 to $ 351,276 , or 13.3 % of towable net sales , for fiscal 2013 compared to $ 283,039 , or 12.4 % of towable net sales , for fiscal 2012. the increase in gross profit and gross profit percentage was due primarily to the 15.9 % increase in net sales . selling , general and administrative expenses were $ 133,585 , or 5.0 % of towable net sales , for fiscal 2013 compared to $ 114,080 , or 5.0 % of towable net sales , for fiscal 2012. the primary reason for the $ 19,505 increase in selling , general and administrative expenses was increased towable net sales and towable income before income taxes , which caused related commissions , bonuses and other compensation to increase by $ 15,202. sales related travel , advertising and promotion costs also increased $ 1,081 in correlation with the increase in sales . legal and professional fees and related settlement costs increased $ 1,657 in total . towable income before income taxes increased to 7.8 % of towable net sales for fiscal 2013 from 7.0 % of towable net sales for fiscal 2012. the primary factor for this increase in percentage was the impact of the 15.9 % increase in net sales as noted above . story_separator_special_tag motorized recreational vehicles analysis of change in net sales for fiscal 2013 vs. fiscal 2012 replace_table_token_13_th impact of change in mix and price on net sales : % increase motorized class a 14.4 class c 7.6 class b 8.9 total motorized 9.9 the increase in total motorized net sales of 67.1 % compared to the prior year period resulted from a 57.2 % increase in unit shipments and a 9.9 % overall increase in the impact of the change in the net price per unit resulting primarily from mix of product . the overall market increase in unit shipments of motorhomes was 36.2 % for the twelve month period ended july 31 , 2013 compared to the same period last year according to statistics published by rvia . the increase in the overall net price per unit within the class a product line of 14.4 % is primarily due to increased sales of the generally larger and more expensive diesel units rather than the more moderately priced gas units compared to a year ago . the increase in the overall net price per unit within the class c product line of 7.6 % is primarily due to changes in product mix . within the class b product line , the increase in the overall net price per unit of 8.9 % is due to a greater concentration of sales of higher priced models in the current year . 22 cost of products sold increased $ 200,835 to $ 518,279 , or 87.6 % of motorized net sales , for fiscal 2013 compared to $ 317,444 , or 89.7 % of motorized net sales , for fiscal 2012. the change in material , labor , freight-out and warranty comprised $ 196,366 of the $ 200,835 increase in cost of products sold and was due to increased sales volume . material , labor , freight-out and warranty as a combined percentage of motorized net sales decreased to 83.7 % in fiscal 2013 from 84.4 % in fiscal 2012. this decrease in percentage is primarily due to a decrease in the material cost percentage to net sales . total manufacturing overhead costs increased $ 4,469 to $ 23,368 in fiscal 2013 compared to $ 18,899 in fiscal 2012 as a result of the increase in sales volume . variable costs in manufacturing overhead increased $ 4,751 to $ 21,708 , or 3.7 % of motorized net sales , for fiscal 2013 compared to $ 16,957 , or 4.8 % of motorized net sales , for fiscal 2012. fixed costs in manufacturing overhead , which consists primarily of facility costs , property taxes and depreciation , decreased $ 282 to $ 1,660 in fiscal 2013 from $ 1,942 in fiscal 2012 , reflecting property tax reductions in fiscal 2013. motorized gross profit increased $ 36,772 to $ 73,263 , or 12.4 % of motorized net sales , for fiscal 2013 compared to $ 36,491 , or 10.3 % of motorized net sales , for fiscal 2012. the increases in gross profit and gross profit percentage were due primarily to the impact of the 67.1 % increase in net sales as noted above . selling , general and administrative expenses were $ 29,354 , or 5.0 % of motorized net sales , for fiscal 2013 compared to $ 18,016 , or 5.1 % of motorized net sales , for fiscal 2012. the primary reason for the $ 11,338 increase was increased motorized net sales and motorized income before income taxes , which caused related commissions , bonuses and other compensation to increase by $ 9,915. product liability and settlement related costs increased $ 687 , and sales related travel , advertising and promotion costs increased $ 707 in correlation with the increase in sales . motorized income before income taxes was 7.4 % of motorized net sales for fiscal 2013 and 5.2 % of motorized net sales for fiscal 2012. this increase in percentage is primarily attributable to the favorable impact of the 67.1 % increase in net sales noted above . 23 fiscal 2012 vs. fiscal 2011 replace_table_token_14_th 24 consolidated consolidated net sales and consolidated gross profit for fiscal 2012 increased 12.8 % and 6.9 % , respectively , compared to fiscal 2011. heartland , acquired in fiscal 2011 , accounted for $ 83,485 of the $ 299,356 increase in consolidated net sales , as heartland 's results include twelve months in the 2012 total as compared with ten and a half months in 2011 from the date of its acquisition by the company . consolidated gross profit for fiscal 2012 increased $ 20,594 , or 6.9 % , compared to fiscal 2011. consolidated gross profit was 12.1 % of consolidated net sales for fiscal 2012 compared to 12.8 % of consolidated net sales for fiscal 2011. the 0.7 % decrease in gross profit percentage was driven primarily by increased discounting and dealer incentive programs within the rv towable segment in the current year , as dealer and competitor pressures necessitated greater discounting and incentives to secure sales . selling , general and administrative expenses for fiscal 2012 decreased 7.6 % compared to fiscal 2011. income before income taxes for fiscal 2012 was $ 165,388 as compared to $ 132,337 in fiscal 2011 , an increase of 25.0 % . the specifics on changes in net sales , gross profit , selling , general and administrative expenses and income before income taxes are addressed in the segment reporting below . corporate costs in selling , general and administrative expenses were $ 16,164 for fiscal 2012 compared to $ 32,106 for fiscal 2011. this decrease of $ 15,942 is attributable to one-time legal and professional fees of $ 1,826 incurred in fiscal 2011 in connection with the heartland acquisition and $ 4,249 in additional fees in fiscal 2011 related to the now completed sec review .
| discontinued operations on july 31 , 2013 , we entered a definitive stock purchase agreement to sell our bus business to allied specialty vehicles , inc. ( ยasvย ) for $ 100 million in cash , subject to closing adjustments , including working capital changes from april 30 , 2013 until closing . the sale is subject to customary closing conditions and is expected to be completed by november 1 , 2013. thor 's bus business includes champion bus , inc. , general coach america , inc. , goshen coach , inc. , el dorado national california , inc. , and el dorado national kansas , inc. as a result of our plan to divest the bus business , the assets and liabilities of the bus business are reported as assets or liabilities of discontinued operations in the consolidated balance sheet as of july 31 , 2013 and the results of operations as income from discontinued operations , net of income taxes on the consolidated statements of income and comprehensive income for the years ended july 31 , 2013 , 2012 , and 2011. discontinued operations also reflect the results of the ambulance product line , through the date of its sale on april 30 , 2013. see note 3 , ยdiscontinued operations , ย in the notes to the consolidated financial statements for further information . the following table summarizes the results of discontinued operations : replace_table_token_5_th other significant events during the year ended july 31 , 2012 , we purchased a combined total of 3,000,000 shares of the company 's common stock and held them as treasury stock at a total cost of $ 77,000. of the 3,000,000 shares , 2,000,000 were repurchased from the estate of wade f.b . thompson ( the ยestateย ) in two separate private transactions at a total cost of $ 48,500. both of these transactions were evaluated and approved by members of our board of directors who are not affiliated with the estate . in a third separate private transaction , we repurchased 1,000,000 shares from catterton partners vi , l.p. , catterton partners vi offshore , l.p. , cp6 interest holdings , l.l.c. , and cpvi coinvest , l.l.c . at a total cost of $ 28,500. we
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