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however , there can be no assurance that our actions will ensure that we will not receive a warning letter or be the subject of other regulatory action , which may include consent decrees or fines , that we will not conduct product recalls or that we will not experience temporary or extended periods during which we may not be able to sell products in foreign countries . critical accounting policies preparation of our financial statements requires us to make estimates and assumptions which affect the reported amounts of assets , liabilities , revenues and expenses . note 1 to the consolidated financial statements describes the significant accounting policies used in preparation of the consolidated financial statements . the most significant areas involving management judgments and estimates are described below and are considered by management to be critical to understanding the financial condition and results of operations of conmed corporation . revenue recognition revenue is recognized when title has been transferred to the customer which is at the time of shipment . the following policies apply to our major categories of revenue transactions : sales to customers are evidenced by firm purchase orders . title and the risks and rewards of ownership are transferred to the customer when product is shipped under our stated shipping terms . payment by the customer is due under fixed payment terms . we place certain of our capital equipment with customers in return for commitments to purchase disposable products over time periods generally ranging from one to three years . in these circumstances , no revenue is recognized upon capital equipment shipment as the equipment is loaned and subject to return if certain minimum single-use purchases are not met . revenue is recognized upon the sale and shipment of the related single-use products . the cost of the equipment is amortized over its estimated useful life . product returns are only accepted at the discretion of the company and in accordance with our “ returned goods policy ” . historically the level of product returns has not been significant . we accrue for sales returns , rebates and allowances based upon an analysis of historical customer returns and credits , rebates , discounts and current market conditions . our terms of sale to customers generally do not include any obligations to perform future services . limited warranties are provided for capital equipment sales and provisions for warranty are provided at the time of product sale based upon an analysis of historical data . 30 amounts billed to customers related to shipping and handling have been included in net sales . shipping and handling costs included in selling and administrative expense were $ 11.3 million , $ 7.9 million and $ 8.8 million for 2009 , 2010 and 2011 , respectively . we sell to a diversified base of customers around the world and , therefore , believe there is no material concentration of credit risk . we assess the risk of loss on accounts receivable and adjust the allowance for doubtful accounts based on this risk assessment . historically , losses on accounts receivable have not been material . management believes that the allowance for doubtful accounts of $ 1.2 million at december 31 , 2011 is adequate to provide for probable losses resulting from accounts receivable . inventory valuation we write-off excess and obsolete inventory resulting from the inability to sell our products at prices in excess of current carrying costs . the markets in which we operate are highly competitive , with new products and surgical procedures introduced on an on-going basis . such marketplace changes may result in our products becoming obsolete . we make estimates regarding the future recoverability of the costs of our products and record a provision for excess and obsolete inventories based on historical experience , expiration of sterilization dates and expected future trends . if actual product life cycles , product demand or acceptance of new product introductions are less favorable than projected by management , additional inventory write-downs may be required . goodwill and intangible assets we have a history of growth through acquisitions . assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition . goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses . other intangible assets primarily represent allocations of purchase price to identifiable intangible assets of acquired businesses . we have accumulated goodwill of $ 234.8 million and other intangible assets of $ 195.5 million as of december 31 , 2011 . in accordance with fasb guidance , goodwill and intangible assets deemed to have indefinite lives are not amortized , but are subject to at least annual impairment testing . it is our policy to perform our annual impairment testing in the fourth quarter . the identification and measurement of goodwill impairment involves the estimation of the fair value of our reporting units . estimates of fair value are based on the best information available as of the date of the assessment , which primarily incorporate management assumptions about expected future cash flows and other valuation techniques . future cash flows may be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities . the company evaluates ebitda multiples to value its reporting units relative to the company 's market capitalization plus a market-based control premium . the market-based control premium is defined as the premiums paid by acquirers of comparable businesses . the sum of the individual reporting units ' estimated market values are compared to the company 's market value , with the sum of the individual values typically being larger than the market value of the company . the company considers premiums paid by acquirers of comparable businesses to determine the reasonableness of the implied control premium . story_separator_special_tag during the fourth quarter of 2011 , we completed our goodwill impairment testing with data as of october 1 , 2011. for our conmed electrosurgery , conmed endosurgery and conmed linvatec operating units , our impairment testing utilized conmed corporation 's ebitda multiple adjusted for a market-based control premium with the resultant fair values exceeding carrying values by 42 % to 107 % . we estimated the fair value of the conmed patient care operating unit utilizing both a market-based approach and an income approach . under the income approach , we utilized a discounted cash flow valuation methodology and measured the goodwill impairment in accordance with asc 350 . the first step of the impairment test determined the carrying value exceeded fair value and therefore we proceeded to step 2. under step 2 , we calculated the amount of impairment loss by measuring the amount the carrying value of goodwill exceeded the implied fair value of the goodwill . we determined the goodwill of our conmed patient care operating unit was impaired as a result of lower future earnings due to pricing pressures in a number of our product lines and consequently we recorded a goodwill impairment charge of $ 60.3 million to reduce the carrying amount of the unit 's goodwill to its implied fair value . intangible assets with a finite life are amortized over the estimated useful life of the asset and are evaluated each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization . intangible 31 assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable . the carrying amount of an intangible asset subject to amortization is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset . an impairment loss is recognized by reducing the carrying amount of the intangible asset to its current fair value . customer relationship assets arose principally as a result of the 1997 acquisition of linvatec corporation . these assets represent the acquisition date fair value of existing customer relationships based on the after-tax income expected to be derived during their estimated remaining useful life . the useful lives of these customer relationships were not and are not limited by contract or any economic , regulatory or other known factors . the estimated useful life of the linvatec customer relationship assets was determined as of the date of acquisition as a result of a study of the observed pattern of historical revenue attrition during the 5 years immediately preceding the acquisition of linvatec corporation . this observed attrition pattern was then applied to the existing customer relationships to derive the future expected retirement of the customer relationships . this analysis indicated an annual attrition rate of 2.6 % . assuming an exponential attrition pattern , this equated to an average remaining useful life of approximately 38 years for the linvatec customer relationship assets . customer relationship intangible assets arising as a result of other business acquisitions are being amortized over a weighted average life of 15 years . the weighted average life for customer relationship assets in aggregate is 33 years . we evaluate the remaining useful life of our customer relationship intangible assets each reporting period in order to determine whether events and circumstances warrant a revision to the remaining period of amortization . in order to further evaluate the remaining useful life of our customer relationship intangible assets , we perform an analysis and assessment of actual customer attrition and activity as events and circumstances warrant . this assessment includes a comparison of customer activity since the acquisition date and review of customer attrition rates . in the event that our analysis of actual customer attrition rates indicates a level of attrition that is in excess of that which was originally contemplated , we would change the estimated useful life of the related customer relationship asset with the remaining carrying amount amortized prospectively over the revised remaining useful life . we test our customer relationship assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . factors specific to our customer relationship assets which might lead to an impairment charge include a significant increase in the annual customer attrition rate or otherwise significant loss of customers , significant decreases in sales or current-period operating or cash flow losses or a projection or forecast of losses . we do not believe that there have been events or changes in circumstances which would indicate the carrying amount of our customer relationship assets might not be recoverable . see note 4 to the consolidated financial statements for further discussion of goodwill and other intangible assets . pension plan we sponsor a defined benefit pension plan covering substantially all our united states based employees . major assumptions used in accounting for the plan include the discount rate , expected return on plan assets , rate of increase in employee compensation levels and expected mortality . assumptions are determined based on company data and appropriate market indicators , and are evaluated annually as of the plan 's measurement date . a change in any of these assumptions would have an effect on net periodic pension costs reported in the consolidated financial statements . on march 26 , 2009 , the board of directors approved a plan to freeze benefit accruals under our pension plan effective may 14 , 2009. as a result , we recorded a curtailment gain of $ 4.4 million and a reduction in accrued pension of $ 11.4 million which is included in other long term liabilities . see note 9 to the consolidated financial statements . the weighted-average discount rate used to measure pension liabilities and costs is set by reference to the citigroup pension liability index .
| arthroscopy sales increased $ 18.6 million ( 6.9 % ) in 2010 to $ 288.4 million from $ 269.8 million in 2009 due to our new shoulder restoration system and increases in our resection and video imaging products for arthroscopy and general surgery . in local currency , excluding the effects of the hedging program , sales increased 5.2 % . sales of capital equipment increased $ 1.9 million ( 2.6 % ) to $ 75.2 million in 2010 from $ 73.3 million in 2009 ; sales of single-use products increased $ 16.7 million ( 8.5 % ) to $ 213.2 million in 2010 from $ 196.5 million in 2009 . in local currency , excluding the effects of the hedging program , sales of capital equipment increased 1.4 % while single-use products increased 6.6 % . powered surgical instrument sales increased $ 5.6 million ( 3.9 % ) in 2011 to $ 147.9 million from $ 142.3 million in 2010 mainly driven by increases in our large bone handpiece products . in local currency , excluding the effects of the hedging program sales increased 2.6 % . sales of capital equipment increased $ 5.0 million ( 7.8 % ) to $ 69.4 million in 2011 from $ 64.4 million in 2010 ; sales of single-use products increased $ 0.6 million ( 0.8 % ) in 2011 to $ 78.5 million compared to $ 77.9 million in 2010 . in local currency , excluding the effects of the hedging program , sales of capital equipment increased 6.9 % while single-use products decreased 0.9 % . powered surgical instrument sales decreased $ 1.7 million ( -1.2 % ) in 2010 to $ 142.3 million from $ 144.0 million in 2009 mainly due to decreases in sales of our small bone handpieces . in local currency , excluding the effects of the hedging program sales decreased 3.1 % . sales of capital equipment decreased $ 3.3 million ( -4.9 % ) to $ 64.4 million in 2010 from $ 67.7 million
| 14,980 |
net interest margin , which measures our ability to maintain interest rates on interest earning assets above those of interest bearing liabilities , was 3.96 % , 3.94 % and 4.02 % , respectively , for fiscal years 2016 , 2015 and 2014 . adjusted net interest margin , which adjusts for the realized gain ( loss ) on interest rate swaps , was 3.74 % , 3.68 % and 3.79 % , respectively , for the same periods . we believe our adjusted net interest margin is more representative of our underlying performance and is the measure we use internally to evaluate our results . net interest margin and adjusted net interest margin were 2 and 6 basis points higher , respectively , compared to fiscal year 2015 primarily as a result of asset growth and mix , including the growth in average total loans of 11.8 % as a proportion of interest earning assets partially offset by an 11 basis point decrease in the yield on total loans . net interest margin and adjusted net interest margin for fiscal year 2015 declined 8 and 11 basis points , respectively , compared to fiscal year 2014 due to reduced asset yields . pricing on new loans continued to be impacted by competitive pressures in the market and the continued near-zero benchmark interest rate environment , while investment portfolio yields have also declined . these reductions in asset yields were partially offset by reductions in the cost of deposits over the same periods , due to a continued favorable change in deposit mix . for more information on our adjusted net interest margin , see `` —non-gaap financial measures '' and for a reconciliation to the most directly comparable gaap financial measure , see `` item 6. selected financial data—non-gaap financial measures reconciliations '' . net income for the year represents earnings per fully diluted common share of $ 2.14 , compared to $ 1.90 for fiscal year 2015 . on october 27 , 2016 , our board of directors declared a dividend of $ 0.17 per common share payable on november 23 , 2016 to owners of record as of the close of business on november 11 , 2016 . this represents an increase of 21.4 % compared to recent quarterly dividends of $ 0.14 per common share . total loans increased $ 1.36 billion compared to september 30 , 2015 , from $ 7.33 billion to $ 8.68 billion , an increase of 18.5 % , including $ 863.7 million of loans at fair value acquired in the hf financial acquisition . excluding the acquired loans , net growth for the fiscal year was $ 493.7 million , or 6.7 % . the net organic growth during the year was primarily driven by $ 416.6 million of commercial real estate ( `` cre '' ) loan growth and $ 117.6 million of agriculture loan growth , partially offset by a $ 35.6 million reduction in residential real estate loans outstanding . deposits increased for fiscal year 2016 to $ 8.60 billion from $ 7.39 billion , an increase of $ 1.22 billion or 16.5 % , including $ 863.1 million of deposits at fair value acquired in the hf financial acquisition . 67 excluding the acquired deposits , net deposit growth for the year was $ 354.6 million , or 4.8 % . organic deposit growth was driven by growth in both commercial deposits and consumer deposits , where growth in checking and savings balances outpaced the continued runoff of time deposit accounts . loans classified as `` watch '' status were $ 327.6 million as of september 30 , 2016 , an increase of $ 17.2 million , or 5.6 % , from september 30 , 2015 and loans classified as `` substandard '' were $ 241.6 million , an increase of $ 58.0 million , or 31.6 % , over the same period . loans acquired in the hf financial acquisition contributed $ 83.1 million of the increase in `` watch '' loans and $ 16.7 million of the increase in `` substandard '' loans at september 30 , 2016 , meaning the net change excluding hf financial loans was a reduction to `` watch '' and a moderate increase to `` substandard '' loans . the reduction in loans graded `` watch '' was primarily driven by the upgrade of a number of cre loans to `` pass '' status and the downgrade of one larger c & i exposure that is heavily dependent on the agriculture industry . the increase in loans graded `` substandard '' was primarily driven by the previously mentioned c & i downgrade , partially offset by the net charge-offs recorded during the period , loans upgraded to `` watch '' or better and loan principal payments received . within the agriculture loan segment , individual loan relationships were both upgraded and downgraded during the period but overall levels of `` watch '' and `` substandard '' loans improved slightly . at september 30 , 2016 , nonaccrual loans were $ 126.4 million , with $ 4.1 million of the balance covered by fdic loss-sharing arrangements . total nonaccrual loans increased by $ 58.1 million , or 85.1 % , during the year driven by the deterioration of a small number of lending relationships in the c & i and agriculture loan portfolios , which have been closely monitored and managed for a number of quarters , and had previously been classified as `` substandard '' loans . oreo balances decreased by $ 5.6 million , or 35.3 % , during the year , driven primarily by the liquidation of a number of sizable assets during the year . excluding charge-offs on acquired loans subject to purchase accounting fair value adjustments , net charge-offs for fiscal year 2016 were $ 9.5 million , or 0.12 % of average loans , compared to $ 9.4 million , or 0.13 % of average loans in fiscal year 2015 , an increase of $ 0.1 million or 1.6 % . story_separator_special_tag our capital position is strong and stable , with tier 1 capital , total capital and tier 1 leverage ratios of 11.1 % , 12.2 % and 9.5 % , respectively , at september 30 , 2016 , compared to 10.9 % , 12.1 % and 9.1 % , respectively , at september 30 , 2015 . in addition , our common equity tier 1 ratio was 10.2 % at september 30 , 2016 , compared to 10.1 % at september 30 , 2015 . our tangible common equity to tangible assets ratio was 8.5 % at september 30 , 2016 , compared to 8.3 % at september 30 , 2015 . all regulatory capital ratios remain above regulatory minimums to be considered `` well capitalized . '' for more information on our tangible common equity to tangible assets ratio , see `` —non-gaap financial measures '' and for a reconciliation to the most directly comparable gaap financial measure , see `` item 6. selected financial data—non-gaap financial measures reconciliations '' . key factors affecting our business and financial statements economic conditions our loan portfolio can be affected in several ways by changes in economic conditions in our local markets and across the country . for example , declining local economic prospects can reduce borrowers ' willingness to take out new loans or our expectations of their ability to repay existing loans , while declining national conditions can limit the markets for our commercial and agribusiness borrowers ' products . conversely , rising consumer and business confidence can increase demand for loans to fund consumption and investments , which can lead to opportunities for us to grant new loans and further develop our banking relationships with our customers . some elements of the business environment that affect our financial performance include short-term and long-term interest rates , inflation and price levels ( particularly for agricultural commodities ) , monetary policy , unemployment and the strength of the domestic economy and the local economy in the markets in which we operate . because c & i and owner-occupied cre borrowers are particularly exposed to external economic conditions such as consumer sentiment , repayment of c & i and owner-occupied cre loans may be more sensitive than other types of loans to adverse conditions in the real estate market or the general economy . these loans totaled approximately $ 2.84 billion , or 32.5 % , of our total loan portfolio as of september 30 , 2016 . in addition , agricultural loans , which comprised 24.8 % of our loan portfolio as of september 30 , 2016 , depend on the health of the agricultural industry broadly and in the location of the borrower in particular and on commodity prices . see “ item 1a . risk factors—risks related to our business—our business may be adversely affected by conditions in the financial markets and economic conditions generally and in our states in particular. ” 68 interest rates net interest income is our largest source of income and is the difference between the interest income we receive from interest-earning assets ( e.g . , loans and investment securities ) and the interest expense we pay on interest-bearing liabilities ( e.g . , deposits and borrowings ) . the level of net interest income is primarily a function of the average balance of interest-earning assets , the average balance of interest-bearing liabilities and the spread between the yield on such assets and the cost of such liabilities . these factors are influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities . interest rates can be volatile and are highly sensitive to many factors beyond our control , such as economic conditions , the policies of various governmental and regulatory agencies and , in particular , the monetary policy of the fomc . the cost of our deposits and short-term borrowings is largely based on short-term interest rates , the level of which is driven primarily by the federal reserve 's actions . however , the yields generated by our loans and securities are typically driven by longer-term interest rates , which are dictated by the market or , at times , the federal reserve 's actions , and generally vary from day to day . the level of net interest income is therefore influenced by movements in such interest rates , the changing mix in our funding sources and the pace at which such movements occur . in 2015 and 2016 , short-term and long-term interest rates continued to be very low by historical standards , despite the federal reserve raising short-term interest rates by 25 basis points in december 2015 and market conditions driving one- and three-month london interbank offered rates ( `` libor '' ) rates higher in 2016. further declines in the yield curve or a decline in longer-term yields relative to short-term yields ( a flatter yield curve ) would have an adverse impact on our net interest margin and net interest income . increases in the yield curve or an increase in longer-term yields relative to short-term yields ( a steeper yield curve ) would have a positive impact on our net interest margin and net interest income . see “ item 1a . risk factors—risks related to our business—we are subject to interest rate risk ” and “ item 7a . quantitative and qualitative disclosures about market risk. ” asset quality and loss-sharing arrangements our asset quality remained strong during fiscal year 2016 with net charge-offs as a percentage of average loans of 12 basis points . we continue to run off assets from our acquisition of tierone bank that are not part of our core lending business , including non-owner-occupied cre loans and construction and development loans , particularly those outside our footprint .
| results of op erations—fiscal years ended september 30 , 2016 , 2015 and 2014 overview the following table highlights certain key financial and performance information for fiscal years 2016 , 2015 and 2014 : for the fiscal year ended september 30 , 2016 2015 2014 ( dollars in thousands , except share and per share amounts ) operating data : interest and dividend income ( fte ) 1 $ 403,232 $ 369,957 $ 357,139 interest expense 33,524 29,884 32,052 noninterest income 42,537 33,890 39,781 noninterest expense 207,640 186,794 200,222 provision for loan and lease losses 16,955 19,041 684 net income 121,253 109,065 104,952 adjusted net income 1 $ 130,982 $ 109,065 $ 104,952 common shares outstanding 58,693,304 55,219,596 57,886,114 weighted average diluted common shares outstanding 56,729,350 57,500,878 57,886,114 earnings per common share - diluted $ 2.14 $ 1.90 $ 1.81 adjusted earnings per common share - diluted 1 2.31 1.90 1.81 < div
| 14,981 |
the fair market value of options granted under the company 's stock option plans was estimated on the date of grant using the black-scholes option-pricing model using assumptions for inputs such as interest rates , expected dividends , volatility measures and specific employee exercise behavior patterns based on statistical data . some of the inputs used are not market-observable and have to be estimated or derived from available data . use of different estimates would produce different option values , which in turn would result in higher or lower compensation expense recognized . to value options , several recognized valuation models exist . none of these models can be singled out as being the best or most correct one . the model applied by the company is able to handle some of the specific features included in the options granted , which is the reason for its use . if a different model were used , the option values could differ despite using the same inputs . accordingly , using different assumptions coupled with using a different valuation model could have a significant impact on the fair value of employee stock options . fair value could be either higher or lower than the number provided by the model applied and the inputs used . further information on the company 's equity compensation plans , including inputs used to determine the fair value of options , is disclosed in notes 1 and 5 to the consolidated financial statements . income taxes the company accounts for income taxes using the asset and liability method . under this method , deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and for tax credit carry forwards and are measured using the enacted tax rates in effect for the years in which the differences are expected to reverse . deferred income tax expense represents the change in net deferred income tax assets and liabilities during the year . the company 's foreign subsidiaries are comprised of neogen europe ( wholly-owned subsidiary ) , lab m holdings ( wholly-owned subsidiary ) , neogen latinoamerica ( 90 % owned subsidiary ) , neogen do brasil ( 90 % owned subsidiary ) , neogen bio-scientific technology co ( shanghai ) ( wholly-owned subsidiary ) , neogen food and animal security ( india ) ( wholly-owned subsidiary ) , neogen canada ( wholly-owned subsidiary ) and deoxi biotecnologia ltda ( wholly-owned subsidiary ) . based on historical experience , as well as the company 's future plans , earnings from these subsidiaries are expected to be re-invested indefinitely for future expansion and working capital needs . furthermore , the company 's domestic operations have historically produced sufficient operating cash flow to mitigate the need to remit foreign earnings . on an annual basis , the company evaluates the current business environment and whether any new events or other external changes might require a re-evaluation of the decision to indefinitely re-invest foreign earnings . at may 31 , 2016 , unremitted earnings of the foreign subsidiaries were $ 27,880,000 . 22 story_separator_special_tag vertical-align : top '' > th quarter of fiscal 2016. veterinary instruments and disposables increased 1 % , as market share gains in disposable syringes , up 25 % , and animal marking products , up 14 % , were almost entirely offset by an 8 % decrease in detectable needles , due to large orders in the prior year which did not recur , and an 11 % decline in hoof and leg products , due to lower sales of these products to customers in the retail market . animal care and other product sales rose 34 % in fiscal 2016 , with the increase primarily the result of a new distribution agreement with a large manufacturer and supplier of dairy equipment , and strong sales of the company 's line of thyroid replacement therapy for companion animals . also contributing to growth in the animal care product category were increased sales of wound care products , as a key active ingredient which had been on backorder for much of fiscal 2015 , became available in fiscal 2016 , and veterinary antibiotics , due to a competitor exiting the business . during the fourth quarter of fiscal 2016 , the company was notified that a competitor had been granted approval on a new drug application for a competitive thyroid replacement product , effectively giving them exclusive rights to sell the product . as a result , the company will be unable to sell its product into the domestic market effective the end of july 2016 , until it is granted similar regulatory approval ; this approval is expected in fiscal 2018. sales of this product in fiscal 2016 were $ 6.6 million . 24 the company 's line of rodenticides , insecticides and disinfectants rose 17 % in fiscal 2016 , compared to the prior year , led by a 58 % increase in sales of rodenticides . this increase was in large part the result of an expansion of the company 's contract manufacturing business with a large marketer of rodenticides to the commercial and residential markets . additionally , the company successfully introduced a number of new products into the retail agricultural market , and also benefitted from the continued vole outbreak in the northwestern u.s. cleaners and disinfectant revenues declined 9 % compared to fiscal 2015 , primarily due to lower sales to international customers as the strength of the u.s. dollar made the company 's products less competitive internationally ; poor economic conditions in a number of the company 's key international markets also adversely impacted sales . the company 's line of insecticides rose 1 % in fiscal 2016 , as incremental revenues from new product launches were almost entirely offset by lower sales of existing products due to timing of orders and backorders caused by a vendor issue . dna testing services revenues increased 27 % in fiscal 2016 compared to the same period in the prior year . story_separator_special_tag incremental business with a large poultry producer , earned in fiscal 2015 , was the primary driver of the growth . the company also continued to gain market share in fiscal 2016 with its proprietary chip technology , primarily to cattle and pig producers , and grew sample volume particularly with its largest customers . in addition , the canine testing service business grew 17 % as the company successfully commercialized new service offerings , developed in the prior fiscal year . year ended may 31 , 2015 compared to year ended may 31 , 2014 the company 's food safety segment revenues were $ 131.5 million in fiscal 2015 , a 13 % increase compared to the prior year . sales of natural toxins , allergens and drug residues were flat in fiscal 2015 as compared to the prior year . natural toxin sales increased 5 % , with strong sales of don test kits , up 28 % due to outbreaks of this toxin in crops in eastern europe , canada and the u.s. this increase was offset by a 15 % decline in aflatoxin test kits due to a difficult comparison to the prior year caused by high demand from aflatoxin outbreaks in eastern europe , and relatively clean crops in the current fiscal year relative to that toxin . revenues for the company 's test kits to detect allergens such as milk , gluten , soy , peanut , and egg , among others , in processed foods rose 18 % , the result of higher demand resulting from increased recalls due to inadvertent allergenic contamination and higher consumer awareness of the risks of ingesting foods with allergenic components . included within this category and partially offsetting the gains from allergen products were decreased sales of meat speciation test kits , which declined 40 % in fiscal 2015 , due to lower levels of testing during the year and competitor entry into the market . sales of drug residue test kits were down 16 % this year , primarily due to currency conversion and lower test kit volumes to customers in eastern europe due to delays in the launch of a new product in that region . bacterial and general sanitation revenues increased 20 % in fiscal 2015 , aided by $ 4.0 million in revenues from the october 1 , 2014 biolumix acquisition . excluding biolumix sales , the increase was 4 % over the prior year . the soleris consumable product line , which consists primarily of reagent vials used to detect spoilage organisms such as yeast and molds in foods , increased 10 % , while sales of the recently-launched next generation accupoint environmental reader increased 35 % . ampoule media and filter sales increased 14 % compared to the prior fiscal year ; the company continues to gain new customers and market share , primarily in the beverage industry . partially offsetting these gains was a 43 % decline in soleris equipment sales due to difficult comparisons caused by prior year international placements , which did not repeat in the current fiscal year . dehydrated culture media and other sales increased 32 % in the current fiscal year . within this product category , acumedia sales increased 5 % in fiscal 2015. while sales of acumedia products to food safety customers increased 10 % , this was offset by flat sales to the traditional media market due to lower demand and continuing credit issues at some significant customers . genomics revenues to european customers ( included as other revenues ) , increased 57 % due to market share gains for services and the sale of new proprietary product offerings . also included in this category were sales of animal safety products to customers in mexico and central america , transferred to the company 's neogen latinoamerica subsidiary which reports in the food safety segment , to better serve customers in those locations . the company 's animal safety segment revenues were $ 151.6 million in fiscal 2015 , a 16 % increase over fiscal 2014. life sciences sales increased 16 % in fiscal 2015 compared to the prior year , led by forensic kit sales to commercial labs to meet new testing requirements in brazil for commercial drivers . for the year , revenues of veterinary instruments and disposables increased 24 % . this product category benefitted from revenues from the syrvet and prima tech acquisitions from fiscal 2014 ; these product lines were almost entirely veterinary instruments . excluding these revenues , organic growth in this category was 14 % for fiscal 2015 , led by sales of detectable needles , which continued to be a strong product line with growth of 29 % in fiscal 2015. partially offsetting some of this growth was the transfer of customers and revenue in mexico and central america to neogen latinoamerica , in order to more directly serve those customers . 25 sales of animal care and other products declined 9 % in fiscal 2015 ; on an organic basis , these sales were down 15 % , partially due to the transfer of some customers to neogen latinoamerica . within this category in fiscal 2014 , the company recorded strong sales of a wound care product caused by a supply disruption in the market . this product was available for sale from all competitors in fiscal 2015 , and revenues for this product declined . additionally , sales of a distributed antibiotic declined due to supplier discontinuance of the product . animal supplements rose by $ 1.5 million in fiscal 2015 , due to strong sales of the company 's thyroid replacement offering for the canine market . rodenticides , insecticides and disinfectants sales increased 25 % in fiscal 2015 , largely the result of revenues gained from the chem-tech insecticide business acquisition in january 2014. excluding the contribution from this acquisition , the organic increase in this category was 4 % . rodenticide sales increased 21 % , primarily due to rodent infestations in the northwestern u.s. and the capture of new business .
| in fiscal 2016 , the company acquired sterling test house ( june 2015 ) , a commercial food service testing laboratory in india , which was purchased as the company 's entry point into the important indian market ; lab m ( august 2015 ) , a manufacturer and marketer of dehydrated culture media based in england ; virbac ( december 2015 ) , a line of rodenticides with a number of international product registrations ; deoxi ( april 2016 ) , a genomics lab in brazil , to aid in the expansion of the company 's genomics efforts in that country ; and preserve/tetradyne ( may 2016 ) , manufacturers and marketers of cleaners and disinfectants , an important component of the company 's biosecurity product offering , with particular strength in the swine and cattle markets . international sales were $ 107.7 million in fiscal 2016 , an increase of 4 % compared to the prior fiscal year . sales growth in the company 's international operations , which report primarily in its food safety segment , was adversely impacted by the strength of the u.s. dollar , which rose during the year against all currencies in which the company conducts business . neogen europe recorded a 3 % revenue gain in pound sterling compared to the prior year ; however , these revenues resulted in a 3 % decrease when converted to u.s. dollars . neogen do brasil had revenue increases of 49 % in its local currency , the real , due to strong sales increases of its betastar dairy antibiotics test kits ; this was reduced to a 7 % increase in dollars due to the significant devaluation of the real against the dollar in fiscal 2016. neogen latinoamerica recorded a revenue increase of 44 % in fiscal 2016 , which reduced to 20 % when converted to dollars . in local currency , neogen china increased revenues 91 % in fiscal 2016 , albeit off of a small base , with minimal impact due to currency conversion . on a neutral currency basis , organic growth for the company for fiscal 2016 was 12 % for the food safety segment ; currency had no impact on organic growth in the animal safety segment . expressed as a percentage of total sales , international sales in fiscal 2016 were 33.5 % compared to 36.7 % in fiscal 2015. this decline as a percentage of sales was due in part to the strength of the u.s. dollar , which reduced comparative revenues in the local currency when converted to dollars ; international sales were negatively impacted by $ 7.7 million on a comparative basis for fiscal 2016. additionally , sales of the company 's cleaners and disinfectants to international customers declined by 28 % , due to dollar strength
| 14,982 |
profit margins may also be affected by fluctuations in the costs or availability of materials used to manufacture our products , product warranty costs , the cost of fuel , and changes in costs of other distribution or manufacturing-related services . our operating profits or losses may also be affected by the efficiency and effectiveness of our organization . historically , our operating expenses have been influenced by media costs to produce and distribute advertisements of our products on television , websites and other media , facility costs , operating costs of our information and communications systems , product supply chain management , customer support and new product development activities . in addition , our operating expenses have been affected from time-to-time by asset impairment charges , restructuring charges and other significant unusual or infrequent expenses . as a result of the above and other factors , our period-to-period operating results may not be indicative of future performance . you should not place undue reliance on our operating results and should consider our prospects in light of the risks , expenses and difficulties typically encountered by us and other companies , both within and outside our industry . we may not be able to successfully address these risks and difficulties and , consequently , we can not assure you any future growth or profitability . for more information , see our discussion of risk factors located at part i , item 1a of this form 10-k. discontinued operations results from discontinued operations relate to the disposal of our former nautilus ® commercial business , which was completed in april 2011. we reached substantial completion of asset liquidation at december 31 , 2012. although there was no revenue related to the commercial business in 2020 , 2019 and 2018 , we continue to incur product liability expenses associated with product previously sold into the commercial channel , and accrued interest associated with an uncertain tax position on discontinued international operations . critical accounting policies and estimates the preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosures of contingent assets and liabilities in the consolidated financial statements . an accounting estimate is considered to be critical if it meets both of the following criteria : ( i ) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility 25 of such matters to change , and ( ii ) the impact of the estimate on financial condition or operating performance is material . our critical accounting estimates are discussed below . goodwill and other long-term assets valuation we evaluate our indefinite-lived intangible assets and goodwill for potential impairment annually or when events or circumstances indicate their carrying value may be impaired . definite-lived intangible assets , including acquired trade names , customer relationships , patents and patent rights , and other long-lived assets , primarily property , plant and equipment , are evaluated for impairment when events or circumstances indicate the carrying value may be impaired . in 2019 , we recognized a non-cash goodwill and intangible asset impairment charge of $ 72.0 million primarily related to the goodwill and indefinite-lived octane fitness brand name which was sold october 14 , 2020. no goodwill remained as of december 31 , 2019. in 2020 , we recognized a loss on disposal for the sale of octane fitness related assets of $ 20.7 million . our impairment evaluations contain uncertainties because they require management to make assumptions and to apply judgment in order to estimate future cash flows and asset fair values . our judgments regarding potential impairment are based on a number of factors including : the timing and amount of anticipated cash flows ; market conditions ; relative levels of risk ; the cost of capital ; terminal values ; royalty rates ; and the allocation of revenues , expenses and assets and liabilities to reporting units . each of these factors can significantly affect the value of our goodwill or other long-term assets and , thereby , could have a material adverse effect on our financial position and results of operations . income tax significant judgments are required in determining tax provisions in relation to valuation allowance and tax positions . such judgments require us to interpret existing tax law and other published guidance as applied to our circumstances . if our financial results or other relevant factors change , thereby impacting the likelihood of realizing the tax benefit of an uncertain tax position or deferred tax assets , significant judgment would be applied in determining the effect of the change . a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained based on the technical merits of the position upon examination , including resolutions of any related appeals or litigation . furthermore , valuation allowance would be provided against deferred tax assets if we determine it is no longer more likely than not that such assets would be fully realized based on the objectively verifiable evidence available . on march 27 , 2020 , the coronavirus aid , relief , and economic security act ( “ cares act ” ) was enacted and signed into law in response to coronavirus disease 2019 ( “ covid-19 ” ) . the cares act , among other things , includes several significant provisions that could impact corporate taxpayers ' accounting for income taxes . in 2020 , we recorded income tax expense from continuing operations of $ 12.2 million for the year ended december 31 , 2020 and net non-current deferred income tax assets of $ 2.4 million , which included a deferred tax asset for the capital loss from the sale of the octane business , net of valuation allowance . story_separator_special_tag 26 story_separator_special_tag style= '' color : # 000000 ; font-family : 'arial ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:100 % '' > 101.4 % retail net sales : cardio products ( 1 ) $ 235,333 $ 141,331 $ 94,002 66.5 % strength products ( 2 ) 72,703 45,253 27,450 60.7 % retail 308,036 186,584 121,452 65.1 % royalty income 3,598 3,050 548 18.0 % $ 552,560 $ 309,285 $ 243,275 78.7 % cost of sales : direct $ 110,111 $ 60,101 $ 50,010 83.2 % retail 213,647 138,601 75,046 54.1 % $ 323,758 $ 198,702 $ 125,056 62.9 % gross profit : direct $ 130,815 $ 59,550 $ 71,265 119.7 % retail 94,389 47,983 46,406 96.7 % royalty 3,598 3,050 548 18.0 % $ 228,802 $ 110,583 $ 118,219 106.9 % gross margin : direct 54.3 % 49.8 % 450 basis points retail 30.6 % 25.7 % 490 basis points contribution : direct $ 59,976 $ ( 24,569 ) $ 84,545 ( 344.1 ) % retail 62,782 16,043 46,739 291.3 % contribution rate : direct 45.8 % ( 41.3 ) % 8,710 basis points retail 66.5 % 33.4 % 3,310 basis points ( 1 ) cardio products include : connected-fitness bikes like the bowflex ® c6 , velocore ® and schwinn ® ic4 , max trainer ® , zero runner ® , treadmills , other exercise bikes , ellipticals and subscription services . ( 2 ) strength products include : home gyms and bowflex ® selecttech ® dumbbells , kettlebell and barbell weights , and accessories 28 sales and gross profit direct segment net sales for 2020 were $ 240.9 million , reflecting a 101.4 % increase as compared to $ 119.7 million for 2019. increased sales were driven primarily by cardio products which grew by 82.6 % versus 2019 and were led by strong demand for our connected-fitness bikes , the bowflex ® c6 and schwinn ® ic4 , o ffset by lower max trainer ® sales . strength product sales grew 185.5 % versus the same period in 2019 driven by selecttech ® weights and bowflex ® home gyms . positive customer response to the new jrny ® powered connected fitness products launched in 2020 also contributed to sales growth . gross margin rates for 2020 and 2019 were 54.3 % and 49.8 % , respectively , with the increase primarily driven by increased full-priced sales and favorable fixed cost leverage , partially offset by higher transportation costs . segment contribution income for 2020 was $ 60.0 million , compared to loss of $ 24.6 million for 2019. the $ 84.6 million improvement was primarily driven by higher gross profit . combined consumer credit approvals by our primary and secondary u.s. third-party financing providers were 52.0 % in 2020 compared to 54.1 % in 2019. the decrease i n approvals reflects lower credit quality applications . retail segment net sales for 2020 were $ 308.0 million , reflecting a 65.1 % increase as compared to $ 186.6 million for 2019 or a 95.4 % increase , excluding sales related to the octane brand . cardio sales were up 66.5 % versus 2019 , driven by the schwinn ® ic4 connected-fitness bike s , bowflex ® velocore ® and max trainer ® . strength sales were up 60.7 % versus 2019 led by the popular bowflex ® home gyms and selecttech ® weights . gross margin rates for 2020 and 2019 were 30.6 % and 25.7 % , respectively , with the increase primarily driven by favorable customer mix and fixed cost leverage , partially offset by higher transportation costs . segment contribution income for 2020 was $ 62.8 million , compared to $ 16.0 million for 2019. the $ 46.8 million improvement was primarily driven by higher gross profit . royalty royalty income increased by $ 0.5 million , or 18.0 % , to $ 3.6 million for 2020 , compared to 2019 , due to a royalty settlement and increased license sales in 2020. operating expenses operating expenses for 2020 were $ 151.0 million , a decrease of $ 60.1 million , or 28.5 % , as compared to operating expenses of $ 211.1 million for 2019. the decrease in operating expenses primarily related to a loss on disposal group of $ 20.7 million in 2020 compared to a goodwill and other intangible impairment charge of $ 72.0 million in 2019 and a reduction in media spending in 2020 to $ 34.1 million compared to $ 44.9 million in 2019. these expense reductions were partially offset by increases in general and administrative and research and development costs . selling and marketing selling and marketing expenses include payroll , employee benefits , and other headcount-related expenses associated with sales and marketing personnel , and the costs of media advertising , promotions , trade shows , seminars , and other programs . 29 selling and marketing information was as follows ( dollars in thousands ) : replace_table_token_4_th media advertising expense of our direct business is the largest component of selling and marketing and was as follows ( dollars in thousands ) : replace_table_token_5_th the decrease in selling and marketing expenses in 2020 compared to 2019 was primarily due to decreases , during the first six months of 2020 , in media advertising , given strong organic demand and inventory scarcity . additionally , covid-19 reduced travel costs related to selling and marketing . the decrease in selling and marketing expenses as a percentage of net sales in 2020 compared to 2019 was due to the increase in net sales combined with lower expenses . general and administrative general and administrative expenses include payroll , employee benefits , stock-based compensation expense , and other headcount-related expenses associated with finance , legal , facilities , certain human resources and other administrative personnel , and other administrative fees . general and administrative expenses was as follows ( dollars in thousands ) : replace_table_token_6_th the increase in general and administrative expenses in 2020 compared to 2019 was due to personnel costs , primarily in bonus and stock expenses , and consulting expenses .
| results of operations the discussion that follows regarding our financial condition and results of operations for fiscal 2020 compared to fiscal 2019 should be read in conjunction with our consolidated financial statements and the related notes in this report . all comparisons to prior year results are in reference to continuing operations only in each period , unless otherwise indicated . a discussion regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 can be found under item 7 in our annual report on form 10-k for the fiscal year ended december 31 , 2019 , filed with the sec on february 26 , 2020 , which is available free of charge on the sec 's website at www.sec.gov and our investors website at http : //www.nautilusinc.com/investors/sec-filings/ . results of operations information was as follows ( in thousands ) : replace_table_token_3_th * not meaningful 27 results of operations information by segment and major product lines was as follows ( in thousands ) : year ended december 31 , 2020 2019 change % change net sales direct net sales : cardio products ( 1 ) $ 178,615 $ 97,824 $ 80,791 82.6 % strength products ( 2 ) 62,311 21,827 40,484 185.5 % direct 240,926 119,651 121,275 < span
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on september 9 , 2016 , we acquired substantially all of the assets and assumed certain liabilities of home solutions and its subsidiaries ( the “ home solutions transaction ” ) pursuant to an asset purchase agreement dated june 11 , 2016 ( as amended , the “ home solutions agreement ” ) , by and among home solutions , a delaware corporation , certain subsidiaries of home solutions , the company and homechoice partners , inc. , a delaware corporation . home solutions , a privately held company , provides home infusion and home nursing products and services to patients suffering from chronic and acute medical conditions . regulatory matters update approximately 16 % of revenue for the year ended december 31 , 2016 was derived directly from medicare , state medicaid programs and other government payors . we also provide services to beneficiaries of medicare , medicaid and other government-sponsored healthcare programs through managed care entities . medicare part d , for example , is administered through managed care entities . in the normal course of business , we and our customers are subject to legislative and regulatory changes impacting the level of reimbursement received from the medicare and state medicaid programs . state medicaid programs over the last several years , increased medicaid spending , combined with slow state revenue growth , led many states to institute measures aimed at controlling spending growth . spending cuts have taken many forms including reducing eligibility and benefits , eliminating certain types of services , and provider reimbursement reductions . in addition , some states have been moving beneficiaries to managed care programs in an effort to reduce costs . each individual state medicaid program represents less than 5 % of our consolidated revenue for the year ended december 31 , 2016 and no individual state medicaid reimbursement reduction is expected to have a material effect on our consolidated financial statements . we are continually assessing the impact of the state medicaid reimbursement cuts as states propose , finalize and implement various cost-saving measures . given the reimbursement pressures , we continue to improve operational efficiencies and reduce costs to mitigate the impact on results of operations where possible . in some cases , reimbursement rate reductions may result in negative operating results , and we would likely exit some or all services where rate reductions result in unacceptable returns to our stockholders . 35 states are also in the process of determining whether to expand their medicaid programs as permitted by the patient protection and affordable care act , or ppaca . we can not predict the impact of these decisions , but they may have a material impact on net revenues or income from continuing operations . medicare federal efforts to reduce medicare spending continued in 2016. congress first passed the ppaca , followed by the health care and education reconciliation act of 2010 , which amended ppaca . in august 2011 , congress passed a deficit reduction agreement that created a committee tasked with proposing legislation to reduce the federal deficit by november 23 , 2011. because the committee did not act , automatic medicare cuts were scheduled to go into effect january 1 , 2013. however , congress passed legislation extending the time for such cuts by three months . thus , medicare reimbursement to providers was reduced overall by 2 % ( as part of sequestration ) beginning april 1 , 2013. in addition , the medicare prescription drug , improvement , and modernization act of 2003 established requirements for a competitive bidding program for determining medicare reimbursement rates for certain items of durable medical equipment , prosthetics , orthotics and supplies ( “ dmepos ” ) , including enteral nutrients , supplies and equipment , certain respiratory therapy and home medical equipment products and external infusion pumps and supplies . we are contract suppliers under the round 1 recompete , which included nine competitive bidding areas ( “ cbas ” ) and six product categories , including external infusion pumps , and expires on december 31 , 2016 , and round 2 of competitive bidding , which was conducted in 100 additional cbas for eight product categories , including enteral nutrition , and expired on june 30 , 2016. we have entered into strategic relationships in the cbas in which we were not awarded contracts for such periods . we were not awarded any contracts in round 2 recompete , which went into effect july 1 , 2016 and includes 117 cbas , comprising the same geographic area as the second round of competitive bidding , and seven product categories , including enteral nutrition . our revenue may decrease unless and until we are able to provide medicare beneficiaries with competitively bid items in the applicable cbas , but we do not expect the negative impact to be material . the impact of the reductions in medicare reimbursement during the years ended december 31 , 2016 and 2015 , together with the effect of the round 2 recompete , on future results of operations can not yet be predicted . medicare currently covers home infusion therapy for selected therapies primarily through the durable medical equipment benefit . the cures act , enacted by congress in december of 2016 , creates a new payment system for certain home infusion therapy services paid under medicare part b. the cures act significantly reduces the amount paid by medicare for the drug costs , and also provides for the implementation of a clinical services payment . that services payment does not take effect until 2021. approximately 8 % and 7 % of revenue for the years ended december 31 , 2016 and 2015 , respectively , was derived from medicare . critical accounting estimates our consolidated financial statements have been prepared in accordance with united states generally accepted accounting principles ( “ gaap ” ) . story_separator_special_tag in preparing our financial statements , we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities , the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period . we evaluate our estimates and judgments on an ongoing basis . we base our estimates and judgments on historical experience and on various other factors 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 at the date of the financial statements and the reported amounts of revenues and expenses for the period presented . our actual results may differ from these estimates , and different assumptions or conditions may yield different estimates . the following discussion highlights what we believe to be the critical accounting estimates and judgments made in the preparation of our consolidated financial statements . the following discussion is not intended to be a comprehensive list of all the accounting estimates or judgments made in the preparation of our financial statements and in many cases the accounting treatment of a particular transaction is specifically dictated by gaap , with no need for management 's judgment on its application . see our audited consolidated financial statements and notes thereto appearing elsewhere in this annual report , which contain a description of our accounting policies and other disclosures required by gaap . revenue recognition we generate revenue principally through the provision of home infusion services to provide clinical management services and the delivery of cost effective prescription medications . financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) subtopic 605-25 , revenue recognition : multiple-element arrangements ( “ asc 605-25 ” ) , addresses situations in which there are multiple deliverables under one revenue arrangement with a customer and provides guidance in determining whether multiple deliverables should be recognized separately or in combination . for infusion-related therapies , we frequently provide multiple deliverables of drugs and related nursing services . after applying the criteria of asc 605-25 , we concluded that separate units of accounting exist in revenue arrangements with multiple deliverables . if the drug is shipped , the drug revenue is recognized at the time of shipment , and nursing revenue is recognized on the date of service . we allocate revenue consideration based on the relative fair value as determined by our best estimate of selling price to separate the revenue where there are multiple deliverables under one revenue arrangement . we recognize infusion nursing revenue as the estimated net realizable amounts from patients and payors for services rendered and products provided . this revenue is 36 recognized as the treatment plan is administered to the patient and is recorded at amounts estimated to be received under reimbursement or payment arrangements with payors . allowance for doubtful accounts the allowance for doubtful accounts is based on estimates of losses related to receivable balances . the risk of collection varies based upon the service/product , the payor ( commercial health insurance and government ) and the patient 's ability to pay the amounts not reimbursed by the payor . we estimate the allowance for doubtful accounts based upon several factors including the age of the outstanding receivables , the historical experience of collections , adjusting for current economic conditions and , in some cases , evaluating specific customer accounts for the ability to pay . collection agencies are employed and legal action is taken when we determine that taking collection actions is reasonable relative to the probability of receiving payment on amounts owed . management judgment is used to assess the collectability of accounts and the ability of our customers to pay . judgment is also used to assess trends in collections and the effects of systems and business process changes on our expected collection rates . we review the estimation process quarterly and make changes to the estimates as necessary . when it is determined that a customer account is uncollectible , that balance is written off against the existing allowance . the following table shows the aging of our net accounts receivable ( net of allowance for contractual adjustments and prior to allowance for doubtful accounts ) , aged based on date of service and categorized based on the three primary overall types of accounts receivable characteristics ( in thousands ) : replace_table_token_5_th at december 31 , 2016 , our allowance for doubtful accounts , as a percentage of total accounts receivable , was 28.6 % or $ 44.7 million , as compared to 38.0 % or $ 59.7 million at december 31 , 2015 . the decline in the allowance is attributable to a change in estimate associated with our allowance for doubtful accounts . the change in estimate had the effect of lowering our doubtful accounts allowance , overall , due to improved collection experience evidenced by more predictable cash receipts from our payors . allowance for contractual discounts we are reimbursed by payors for products and services we provide . payments for medications and services covered by payors average less than billed charges . we monitor revenue and receivables from payors for each of our branches and record an estimated contractual allowance for certain revenue and receivable balances as of the revenue recognition date to properly account for anticipated differences between amounts estimated in our billing system and amounts reimbursed . accordingly , the total revenue and receivables reported in our financial statements are recorded at the amounts expected to be received from these payors . for the significant portion of our infusion services revenue , the contractual allowance is estimated based on several criteria , including unbilled claims , historical trends based on actual claims paid , current contract and reimbursement terms and changes in customer base and payor/product mix . contractual allowance estimates are adjusted to actual amounts as cash is received and claims are settled .
| the increase in gross profit in 2016 as compared to 2015 of $ 4.7 million , or approximately 2 % , to $ 265.6 million , compared to revenue of $ 260.9 million for the year ended december 31 , 2015 , is the result of the strategic divestiture of the hepatitis c business , which reduced costs , in conjunction with the acquisition of home solutions , which contributed higher margins . the increase in gross profit in 2015 of $ 10.2 million or 4 % as compared to $ 250.8 million for the year ended december 31 , 2014 is due to the organic growth of our infusion services business . other operating expenses . other operating expenses consist primarily of wages and benefits , travel expenses , professional service and field office expenses for our healthcare professionals engaged in providing infusion services to our patients . other operating expenses for the year ended december 31 , 2016 increased by approximately $ 4.7 million , or 3 % , to $ 170.7 million , compared to expenses of $ 166.0 million for the year ended december 31 , 2015 . other operating expenses increased in 2016 compared to 2015 due to increases in wage , benefit , and other field office costs . other operating expenses decreased slightly in 2015 from $ 166.6 million during the year ended december 31 , 2014 due to decreased wage , benefit , and other field office costs . bad debt expenses . bad debt expense for the year ended december 31 , 2016 decreased by approximately $ 14.2 million , or 35 % , to $ 26.8 million , compared to $ 41.0 million for the year ended december 31 , 2015 . the decrease in bad debt expense in 2016 as compared to 2015 is the result of a continued focus on improvement of billing and collection efforts to ensure timely cash receipts , as well as a change in estimate associated with our allowance for doubtful accounts . the change in estimate had the effect of lowering our doubtful accounts allowance , overall , due to improved collection experience evidenced by more predictable cash receipts from our payors . as a result , the bad debt reserve has correspondingly decreased . the decrease in bad debt expense of $
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the prior year reserve deficiency in 2017 increased the loss ratio for 2017 by 5.9 percentage points compared to a 5.0 percentage point increase experienced in 2016 due to the prior year reserve deficiencies in 2016. we had an overall reserve deficiency on prior year claims during 2017 of $ 19.2 million and a $ 13.8 million deficiency on prior year claims during 2016. net investment income for 2017 increased 24.9 % to $ 18.1 million compared to $ 14.5 million for 2016 , primarily due to higher interest rates leading to higher reinvestment yields for fixed income securities , increased dividends from equity securities and an increase in average funds invested resulting from positive cash flow . after-tax investment income of $ 12.7 million increased 23.0 % during 2017 compared to the prior year reflecting the above factors , as well as the mix between taxable and tax-exempt investment income . net realized and unrealized gains on investments totaled $ 19.7 million in 2017 compared to $ 23.2 million during 2016. direct trading gains during 2017 were $ 8.2 million lower compared to the prior year . other-than-temporary impairment of $ 0.4 million , netted with gains of $ 1.6 million on previously impaired available-for-sale securities that were sold in 2017 , are included in the net gains stated above . investments in limited partnerships produced gains of $ 12.5 million in 2017 , compared to gains of $ 2.5 million during 2016. limited partnership investments utilized by us are primarily engaged in long-short equities , private equity , country-focused funds and real estate development as an alternative to direct equity investments . the aggregate of our share of gains and losses in these entities represented a 16.3 % appreciation in value for 2017 , compared to a 3.3 % increase in value for 2016. other operating expenses for 2017 increased $ 24.1 million ( 27.0 % ) to $ 113.6 million from $ 89.5 million in 2016. this increase was due primarily to an increase in commission expense as a result of the increase in premiums written and higher salary and salary-related expenses , reflective of our increased workforce in response to the continued expansion of our products and services . reinsurance ceded credits , included as an offset to other operating expenses , were 30.8 % lower in 2017 , resulting primarily from ceding a lower percentage of workers ' compensation premium to reinsurers in our most recent reinsurance treaty . - 27 - income tax benefit was $ 8.2 million for 2017 compared to income tax expense of $ 14.1 million in 2016. we recorded a benefit of $ 9.6 million related to the remeasurement of deferred tax assets and liabilities in the fourth quarter of 2017 pursuant to the u.s. tax act . our effective federal tax rate for 2017 was ( 81.0 % ) as compared to 32.8 % in 2016. the effective tax rate for 2017 was affected primarily by the impact of the u.s. tax act discussed above . as a result of the factors discussed above , net income for 2017 decreased $ 10.6 million to $ 18.3 million compared to $ 28.9 million in 2016. critical accounting policies the company 's significant accounting policies that are material and or subject to significant degrees of judgment are highlighted below . investment valuation all marketable securities are included in the company 's balance sheets at current fair market value . approximately 59 % of the company 's assets are composed of investments at december 31 , 2018. approximately 92 % of these investments are publicly-traded , owned directly and have readily-ascertainable market values . the remaining 8 % of investments are composed primarily of minority interests in several limited partnerships . these limited partnerships are engaged in long-short equities , private equity , country-focused funds and real estate development as an alternative to direct equity investments . these partnerships do not have readily-determinable market values themselves . rather , the values recorded are those provided to the company by the respective partnerships based on the underlying assets of the limited partnerships . while a substantial portion of the underlying assets are publicly-traded securities , those which are not publicly-traded have been valued by the respective limited partnerships using their experience and judgment . under financial accounting standards board ( `` fasb '' ) guidance , if a fixed income security is in an unrealized loss position and the company has the intent to sell the security , or it is more likely than not that the company will have to sell the security before recovery of its amortized cost basis , the decline in value is deemed to be other-than-temporary and is recorded to net realized gains ( losses ) on investments in the consolidated statements of operations . for impaired fixed income securities that the company does not intend to sell or it is more likely than not that the company will not have to sell such securities , but the company expects that it will not fully recover the amortized cost basis , the credit component of the other-than-temporary impairment is recognized in net realized gains ( losses ) on investments in the consolidated statements of operations and the non-credit component of the other-than-temporary impairment is recognized directly in shareholders ' equity within accumulated other comprehensive income ( loss ) . in conjunction with the adoption of asu 2016-01 , unrealized gains or losses on equity securities will be recognized in the consolidated statements of operations and are no longer evaluated for other-than-temporary declines . it is important to note that all available-for-sale securities included in the company 's consolidated financial statements are valued at current fair market values . the evaluation process for determination of other-than-temporary decline in value of investments , as described above , does not change these valuations but , rather , determines when a decline in value will be recognized in the consolidated statements of story_separator_special_tag the prior year reserve deficiency in 2017 increased the loss ratio for 2017 by 5.9 percentage points compared to a 5.0 percentage point increase experienced in 2016 due to the prior year reserve deficiencies in 2016. we had an overall reserve deficiency on prior year claims during 2017 of $ 19.2 million and a $ 13.8 million deficiency on prior year claims during 2016. net investment income for 2017 increased 24.9 % to $ 18.1 million compared to $ 14.5 million for 2016 , primarily due to higher interest rates leading to higher reinvestment yields for fixed income securities , increased dividends from equity securities and an increase in average funds invested resulting from positive cash flow . after-tax investment income of $ 12.7 million increased 23.0 % during 2017 compared to the prior year reflecting the above factors , as well as the mix between taxable and tax-exempt investment income . net realized and unrealized gains on investments totaled $ 19.7 million in 2017 compared to $ 23.2 million during 2016. direct trading gains during 2017 were $ 8.2 million lower compared to the prior year . other-than-temporary impairment of $ 0.4 million , netted with gains of $ 1.6 million on previously impaired available-for-sale securities that were sold in 2017 , are included in the net gains stated above . investments in limited partnerships produced gains of $ 12.5 million in 2017 , compared to gains of $ 2.5 million during 2016. limited partnership investments utilized by us are primarily engaged in long-short equities , private equity , country-focused funds and real estate development as an alternative to direct equity investments . the aggregate of our share of gains and losses in these entities represented a 16.3 % appreciation in value for 2017 , compared to a 3.3 % increase in value for 2016. other operating expenses for 2017 increased $ 24.1 million ( 27.0 % ) to $ 113.6 million from $ 89.5 million in 2016. this increase was due primarily to an increase in commission expense as a result of the increase in premiums written and higher salary and salary-related expenses , reflective of our increased workforce in response to the continued expansion of our products and services . reinsurance ceded credits , included as an offset to other operating expenses , were 30.8 % lower in 2017 , resulting primarily from ceding a lower percentage of workers ' compensation premium to reinsurers in our most recent reinsurance treaty . - 27 - income tax benefit was $ 8.2 million for 2017 compared to income tax expense of $ 14.1 million in 2016. we recorded a benefit of $ 9.6 million related to the remeasurement of deferred tax assets and liabilities in the fourth quarter of 2017 pursuant to the u.s. tax act . our effective federal tax rate for 2017 was ( 81.0 % ) as compared to 32.8 % in 2016. the effective tax rate for 2017 was affected primarily by the impact of the u.s. tax act discussed above . as a result of the factors discussed above , net income for 2017 decreased $ 10.6 million to $ 18.3 million compared to $ 28.9 million in 2016. critical accounting policies the company 's significant accounting policies that are material and or subject to significant degrees of judgment are highlighted below . investment valuation all marketable securities are included in the company 's balance sheets at current fair market value . approximately 59 % of the company 's assets are composed of investments at december 31 , 2018. approximately 92 % of these investments are publicly-traded , owned directly and have readily-ascertainable market values . the remaining 8 % of investments are composed primarily of minority interests in several limited partnerships . these limited partnerships are engaged in long-short equities , private equity , country-focused funds and real estate development as an alternative to direct equity investments . these partnerships do not have readily-determinable market values themselves . rather , the values recorded are those provided to the company by the respective partnerships based on the underlying assets of the limited partnerships . while a substantial portion of the underlying assets are publicly-traded securities , those which are not publicly-traded have been valued by the respective limited partnerships using their experience and judgment . under financial accounting standards board ( `` fasb '' ) guidance , if a fixed income security is in an unrealized loss position and the company has the intent to sell the security , or it is more likely than not that the company will have to sell the security before recovery of its amortized cost basis , the decline in value is deemed to be other-than-temporary and is recorded to net realized gains ( losses ) on investments in the consolidated statements of operations . for impaired fixed income securities that the company does not intend to sell or it is more likely than not that the company will not have to sell such securities , but the company expects that it will not fully recover the amortized cost basis , the credit component of the other-than-temporary impairment is recognized in net realized gains ( losses ) on investments in the consolidated statements of operations and the non-credit component of the other-than-temporary impairment is recognized directly in shareholders ' equity within accumulated other comprehensive income ( loss ) . in conjunction with the adoption of asu 2016-01 , unrealized gains or losses on equity securities will be recognized in the consolidated statements of operations and are no longer evaluated for other-than-temporary declines . it is important to note that all available-for-sale securities included in the company 's consolidated financial statements are valued at current fair market values . the evaluation process for determination of other-than-temporary decline in value of investments , as described above , does not change these valuations but , rather , determines when a decline in value will be recognized in the consolidated statements of
| reserve strengthening in 2017 also resulted in ceding an additional $ 13.7 million in premium related to these variable premium adjustment provisions in 2017. losses and loss expenses incurred during 2018 increased $ 98.3 million ( 39.7 % ) to $ 345.9 million compared to $ 247.5 million in 2017. the loss ratio also increased to 79.9 % for 2018 compared to a loss ratio of 75.4 % for 2017. the loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned . the increased losses and loss expenses and loss ratio in 2018 reflected reserve adjustments of $ 16.8 million related to unfavorable prior accident year loss development in commercial automobile coverages . these unfavorable loss developments were the result of increased claim severity due to a more challenging litigation environment , as well as an unexpected increase in the time to settle claims leading to an unfavorable change in claim settlement patterns . the 2018 loss ratio also reflected an increase in current accident year losses driven by severe commercial automobile losses , including continued emergence of severity . the 2017 loss ratio also reflected a $ 19.2 million reserve strengthening related to prior accident year deficiencies that developed as a result of unfavorable loss development from commercial automobile coverages , particularly from severe transportation loss events that occurred primarily during the first six months of 2017 and higher than expected loss development for discontinued lines of business . - 25 - commercial automobile products covered by our reinsurance treaties are subject to an aggregate stop-loss provision . once this aggregate stop-loss level is reached , for every $ 100 of additional loss , we are responsible only for our $ 25 retention . the following table illustrates the financial impact of a further 5 % or 10 % increase in ultimate losses for the five most recent reinsurance treaty years ( 2013-2017 ) covering these commercial automobile products : replace_table_token_11_th net investment income for 2018 increased 21.8 % to
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story_separator_special_tag roman '' > year ended december 31 , 2011 compared to year ended december 31 , 2010 results by segment residential heating & cooling the following table details our residential heating & cooling segment 's net sales and profit for 2011 and 2010 ( dollars in millions ) : replace_table_token_8_th residential heating & cooling net sales declined by 5 % in 2011 compared to 2010. sales volumes declined by 4 % and price and mix were down by 1 % in 2011 as compared to 2010. our residential heating & cooling segment 's sales volumes and mix were negatively affected by consumers moving to lower efficient unit purchases from high efficiency system replacements , driven by a significant reduction in the federal tax credits in 2011 , the availability of r22 refrigerant outdoor condensing units , and consumer weakness . segment profit decreased $ 57 million due to $ 32 million in increased commodity costs from both raw materials and components with our component cost commodity increases partially offset by material cost savings , $ 20 million in lower sales volumes , $ 15 million in higher freight and distribution charges , $ 11 million in unfavorable price and mix , and $ 4 million in unfavorable warranty adjustment . a $ 26 million decline in sg & a expenses partially offset the decreases in segment profit . the decline in sg & a expenses was primarily due to lower variable compensation and general cost control . 21 commercial heating & cooling the following table details our commercial heating & cooling segment 's net sales and profit for 2011 and 2010 ( dollars in millions ) : replace_table_token_9_th our commercial heating & cooling business experienced a 12 % increase in net sales in 2011 compared to 2010 primarily due to an increase in our replacement business which resulted in a 7 % increase in sales volume . additionally , our price and mix increased 3 % in 2011 compared to 2010. mix was driven by strength in our high efficiency premier products like strategos ® and energence ® . changes in foreign currency exchange rates also favorably impacted net sales by 2 % in 2011. segment profit in 2011 increased $ 10 million from 2010. segment profit increased as a result of the impact of higher sales volume by $ 13 million , positive price and mix by $ 10 million , and $ 4 million from productivity initiatives . partially offsetting these increases to segment profit were $ 17 million in increased commodity costs from both raw materials and components with our component cost commodity increases partially offset by material cost savings . service experts the following table details our service experts segment 's net sales and profit for 2011 and 2010 ( dollars in millions ) : replace_table_token_10_th service experts net sales declined 10 % in 2011 compared to 2010. sales volumes contributed 13 % to the decline in sales . offsetting the decline in sales volume were 2 % in favorable mix and 1 % from favorable foreign currency exchange rates . the decline in this segment 's sales volume was primarily due to a decline in residential hvac equipment installations . segment profit decreased $ 18 million due to a $ 28 million decline in volume , partially offset by a $ 10 million decline in sg & a expenses . the decline in sg & a expenses was primarily due to lower variable compensation and general cost control . refrigeration the following table details our refrigeration segment 's net sales and profit for 2011 and 2010 ( dollars in millions ) : replace_table_token_11_th net sales , excluding kysor/warren , increased 7 % due to higher price and mix of 2 % and favorable foreign currency exchange rates of 5 % . the kysor/warren acquisition contributed 39 % to the increase in net sales . 22 segment profit increased by $ 16 million , including a $ 15 million positive impact from price and mix , $ 2 million in favorable foreign exchange rates , and a $ 5 million decline in sg & a expenses . partially offsetting these increases in segment profit were declines of $ 4 million from increased commodity costs from both raw materials and components with our component cost commodity increases more than offset by material cost savings , $ 3 million decline in volume , and $ 2 million in higher freight and distribution charges . the remaining segment profit increase was related to the kysor/warren acquisition . corporate and other corporate and other expenses were $ 54 million in 2011 , down from $ 66 million in 2010. the decrease was primarily driven by a $ 12 million decline in compensation expense , primarily incentive compensation , for 2011. year ended december 31 , 2010 compared to year ended december 31 , 2009 consolidated results net sales sales increased 8.7 % for 2010 as compared to 2009 due to increased sales volumes of 5 % , primarily driven by growth across all four business segments . volume improved in all four reportable business segments , led by strength in residential heating & cooling and service experts . price and mix of approximately 2 % also had a favorable impact on sales . changes in foreign currency exchange rates favorably impacted net sales by 2 % . gross profit gross profit margins improved approximately 110 basis points to 28.8 % for 2010 , compared to gross profit margins of 27.7 % in 2009. this improvement was primarily driven by lower product costs from material savings and manufacturing efficiencies of approximately 140 basis points . gross profit margin comparisons were also favorably impacted by 60 basis points for expenses related to a product quality issue that were recorded in 2009 with no such expenses in 2010. partially offsetting these positive impacts to gross profit margins were commodities headwinds of 50 basis points and increased freight and distribution expenses that decreased gross profit margins by approximately 50 basis points , primarily in the residential heating & cooling segment . story_separator_special_tag selling , general and administrative expenses sg & a expenses increased by $ 40.8 million in 2010 as compared to 2009 , and as a percentage of sales , sg & a expenses were down 50 basis points from 22.6 % in 2009 to 22.1 % in 2010. sg & a expenses increased $ 16 million due to increased variable incentive compensation driven by improved financial performance and $ 35 million related to increased variable selling , advertising , and promotion expenses in support of our sales growth . these increases were partially offset by lower bad debt expense and pension costs . losses ( gains ) and other expenses , net losses ( gains ) and other expenses , net for 2010 and 2009 included the following ( in millions ) : replace_table_token_12_th 23 the change in gains and losses on settled futures contracts was primarily due to increases in commodity prices relative to the futures contract prices during 2010 as compared to 2009. conversely , the change in unrealized gains related to unsettled futures contracts was primarily due to lower commodity prices relative to the futures contract prices for those contracts . for more information , see note 10 in the notes to the consolidated financial statements . for more information regarding the special legal contingency charge , see note 12 in the notes to the consolidated financial statements . acquisition expenses relate to the kysor/warren acquisition . for more information , see note 3 in the notes to the consolidated financial statements . restructuring charges restructuring charges were $ 15.6 million in 2010 compared to $ 41.5 million in 2009. the lower restructuring charges in 2010 were primarily due to a smaller number of large projects in 2010. the restructuring charges in 2010 primarily consisted of manufacturing rationalization projects in australia in the refrigeration segment which totaled $ 8.6 million , as well as administrative reorganizations in our service experts segment which totaled $ 2.1 million . the remaining restructuring charges in 2010 were primarily related to projects announced prior to 2010. restructuring charges in 2009 primarily consisted of three large manufacturing rationalization projects totaling $ 25.2 million and $ 11.3 million in various corporate and business unit administrative reorganizations . for a detailed discussion regarding restructuring activities , see note 18 in the notes to consolidated financial statements . income from equity method investments investments over which we do not exercise control but have significant influence are accounted for using the equity method of accounting . income from equity method investments increased to $ 10.1 million in 2010 as compared to $ 7.3 million in 2009 primarily due to the improved performance of our u.s. joint venture in compressor manufacturing , which experienced increased sales and profitability . interest expense , net interest expense , net increased to $ 12.8 million in 2010 as compared to $ 8.2 million in 2009. the increase in interest expense was primarily attributable to higher debt levels , and the issuance in may 2010 of $ 200 million of our senior unsecured notes at 4.91 % with a higher interest rate than our revolver . income taxes the income tax provision was $ 59.5 million in 2010 as compared to $ 39.1 million in 2009. the effective tax rate was 33.7 % for 2010 as compared to 38.8 % for 2009. our effective rates differ from the statutory federal rate of 35 % for certain items , such as state and local taxes , non-deductible expenses , foreign operating losses for which no tax benefits have been recognized and foreign taxes at rates other than 35 % . discontinued operations during 2009 and 2010 , we sold twelve service centers . the pre-tax operating loss from discontinued operations was $ 1.1 million in 2010 as compared to $ 13.1 million in 2009. included in the 2009 loss from discontinued operations was an impairment charge of $ 2.7 million related to service centers where the estimated selling price of the assets was below the net book value of those assets , gains on disposal of assets and liabilities of $ 2.3 million , and a write-off of $ 4.0 million of goodwill related to the sale of these service centers . 24 year ended december 31 , 2010 compared to year ended december 31 , 2009 results by segment residential heating & cooling the following table details our residential heating & cooling segment 's net sales and profit for 2010 and 2009 ( dollars in millions ) : replace_table_token_13_th the increase in sales was due to the recovery of the u.s. residential end markets , primarily the replacement market . sales volumes increased net sales by 8 % in 2010 as compared to 2009 , while price and mix were relatively flat at a 1 % increase . the positive impact of changes in foreign currency exchange rates also increased sales by 1 % . segment profit increased $ 20.6 million , including $ 25 million due to the increase in sales and $ 14 million due to material savings and manufacturing efficiencies partially offset by commodities headwinds of $ 9 million . these were partially offset by higher sg & a expenses of $ 14 million consisting primarily of increased variable selling expenses and incentive compensation . commercial heating & cooling the following table details our commercial heating & cooling segment 's net sales and profit for 2010 and 2009 ( dollars in millions ) : replace_table_token_14_th our commercial heating & cooling business experienced increased sales volumes of nearly 3 % during 2010 primarily due to introductions of energy efficient products and an increase in planned replacement business at national retail accounts , as well as strong growth in the schools market . price and mix were favorable by 2 % . foreign currency exchange rates decreased sales by 1 % . segment profit increased $ 20.0 million , including nearly $ 19 million due to the increase in net sales and $ 3 million due to material savings and manufacturing efficiencies .
| selling , general and administrative expenses selling , general & administrative ( sg & a ) expenses decreased by $ 26 million in 2011 compared to 2010 , and as a percentage of net sales , sg & a expenses declined to 20 % in 2011 from 22 % in 2010. excluding the kysor/warren acquisition , the decrease in sg & a was principally due to a $ 37 million decline in variable compensation , as well as an additional $ 17 million from general cost control initiatives . losses ( gains ) and other expenses , net losses ( gains ) and other expenses , net for 2011 and 2010 included the following ( in millions ) : replace_table_token_7_th the change in losses ( gains ) and other expenses , net is primarily due to the special legal contingency charge related to the class action lawsuit that concluded in the second quarter of 2011 and the unrealized losses on unsettled future commodity contracts . refer to note 12 in the notes to the consolidated financial statements for more information on the special legal contingency charge and note 10 for more information on the unrealized losses on unsettled future commodity contracts . restructuring charges restructuring charges were $ 16 million in 2011 compared to $ 16 million in 2010. the charges in 2011 were primarily from corporate restructuring charges that included the termination of our corporate airplane lease , closure of our aviation department , and reorganization of certain support functions initiated in the third quarter of 2011. additionally , we had charges related to the reorganization of the service experts administrative functions and management structure initiated in the fourth quarter of 2010. the restructuring charges in 2010 were primarily related to the exit of the contract coil and oem coil manufacturing in australia and consolidation of our parets , spain manufacturing facility into our genas , france facility in our refrigeration segment . additionally , 2010 charges included the relocation of a research and development facility and administrative offices from california to tennessee in our residential heating & cooling segment . the remaining restructuring charges from 2010 were minor charges from various open
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35 our core technology was developed in collaboration with prominent neurologist prof. eldad melamed , former head of neurology of the rabin medical center and member of the scientific committee of the michael j. fox foundation for parkinson 's research , and expert cell biologist prof. daniel offen of the felsenstein medical research center of tel aviv university . our israeli subsidiary holds rights to commercialize the technology , through a licensing agreement with ramot , the technology transfer company of tel aviv university , israel . on february 8 , 2010 , our israeli subsidiary entered into an agreement with hadassah , pursuant to which hadassah provides the israeli subsidiary with lab services . on february 17 , 2010 , our israeli subsidiary entered into the clinical trial agreement with hadassah . under the clinical trial agreement , hadassah and our personnel agreed to conduct a clinical trial to evaluate the safety and tolerability of our nurown cells in patients with als , in accordance with a protocol developed jointly by us and professor karussis . in february 2011 , the fda granted orphan drug designation to nurown for the treatment of als . in june 2011 , we initiated a phase i/ii clinical trial for the treatment of als with nurown at humc with principal investigator professor dimitrios karussis , after receiving approval from the israeli moh . in july 2011 , we entered into a memorandum of understanding with mgh and the umass in anticipation of applying for fda approval to begin als human clinical trials in the united states . in march 2014 , we entered into a definitive agreement with mgh in order to launch a phase ii clinical trial in second quarter of 2014 , and we expect to enter into a definitive agreement with umass for the same . in july 2012 , together with professor karussis , we submitted an interim safety report to the israeli moh for the first 12 of 24 patients in the phase i/ii clinical trial . the report confirmed that our nurown therapy is safe , did not cause any adverse side effects , and some of the patients showed promising indications of clinical improvement . in january 2013 , the israeli moh approved acceleration to a phase iia combined treatment , dose-escalating trial , which we are currently conducting at humc . in this safety and preliminary efficacy trial , 12 early-stage als patients will receive both intramuscular and intrathecal injections of nurown cells in three cohorts with increasing doses . the patients will be followed for six months after transplantation . due to medical and technical considerations , two additional patients were enrolled in the trial in late 2013 , in order to preserve the originally planned protocol design . these two patients will be treated by the end of the first quarter of 2014. the complete and final statistical analysis of the phase iia data is expected to be available after 6 months of follow up with the patients . in january 2013 , we also announced that we had successfully completed a 12-week repeat dose toxicity study with our nurown cells in mice . these repeat doses were prepared from frozen cells , using a proprietary method recently developed by the company . our cryopreservation , or freezing , method will enable long-term storage , and production of repeat patient doses of nurown without the need for additional bone marrow aspirations . we believe that the positive data from the toxicity study in mice will support our efforts to obtain approval for a future repeat dose clinical study in als patients . the study was conducted at harlan israel 's laboratories , according to glp standards of the fda . the study protocol was approved by israel 's national council for animal experimentation . on february 21 , 2013 , the uk subsidiary filed a request for orphan medicinal product designation by the ema for our autologous bone marrow-derived mesenchymal stem cells secreting neurotropic factors . in march 2013 , principal investigator professor dimitrios karussis of hadassah presented some of the final data from the phase i/ii trial at the american academy of neurology annual meeting . the trial results analyzed to date confirmed the safety of the nurown treatment and also demonstrated initial signs of possible efficacy . there was a slower decline in overall clinical and respiratory function , as measured by the als functional rating score ( alsfrs-r ) and forced vital capacity ( fvc ) score respectively , in the six patients that received an intrathecal injection of the cells , in the six months following treatment as compared to the three months preceding treatment . on march 14 , 2013 , we entered into a memorandum of understanding with the mayo clinic in rochester , minnesota , to participate as an additional clinical site in the phase ii als clinical trial planned for later this year . the team there will be led by professor anthony j. windebank , head of the regenerative neurobiology laboratory in the department of neurology . in january 2014 we announced that we had entered into a definitive agreement with mayo to conduct the trial and manufacture our cells at their cleanroom facility . on april 3 , 2013 , we entered into a manufacturing agreement with dana-farber cancer institute ( dana-farber ) under which dana-farber 's connell and o'reilly cell manipulation core facility will produce nurown in its cgmp-compliant clean rooms for the mgh and umass clinical sites during our upcoming phase ii als clinical trial in the united states . story_separator_special_tag in june 2013 , we entered into a memorandum of understanding ( mou ) with prc clinical , a contract research organization ( cro ) based in the san francisco bay area , in anticipation of our planned phase ii multi-center als clinical trial in the united states . 36 on july 17 , 2013 , we received orphan medicinal product designation for nurown for the treatment of als from the european commission . on august 1 , 2013 we announced that we submitted a favorable safety report to the hospital helsinki committee ( irb ) for the second group of patients in our ongoing phase iia als clinical trial at the hadassah medical center in jerusalem , israel . we announced that the treatment was well tolerated and no serious adverse events were observed . we plan to release the preliminary efficacy data at the conclusion of the trial . on september 27 , 2013 we announced that we had completed treatment of the 12 patients in our als phase iia nurown dose-escalating clinical trial . the complete and final statistical analysis of the data is expected to be available after 6 months of follow up with the patients . we have been informed that one patient in the study expired due to a medical condition unrelated to the clinical trial . we also announced that for logistical reasons , our upcoming multi-center phase ii clinical trial in the us is expected to begin , subject to fda approval , in the second quarter of 2014 , instead of late 2013 as we reported previously . on december 10 , 2013 , we announced that prof. karussis presented some of his preliminary findings from our als phase iia nurown dose-escalating clinical trial at the 24 th international symposium on als/mnd last week in milan , italy . according to prof. karussis , the safety data are `` impressively positive , '' with only minimal and transient adverse events , even though the patients in this study were injected both intrathecally and intramuscularly with up to double the dose of nurown cells given in the phase i trial . in addition , a number of patients showed some initial indications of clinical improvement . in december 2013 the company submitted an ind application to the fda . story_separator_special_tag ( iii ) an increase in stock-based compensation expenses . this increase was partially offset by an increase in cso grants . the weighted average number of shares of common stock used in computing basic and diluted net loss per share for the year ended december 31 , 2013 was 161,071,968 , compared to 137,596,391for the year ended december 31 , 2012. the increase in the weighted average number of shares of common stock used in computing basic for the year ended december 31 , 2013 was due to : ( i ) the issuance of shares of common stock in a public offering in august 2013 , as described in more detail below and in a public offering in july 2012 , ( ii ) the exercise of options and warrants , and ( iii ) the issuance of shares to service providers . liquidity and capital resources we have financed our operations since inception primarily through public and private sales of our common stock and warrants and the issuance of convertible promissory notes . as of december 31 , 2013 , we had $ 4,446,000 in total current assets and $ 1,332,000 in total current liabilities . net cash used in operating activities was $ 4,054,000 for the year ended december 31 , 2013. cash used for operating activities in the year ended december 31 , 2013 was primarily attributed to cost of clinical trials , rent of clean rooms and materials for clinical trials , payroll costs , rent , outside legal fee expenses and public relations expenses . net cash provided by investing activities was $ 2,656,000 for the year ended december 31 , 2013. net cash provided by financing activities was $ 3,584,000 for the year ended december 31 , 2013 and is primarily attributable to the 2013 public offering , as discussed below . on august 16 , 2013 , we raised approximately $ 4 million gross proceeds through a public offering ( “ 2013 public offering ” ) of our common stock . we issued a total of 23,529,411 common stock of $ 0.00005 par value , ( $ 0.17 per share ) and 17,647,058 warrants to purchase shares of common stock for every share purchased in the 2013 public offering , at an exercise price of $ 0.25 per share . the warrants are exercisable until the 36 month anniversary of the date of issuance . after deducting closing costs and fees , the company received net proceeds of approximately $ 3.3 million . our material cash needs for the next 12 months will include payments of ( i ) initiation and on-going costs of the clinical trial in the u.s. , ( ii ) employee salaries , ( iii ) payments due under an agreement with hadassah and prof. karussis to conduct our dose-escalating phase ii clinical trial , under which we must pay to hadassah an amount of ( iv ) up to $ 32,225 per patient and ( ii ) $ 32,500 per month for rent and operation of the gmp facilities , and ( v ) fees to our consultants and legal advisors , patents and fees for facilities to be used in our research and development . future operations are expected to be highly capital intensive and will require substantial capital raisings . we expect that the net proceeds of the 2013 public offering will be insufficient to meet our obligations in the upcoming 6 months . if we are not able to raise substantial additional capital , we may not be able to continue to function as a going concern and may have to cease operations or the
| in addition , our grant from the office of the chief scientist increased by $ 195,000 to $ 1,113,000 for the year ended december 31 , 2013 from $ 918,000 for the year ended december 31 , 2012. the increase in research and development expenses is primarily due to ( i ) an increase of $ 966,000 for the year ended december 31 , 2013 , compared to zero for the year ended december 31 , 2012 for costs of activities related to commencement of the us clinical trial including ind submission fees to prc clinical and fda consultant , purchase and validation of cleanroom equipment at dfci and mayo clinic , adaptation of cleanroom facility at dfci , and on-site technology transfer training to dfci cleanroom personnel ; ( ii ) an increase of $ 153,000 in costs associated with the clinical trials , conducted in accordance with gmp in hadassah , for an aggregate amount of $ 1,432,000 for the year ended december 31 , 2013 , compared to $ 1,279,000 for the year ended december 31 , 2012 ; ( iii ) an increase of $ 296,000 in payroll costs due to recruitment of two additional employees to conduct the clinical trials ; and ( iv ) an increase of $ 111,000 for patents , travel and rent costs . this increase was offset by : ( i ) a decrease in stock-based compensation expenses , of $ 23,000 in the year ended december 31 , 2013 to $ 51,000 , compared to $ 74,000 for the year ended december 31 , 2012 ; and ( ii ) a de crease of $ 161,000 for consultants and depreciation from $ 406,000 in the year ended december 31 , 2012 to $ 245,000 in the year ended december 31 , 2013. general and administrative general and administrative expenses for the years ended december 31 , 2013 and 2012 were $ 2,101,000 and $ 1,748,000 , respectively . the increase in general and administrative expenses for the year ended december 31 , 2013 , is mainly due to : ( i ) an increase of $ 222,000 in stock-based compensation expenses , from $ 545,000 in the year ended december 31 , 2012 to $ 767,000 in the year ended december 31 , 2013 ; ( ii ) an increase of $ 140,000 in payroll costs due to recruitment of ceo during 2013 ; ( iii ) an in crease of $ 107,000 for travel , rent and stock costs from $ 190,000 in the year ended december 31 , 2012 to $ 297,000 in the year ended december 31 , 2013. this increase was partially offset by a decrease of
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reconciliations of gaap to non-gaap as-adjusted data to enable the reader to better understand our financial information by reflecting period-over-period data on a consistent basis , management 's discussion and analysis of financial condition and results of operations presents our financial information as of and for the years ended november 30 , 2011 and 2010 as compared to non-gaap as-adjusted results of operations data for the year ended november 30 , 2009 , and , where necessary , we have also provided certain information as of and for the year ended november 30 , 2008 and 2007 on a non-gaap as-adjusted basis . management believes the non-gaap as-adjusted financial information is useful to investors as it aligns with the financial information used in management 's decision-making process and in evaluating the business . the following describes the adjustments made to arrive at the non-gaap as-adjusted financial information : settlement income adjustments - the non-gaap as-adjusted amounts remove the impact of income received in connection with the settlement of our antitrust litigation with visa and mastercard during the years ended november 30 , 2009 and 2008 , which resulted in unusually large amounts in other income and affect comparability of results between periods . special dividend interest adjustments - the non-gaap as-adjusted amounts exclude the 2009 interest charge related to our dispute with morgan stanley regarding the special dividend agreement , which , among other things , specified how proceeds of the antitrust litigation with visa and mastercard were to be shared . statements no . 166 and 167 adjustments - the non-gaap as-adjusted amounts show how our financial data would have been presented if the trusts used in our securitization activities were consolidated into our financial statements for historical periods prior to fiscal year 2010. we did not retrospectively adopt statements no . 166 and 167 and , therefore , the consolidated financial statements presented in this annual report as of and for the years ended november 30 , 2011 and 2010 reflect the new accounting requirements , but the historical statement of income and statement of cash flows for the year ended november 30 , 2009 continue to reflect the accounting applicable prior to the adoption of the new accounting requirements . the impacts of statements no . 166 and 167 on our earnings summary , detail of other income and direct banking segment information are reflected in two steps in the reconciliations of gaap to non-gaap as-adjusted data in the tables below . first , we made securitization adjustments to reverse the effect of loan securitization by recharacterizing securitization income to report interest income , interest expense , provision for loan losses , discount and interchange revenue and loan fee income in the same line items as non-securitized loans . these adjustments result in a “ managed basis ” presentation , which we have historically included in our quarterly and annual reports to reflect the way in which our senior management evaluated our business performance and allocated resources . then , in addition to the adjustments to remove the litigation settlement income and the interest related to the special dividend paid to morgan stanley , adjustments were made to reflect results as if the trusts used in our securitization activities had been fully consolidated in our historical results . these adjustments include : elimination of interest income and interest expense related to certificated retained interests classified as investment securities and associated intercompany debt ; an adjustment to the provision for loan losses for the change in securitized loan receivables ; elimination of the revaluation gains or losses associated with the interest-only strip receivable , which was derecognized upon adoption of statements no . 166 and 167 ; and an adjustment to reflect the income tax effects related to these adjustments . 45 the impacts of statements no . 166 and 167 on our effective tax rate , loan receivables and average balance sheet information and certain other selected financial data are reflected in one step , rather than two , in the reconciliations of gaap to non-gaap as-adjusted data set forth in the tables below as there is no meaningful difference between such information on a historical managed basis as compared to on a non-gaap as-adjusted basis . the following tables display a reconciliation between gaap , previously reported managed results , and non-gaap as-adjusted amounts that reflect the exclusion of litigation settlement proceeds and interest related to the morgan stanley special dividend , which were unrelated to the adoption of statements no . 166 and 167 , and reflect the full impact the consolidation of our trusts would have had if we had adopted statements no . 166 and 167 retrospectively . earnings summary and reconciliation replace_table_token_5_th ( a ) elimination of interest income on certificated retained interests previously classified as investment securities and balance transfer fee income previously included in gain/loss on interest-only strip receivable . ( b ) elimination of interest expense on certificated retained interests previously classified as investment securities and an interest expense adjustment related to the discount on securitized borrowings . ( c ) provision for loan loss on the period-to-period change in securitized loans . ( d ) exclusion of settlement proceeds related to the visa and mastercard antitrust litigation . ( e ) elimination of gain/loss related to revaluation of interest-only strip receivable and cash collateral accounts . ( f ) exclusion of interest charge related to our dispute with morgan stanley regarding the special dividend agreement . ( g ) estimated income tax benefit on the pretax loss related to statement no . 167 adjustments and exclusion of taxes on the visa/mastercard antitrust litigation settlement . 46 other income and reconciliation replace_table_token_6_th ( a ) exclusion of settlement proceeds related to the visa and mastercard antitrust litigation . ( b ) elimination of gain/loss related to revaluation of interest-only strip receivable and cash collateral accounts . direct banking segment summary and reconciliation replace_table_token_7_th ( a ) elimination of interest income on certificated retained interests previously classified as investment securities . story_separator_special_tag ( b ) adjustments to interest income related to balance transfer fee income previously included in gain/loss on interest-only strip receivable . ( c ) elimination of interest expense on certificated retained interests previously classified as investment securities and an interest expense adjustment related to the discount on securitized borrowings . ( d ) provision for loan loss on the period-to-period change in securitized loans . ( e ) exclusion of settlement proceeds related to visa and mastercard antitrust litigation and elimination of gain/loss related to revaluation of interest-only strip receivable and cash collateral accounts . ( f ) exclusion of interest charge related to our dispute with morgan stanley regarding the special dividend agreement . ( g ) estimated income tax on the pretax loss related to statement no . 167 adjustments and exclusion of taxes on the visa/mastercard antitrust litigation settlement . 47 loan receivables data and reconciliation replace_table_token_8_th 48 replace_table_token_9_th 49 replace_table_token_10_th ( a ) data not available for the years ended november 30 , 2008 and 2007 . 50 average balance sheet reconciliation replace_table_token_11_th 51 for the year ended november 30 , 2009 average balances ( dollars in thousands , except where noted ) average other liabilities and stockholders ' equity ( non-interest earning ) gaap $ 10,624,758 adjustments for statement no . 167 ( 1,794,724 ) non-gaap as-adjusted $ 8,830,034 average total liabilities and stockholders ' equity gaap $ 42,234,535 adjustments for statement no . 167 20,925,976 non-gaap as-adjusted $ 63,160,511 ratios and other amounts net interest margin gaap 7.13 % adjustments for statement no . 167 2.32 non-gaap as-adjusted 9.45 % net yield on interest-earning assets gaap 4.74 % adjustments for statement no . 167 2.86 non-gaap as-adjusted 7.60 % interest rate spread gaap 3.90 % adjustments for statement no . 167 3.26 non-gaap as-adjusted 7.16 % amortization of balance transfer fees in interest income on credit card loans ( dollars in millions ) gaap $ 128 adjustments for statement no . 167 59 non-gaap as-adjusted $ 187 replace_table_token_12_th 52 2011 highlights net income in 2011 was $ 2.2 billion as compared to net income of $ 765 million in 2010. discover card sales volume showed strong year-over-year growth of 8 % totaling $ 100.1 billion in 2011 as compared to $ 92.5 billion in 2010. this growth was driven primarily by an increase in spending by both new and existing customers partially due to increased marketing . the delinquency rate for our credit card loans over 30 days past due improved dramatically during 2011 , reaching an all-time low at november 30 , 2011 of 2.39 % , which was down from the prior year rate of 4.06 % . the primary reason for this decline was the improvement throughout 2011 in the underlying credit quality of our portfolio as the u.s. economy stabilized following an extended period of increasing unemployment levels . our total loan portfolio increased 18 % year-over-year to $ 56.6 billion , mainly due to the acquisition of the student loan corporation ( `` slc '' ) in december 2010 , which added approximately $ 3.1 billion of private student loans to our portfolio , and the acquisition of approximately $ 2.4 billion of private student loans from citibank , n.a . ( `` citi '' ) in september 2011. in addition , $ 1.5 billion is attributed to an increase in credit card loans due to higher volumes and lower charge offs . payment services continued to produce strong results with pretax income of $ 166 million , up 18 % over the prior year . transaction volume for the segment was $ 177 billion , an increase of 16 % as compared to the prior year . we repurchased 18 million shares , or approximately 3 % , of our outstanding common stock for $ 425 million in 2011 . 2010 and 2009 highlights our revenues were unfavorably impacted in 2010 by the implementation of certain provisions of the credit card accountability responsibility and disclosure act of 2009 ( the `` card '' act ) , which included limitations on our ability to reprice accounts , the elimination of overlimit fees and a reduction in the amount of standard late fees . we settled our antitrust litigation with visa and mastercard for $ 2.75 billion in 2008. through 2009 , we received a total of $ 1.9 billion ( $ 1.2 billion after tax ) from visa for its portion of the settlement . at the time of our spin-off , we entered into an agreement with morgan stanley to determine how proceeds from the litigation would be shared , among other things . in 2010 , we paid morgan stanley a dividend of $ 775 million under an amendment to that agreement . recent developments on december 9 , 2011 , we entered into definitive agreements to sell substantially all of our remaining $ 714 million of federal student loans currently classified as loans held for sale . the majority of these loans were pledged as collateral against a long-term borrowing and , as part of this transaction , these borrowings are expected to be assumed by the purchaser . these transactions , which are subject to customary closing conditions , including the receipt of governmental approvals , are expected to close in february 2012. effective december 16 , 2011 , we terminated our $ 2.4 billion unsecured committed credit facility . this facility had no borrowings against it as of november 30 , 2011. for more information , see `` - liquidity and capital resources - liquidity management . '' on january 19 , 2012 , we paid a dividend of $ 0.10 per share of our common stock , which was an increase from the $ 0.06 per share dividend that we paid in the previous quarter . outlook credit performance continued to improve through 2011 as we approached historical lows in delinquency and net charge-off rates .
| our payment services segment includes pulse , an automated teller machine , debit and electronic funds transfer network ; diners club , a global payments network ; and our third-party issuing business , which includes credit , debit and prepaid cards issued on the discover network by third parties . the majority of our payment services revenues relate to transaction processing revenue from pulse and royalty and licensee revenue ( included in other income ) from diners club . 57 replace_table_token_13_th ( 1 ) the 2009 direct banking segment information is presented on a non-gaap as-adjusted basis . no adjustments have been made to the payment services segment . see reconciliations in “ —reconciliations of gaap to non-gaap as-adjusted data. ” replace_table_token_14_th ( 1 ) diners club volume is derived from data provided by licensees for diners club branded cards issued outside north america and is subject to subsequent revision or amendment . ( 2 ) represents gross proprietary sales volume on the discover network . ( 3 ) represents discover card activity related to net sales , balance transfers , cash advances and fee-based products . ( 4 ) represents discover card activity related to net sales . 58 direct banking for the year ended november 30 , 2011 compared to the year ended november 30 , 2010 our direct banking segment reported pretax income of $ 3.3 billion for the year ended november 30 , 2011 , as compared to pretax income of $ 1.1 billion for the year ended november 30 , 2010. loan receivables totaled $ 57.3 billion at november 30 , 2011 , which was up from $ 48.8 billion at november 30 , 2010. this was primarily driven by the increase in private student loans due to the acquisition of $ 3.1 billion of loans from slc in the first quarter of 2011 ( see note 4 : business combinations to our consolidated financial statements ) , and an additional $ 2.4 billion of student loans acquired in the fourth quarter of 2011 ( see note 6 : loan receivables to our consolidated financial statements ) . credit card loan receivables were $ 46.6 billion at november 30 , 2011 ,
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we have engaged parexel as our cro to support imetelstat clinical development activities . parexel will provide contract research services related to clinical trials conducted by us , in accordance with the terms of the master services agreement , or the msa , that we entered into with parexel on january 30 , 2019 , and related work orders . we may terminate the msa and or any work order without cause on prior written notice to parexel . contemporaneously with entering the msa , we entered into a first work order with parexel , under which p arexel will provide services related to imerge . under the first work order , we will pay parexel service fees and pass-through expenses estimated to be approximately $ 33 million in the aggregate for parexel 's services related to imerge . we may amend the first work order or enter future work orders with parexel related to mf or future clinical trials or services . status of former collaboration agreement with janssen on november 13 , 2014 , we entered into a collaboration and license agreement , or the collaboration agreement , pursuant to which we granted janssen the exclusive rights to develop and commercialize imetelstat worldwide for all indications in oncology , including hematologic myeloid malignancies , and all other human therapeutic uses . janssen terminated the collaboration agreement effective september 28 , 2018. upon the effective date of termination , we regained the global rights to the imetelstat program . as a result of the termination of the collaboration agreement , we will not receive any further milestone payments or royalties from janssen for the development or commercialization of imetelstat , including any clinical development or sales milestones , and janssen has no further obligations to us or any third parties , such as clinical sites or vendors , to fund any of the ongoing or any potential future imetelstat clinical trials . under the termination provisions of the collaboration agreement , janssen is required to provide certain operational support for the imetelstat program during transition of the program to us . each company is responsible for its own costs incurred related to transition activities unless otherwise specified in the collaboration agreement . we expect the transition process to be completed by september 2019 to enable the orderly transfer of all ongoing clinical , regulatory , medical affairs and non-clinical activities to us , including transfer of the sponsorship of ongoing imetelstat clinical trials from janssen to us . in addition , following the effective date of termination of the collaboration agreement , we expect janssen to supply imetelstat to us for up to 24 months during a transition period for clinical manufacturing and such supply will be charged to us at janssen 's cost plus a premium . until the sponsorship responsibilities for imetelstat transfer from janssen to us , including the u.s. investigational new drug , or ind , application , and all foreign regulatory applications , janssen will continue conducting imbark and the phase 2 portion of imerge . patients currently enrolled in imbark and the phase 2 portion of 63 imerge will continue to receive treatment and follow-up under the respective trial protocols . after september 28 , 2018 , the effective termination date of the collaboration agreement , our responsibility for imetelstat develop ment costs , including ongoing conduct of the extension phase of imbark and the phase 2 portion of imerge , and costs for the prosecution of patents that were licensed to janssen under the collaboration agreement increased from 50 % to 100 % . for a further discussion of the collaboration agreement , see note 4 on license agreements in notes to financial statements of this form 10-k. information about the transition of the imetelstat program from janssen to us should be reviewed in the context of the section entitled “ risks related to transition of the imetelstat program from janssen to geron ” included in item 1a , “ risk factors ” of this form 10-k. financial overview we had approximately $ 182.1 million in cash , cash equivalents , restricted cash and current and noncurrent marketable securities as of december 31 , 2018. we will require substantial additional capital in order to further advance the imetelstat program , including conducting the research and development and clinical and regulatory activities necessary to bring imetelstat to market , such as completing the phase 3 portion of imerge and potential clinical trials in other indications , and establishing sales and marketing capabilities to commercialize imetelstat in the united states on our own , if regulatory approval is granted . if approved for marketing by regulatory authorities , we plan to seek potential commercialization partners for territories outside of the united states . while we reported a small profit for the year ended december 31 , 2015 due to our recognition of revenue in connection with the upfront payment from janssen under the collaboration agreement , until 2015 we had never been profitable , and have not reported any profit since . we have incurred significant net losses since our inception in 1990 , resulting principally from costs incurred in connection with our research and development activities and from general and administrative costs associated with our operations . as of december 31 , 2018 , we had an accumulated deficit of $ 1.01 billion . since our inception , we primarily have financed our operations through the sale of equity securities , interest income on our marketable securities and payments we received under our collaborative and licensing arrangements . substantially all of our revenues to date have been payments under collaborative agreements , and milestones , royalties and other revenues from our licensing arrangements . we currently have no source of product revenue . the significance of future losses , future revenues and any potential future profitability will depend primarily on the clinical and commercial success of imetelstat . in any event , imetelstat will require significant additional clinical testing prior to possible regulatory approval in the united states and other countries . story_separator_special_tag in addition , as a result of the termination of the collaboration agreement , we expect research and development expenses , general and administrative expenses , and losses to substantially increase in future periods as we assume sole responsibility for the imetelstat development program . we do not expect imetelstat to be commercially available for many years , if at all . critical accounting policies and estimates our financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . note 1 of notes to financial statements describes the significant accounting policies used in the preparation of our financial statements . certain of these significant accounting policies are considered to be critical accounting policies , as defined below . a critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult , subjective or complex judgments that could have a material effect on our financial condition and results of operations . specifically , critical accounting estimates have the following attributes : ( i ) we are required to make assumptions about matters that are highly uncertain at the time of the estimate ; and ( ii ) different estimates we could reasonably have used , or changes in the estimate that are reasonably likely to occur , would have a material effect on our financial condition or results of operations . estimates and assumptions about future events and their effects can not be determined with certainty . we base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances . these estimates may change as new events occur , as additional information is obtained and as our operating environment changes . these changes historically have been minor and have been included in the financial statements as soon as they became known . based on a critical assessment of our accounting policies and the 64 underlying judgments and uncertainties affecting the application of those policies , management believes that our financial statements are stated fairly in accordance with accounting principles generally accepted in the united states , and meaningfully present our financial condition and results of operations . we believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements : fair value of financial instruments we categorize financial instruments recorded at fair value on our balance sheets based upon the level of judgment associated with inputs used to measure their fair value . the categories are as follows : level 1—inputs are unadjusted , quoted prices in active markets for identical assets or liabilities at the measurement date . an active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis . level 2—inputs ( other than quoted market prices included in level 1 ) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument 's anticipated life . level 3—inputs reflect management 's best estimate of what market participants would use in pricing the asset or liability at the measurement date . consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model . a financial instrument 's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement . following is a description of the valuation methodologies used for financial instruments measured at fair value on our balance sheets , including the category for such financial instruments . financial instruments classified as level 1 include money market funds and certificates of deposit , representing approximately 4 % of our total financial instruments classified as assets measured at fair value as of december 31 , 2018. financial instruments classified as level 2 include commercial paper , corporate notes and equity investments , representing approximately 96 % of our total financial instruments classified as assets measured at fair value as of december 31 , 2018. the price for each security at the measurement date is derived from various sources . periodically , we assess the reasonableness of these sourced prices by comparing them to the prices provided by our portfolio managers from broker quotes as well as reviewing the pricing methodologies used by our portfolio managers . historically , we have not experienced significant deviation between the sourced prices and our portfolio managers ' prices . for a further discussion regarding fair value measurements , see note 2 on fair value measurements in notes to financial statements of this annual report on form 10‑k . revenue recognition on january 1 , 2018 , we adopted the provisions of accounting standards codification topic 606 , revenue from contracts with customers , or topic 606 , using the modified retrospective transition method as discussed in the subsection entitled , “ new accounting pronouncements – recently adopted ” , in note 1 of notes to financial statements of this form 10-k. financial results for the reporting periods beginning after january 1 , 2018 are presented under topic 606 , while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under accounting standards codification topic 605 , revenue recognition , or topic 605 , and therefore , there is a lack of comparability to the prior periods presented .
| in order for imetelstat to be commercialized , we must conduct non-clinical tests and clinical trials to demonstrate the safety and efficacy of imetelstat , obtain regulatory approvals or clearances and enter into manufacturing , distribution and marketing arrangements , as well as obtain market acceptance . we do not expect to receive revenue based on sales of imetelstat for many years , if at all . revenues we have entered into several license or collaboration agreements with companies involved with oncology , diagnostics , research tools and biologics production , whereby we have granted certain rights to our non‑imetelstat related technologies . in connection with these agreements , we are eligible to receive license fees , option fees , milestone payments and royalties on future sales of products , or any combination thereof . as discussed above , we adopted topic 606 using the modified retrospective transition method on january 1 , 2018. as a result , prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under topic 605 and therefore , there is a lack of comparability to the prior periods presented . however , we do not expect the application of topic 606 to have a material impact on our financial results on an ongoing basis in comparison to the results that would have been realized if we had continued to apply topic 605. we recognized license fee revenues of $ 641,000 , $ 667,000 and $ 5.6 million in 2018 , 2017 and 2016 , respectively , related to our various agreements . the decrease in license fee revenues in 2018 compared to 2017 primarily reflects a reduction in the number of active license agreements in 2018 for research licenses related to our human telomerase reverse transcriptase , of htert , technology . the decrease in license fee revenues in 2017 compared to 2016 primarily reflects the full recognition of an upfront payment of $ 5 million from janssen pharmaceuticals , inc. , or janssen pharmaceuticals , under a license agreement that was executed in september 2016 , or the license agreement , related to
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further , a significant portion of quaker 's revenues is derived from sales to customers in the u.s. steel and automotive industries , where a number of bankruptcies have occurred during recent years and companies have experienced financial difficulties . when a bankruptcy occurs , quaker must judge the amount of proceeds , if any , that may ultimately be received through the bankruptcy or liquidation process . these matters may increase the company 's exposure , should a bankruptcy occur , and may require a write down or a disposal of certain inventory due to its estimated obsolescence or limited marketability . reserves for customers filing for bankruptcy protection are generally established at 75-100 % of the amount outstanding at the bankruptcy filing date , dependent on the company 's evaluation of likely proceeds from the bankruptcy process . large and or financially distressed customers are generally reserved for on a specific review basis , while a general reserve is maintained for other customers based on historical experience . the company 's consolidated allowance for doubtful accounts was $ 6.4 million and $ 4.6 million at december 31 , 2012 and december 31 , 2011 , respectively . further , the company recorded provisions for doubtful accounts of $ 2.1 million , $ 0.9 million and $ 0.9 million in 2012 , 2011 and 2010 , respectively . an increase of 10 % to the recorded provisions would have decreased the company 's pre-tax earnings by approximately $ 0.2 million , $ 0.1 million and $ 0.1 million in 2012 , 2011 and 2010 , respectively . 2. environmental and litigation reserves—accruals for environmental and litigation matters are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated . accrued liabilities are exclusive of claims against third parties and are not discounted . environmental costs and remediation costs are capitalized if the costs extend the life , increase the capacity or improve the safety or efficiency of the property from the date acquired or constructed , and or mitigate or prevent contamination in the future . estimates for accruals for environmental matters are based on a variety of potential technical solutions , governmental regulations and other factors , and are subject to a large range of potential costs for remediation and other actions . a considerable amount of judgment is required in determining the most likely estimate within the range of total costs , and the factors determining this judgment may vary over time . similarly , reserves for litigation and similar matters are based on a range of potential outcomes and require considerable judgment in determining the most probable outcome . if no amount within the range is considered more probable than any other amount , the company accrues the lowest amount in that range in accordance with generally accepted accounting principles . see note 20 of notes to consolidated financial statements which appears in item 8 of this report . 3. realizability of equity investments—quaker holds equity investments in various foreign companies , whereby it has the ability to influence , but not control , the operations of the entity and its future results . quaker records an impairment charge to an investment when it believes a decline in value that is other than temporary has occurred . future adverse changes in market conditions , poor operating results of underlying investments , devaluation of foreign currencies or other events or circumstances could result in losses or an inability to recover the carrying value of the investments . these indicators may result in an impairment charge in the future . the carrying amount of the company 's equity investments at december 31 , 2012 was $ 16.6 million , which comprised four investments of $ 8.8 million , or a 32.3 % interest , in primex , ltd ( barbados ) , $ 5.9 million , or a 50 % interest , in nippon quaker chemical , ltd. ( japan ) , $ 1.7 million , or a 50 % interest , in kelko quaker chemical , s.a. ( venezuela ) and $ 0.2 million , or a 50 % interest , in kelko quaker chemical , s.a. ( panama ) , respectively . see note 4 of notes to consolidated financial statements which appears in item 8 of this report . 4. tax exposures , valuation allowances and uncertain tax positions—quaker records expenses and liabilities for taxes based on estimates of amounts that will be ultimately determined to be deductible in tax returns filed in various jurisdictions . the filed tax returns are subject to audit , which often occur several years subsequent to the date of the financial statements . disputes or disagreements may arise during audits over the timing or validity of certain items or deductions , which may not be resolved for extended periods of time . quaker applies the provisions of fasb 's guidance regarding uncertain tax positions . the guidance applies to all income tax positions taken on previously filed tax returns or expected to be taken on a future tax return . the fasb 's guidance regarding accounting for uncertainty in income taxes prescribes the recognition threshold and measurement attributes for financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return . the guidance further requires 16 the determination of whether the benefits of tax positions will be more likely than not sustained upon audit based upon the technical merits of the tax position . for tax positions that are determined to be more likely than not sustained upon audit , a company recognizes the largest amount of benefit that is greater than 50 % likely of being realized upon ultimate settlement in the financial statements . for tax positions that are not determined to be more likely than not sustained upon audit , a company does not recognize any portion of the benefit in the financial statements . story_separator_special_tag additionally , the guidance provides for derecognition , classification , penalties and interest , accounting in interim periods , disclosure and transition . the guidance also requires that the amount of interest expense and income to be recognized related to uncertain tax positions be computed by applying the applicable statutory rate of interest to the difference between the tax position recognized , including timing differences , and the amount previously taken or expected to be taken in a tax return . the company 's continuing practice is to recognize interest and or penalties related to income tax matters in income tax expense . quaker also records valuation allowances when necessary to reduce its deferred tax assets to the amount that is more likely than not to be realized . while quaker has considered future taxable income and employs prudent and feasible tax planning strategies in assessing the need for a valuation allowance , in the event quaker were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount , an adjustment to the deferred tax asset would increase income in the period such determination was made . likewise , should quaker determine that it would not be able to realize all or part of its net deferred tax assets in the future , an adjustment to the deferred tax asset would be charged to income in the period such determination was made . both determinations could have a material adverse impact on the company 's financial statements . u.s. income taxes have not been provided on the undistributed earnings of non-u.s. subsidiaries since it is the company 's intention to continue to reinvest these earnings in those foreign subsidiaries for working capital needs and growth initiatives . u.s. and foreign income taxes that would be payable if such earnings were distributed may be lower than the amount computed at the u.s. statutory rate due to the availability of foreign tax credits . 5. restructuring liabilities— restructuring charges may consist of charges for employee severance , rationalization of manufacturing facilities and other items . to account for such charges , the company applies fasb 's guidance regarding exit or disposal cost obligations . this guidance requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred . 6. goodwill and other intangible assets— the company records goodwill and intangible assets at fair value as of the acquisition date and amortizes definite-lived intangible assets on a straight-line basis over the useful lives of the intangible assets based on third-party valuations of the assets . goodwill and intangible assets , which have indefinite lives , are not amortized and are required to be assessed at least annually for impairment . the company compares the assets ' fair value to their carrying value , primarily based on future discounted cash flows , in order to determine if an impairment charge is warranted . the estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance . assumptions used in these forecasts are consistent with internal planning . the actual cash flows could differ from management 's estimates due to changes in business conditions , operating performance , and economic conditions . the company completed its annual impairment assessment as of the end of the third quarter 2012 , and no impairment charge was warranted . the company 's consolidated goodwill and indefinite-lived intangible assets at december 31 , 2012 and december 31 , 2011 were $ 60.3 million and $ 59.3 million , respectively . the company 's assumption of weighted average cost of capital ( “ wacc ” ) and estimated future net operating profit after tax ( “ nopat ” ) are particularly important in determining whether an impairment charge has been incurred . the company currently uses a wacc of 12 % and , at september 30 , 2012 , this assumption would have had to increase by more than 11.26 percentage points before any of the company 's reporting units would fail step one of the impairment analysis . further , at september 30 , 2012 , the company 's estimate of future nopat would have had to decrease by more than 48.4 % before any of the company 's reporting units would be considered potentially impaired . as a result , the estimated fair value of each of the company 's reporting units substantially exceeds their carrying value . 7. postretirement benefits—the company provides certain pension and other postretirement benefits to employees and retirees . independent actuaries , in accordance with accounting principles generally accepted in the united states , perform the required valuations to determine benefit expense and , if necessary , non-cash charges to equity for additional minimum pension liabilities . critical assumptions used in the actuarial valuation include the weighted average discount rate , rates of increase in compensation levels , and expected long-term rates of return on assets . if different assumptions were used , additional pension expense or charges to equity might be required . the company 's u.s. pension plan year-end is november 30 , and the measurement date is december 31. the following table highlights the potential impact on the company 's pre-tax earnings , due to changes in assumptions with respect to the company 's pension plans , based on assets and liabilities at december 31 , 2012 : replace_table_token_5_th 17 recently issued accounting standards the fasb updated its guidance in july 2012 regarding indefinite-lived intangible asset impairment testing . the updated guidance permits a company to first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible asset is less than its carrying value . if the company determines that the fair value is more likely than not above its carrying value , no further impairment testing is required .
| as a result , sg & a , as a percentage of sales , increased slightly to 24.8 % from 24.1 % in 2011. in addition , changes in foreign exchange rates negatively impacted the 2012 net income by approximately $ 1.7 million , or $ 0.13 per diluted share . during 2012 , the company 's results reflect certain uncommon items . there was an increase in other income of $ 1.7 million , or $ 0.09 per diluted share , due to a change in the fair value of a contingent consideration liability and , also , a separate increase in other income of approximately $ 1.0 million due to a change in the fair value of an acquisition-related liability . the effective tax rate for 2012 includes approximately $ 2.2 million , or approximately $ 0.17 per diluted share , of benefit from the derecognition of several uncertain tax positions due to the expiration of applicable statutes of limitations and resolution of tax audits for certain tax years . in 2011 , the company completed an equity offering of approximately 1.3 million shares , raising approximately $ 48.1 million of net cash proceeds , which caused an approximate $ 0.11 dilutive effect on the 2012 earnings per diluted share . the full year 2011 results also include other atypical items . an increase , similar to the one noted above , was recognized in other income due to a change in the fair value of the contingent consideration liability of $ 0.6 million , or $ 0.03 per diluted share , and , also , there was an increase of $ 2.7 million , or $ 0.22 per diluted share , to other income resulting from the revaluation of the company 's previously held ownership interest in its mexican affiliate to its fair value , which was related to the company 's 2011 purchase of the remaining ownership interest in this entity . the effective tax rate for 2011 includes approximately $ 2.0 million , or approximately $ 0.16 per diluted share , of benefit from
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we intend to evaluate additional branch expansion opportunities , primarily through branch purchases and de novo branches , to expand our presence in our current market area . pursuing future expansion and acquisition opportunities with the capital obtained in the conversion , although we have no current arrangements or agreements with respect to any such acquisitions . we intend to evaluate acquisitions of other financial institutions , as opportunities present themselves . critical accounting policies we consider 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 . we consider the following to be our critical accounting policies . allowance for loan losses . we maintain an allowance for loan losses in an amount we believe 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 our estimate of the level of allowance for loan losses required , we record a provision for loan losses to maintain the allowance for loan losses at an appropriate level . 30 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 . we can not predict with certainty the amount of loan charge-offs that will be incurred . we do not currently determine a range of loss with respect to the allowance for loan losses . in addition , various banking regulatory agencies , as an integral part of their examination processes , periodically review our allowance for loan losses . such agencies may require that we 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 . we consider 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 ) we intend to sell the security , ( 2 ) it is more likely than not we 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 , we discount 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 , we use 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 . we use an estimate of future earnings to support our position that the benefit of our 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 our net income will be reduced . goodwill and other intangible assets . we must assess goodwill and other intangible assets for impairment . this assessment involves estimating the fair value of our reporting units . if the fair value of the reporting unit is less than its carrying value including goodwill , we would be required to take a charge against earnings to write down the assets to the lower value . balance sheet analysis : september 30 , 2012 and september 30 , 2011 assets . story_separator_special_tag our total assets increased $ 8.8 million , or 2.0 % , to $ 443.4 million at september 30 , 2012 from $ 434.6 million at september 30 , 2011 due mainly to increases in cash and cash equivalents and net loans partially offset by a decrease in mortgage-backed securities . cash and cash equivalents . cash and cash equivalents increased $ 6.1 million or 48.3 % to $ 18.8 million at september 30 , 2012 from $ 12.7 million at september 30 , 2011. this increase was due primarily to an increase in net deposit inflows which exceeded net loan growth . loans . at september 30 , 2012 , net loans were $ 291.1 million , or 65.6 % of total assets , an increase of $ 6.0 million from $ 285.1 million at september 30 , 2011. this increase was primarily due to increases 31 in commercial real estate and home equity loans . we have continued our focus on steadily increasing our commercial real estate loans to better diversify our loan portfolio . loan portfolio composition . the following table sets forth the composition of our loan portfolio at the dates indicated , excluding loans held for sale . replace_table_token_6_th loan portfolio maturities and yields . the following table summarizes the scheduled repayments of our loan portfolio at september 30 , 2012. demand loans , loans having no stated repayment schedule or maturity , and overdraft loans are reported as being due in one year or less . replace_table_token_7_th replace_table_token_8_th 32 fixed and adjustable rate loans . the following table sets forth the scheduled repayments of fixed- and adjustable-rate loans at september 30 , 2012 that are contractually due after september 30 , 2013. replace_table_token_9_th investment securities portfolio . the following table sets forth the composition of our investment securities portfolio at the dates indicated . replace_table_token_10_th at september 30 , 2012 and september 30 , 2011 , all of our investment securities were classified as available for sale and recorded at current fair value . purchases of securities during the fiscal year ended september 30 , 2012 of $ 35.4 million were offset by maturities , repayments , calls and sales of $ 38.0 million . at september 30 , 2012 and september 30 , 2011 , the company held 16 securities and 19 securities in unrealized loss positions of $ 258,000 and $ 280,000 , 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 . 33 portfolio maturities and yields . the composition and maturities of the investment securities portfolio at september 30 , 2012 are summarized in the following table . 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 . replace_table_token_11_th bank owned life insurance . we invest in bank owned life insurance to provide us with a funding source for our benefit plan obligations . bank owned life insurance also generally provides us noninterest income that is non-taxable . at september 30 , 2012 , we had invested $ 10.3 million in bank owned life insurance . deposits . we accept deposits primarily from the areas in which our offices are located . we have consistently focused on building broader customer relationships and targeting small business customers to increase our core deposits . we also rely on our customer service to attract and retain deposits . we offer a variety of deposit accounts with a range of interest rates and terms . our deposit accounts consist of savings accounts , certificates of deposit , money market accounts , commercial and regular checking accounts and individual retirement accounts . interest rates , maturity terms , service fees and withdrawal penalties are established on a periodic basis . deposit rates and terms are based primarily on current operating strategies and market interest rates , liquidity requirements and our deposit growth goals . we do not accept brokered deposits . our deposits increased $ 10.0 million , or 3.1 % , to $ 330.3 million at september 30 , 2012 from $ 320.3 million at september 30 , 2011. the increase resulted from a $ 12.3 million , or 18.7 % increase in demand and now accounts and a $ 3.9 million , or 2.9 % , increase in certificate accounts offset in part by a $ 4.9 million , or 4.3 % decrease in savings accounts . the increase in certificate accounts resulted from an increase in our offering of longer term products , some of which provide the customer an option to increase the interest rate on the certificate in the future . at september 30 , 2012 , we had a total of $ 138.0 million in certificates of deposit , of which $ 31.3 million had remaining maturities of one year or less . based on historical experience and current market interest rates , we believe we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of september 30 , 2012 . 34 the following table sets forth the distribution of total deposit accounts , by account type , at the dates indicated . replace_table_token_12_th as of september 30 , 2012 , the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $ 100,000 was $ 42.8 million .
| the decrease was due to a decrease in the average yield on interest-earning assets , partially offset by an increase in the average balance of interest-earning assets . the average yield on interest-earning assets decreased to 4.21 % for the fiscal year ended september 30 , 2012 from 4.51 % for the prior year . the average yield on all categories of interest earning assets decreased from the previous year due to the low interest rate environment . average interest-earning assets increased by $ 3.2 million , or 0.8 % , to $ 411.1 million for the fiscal year ended september 30 , 2012 from $ 407.9 million for 2011 . 38 interest income on loans decreased $ 943,000 , or 6.0 % , to $ 14.7 million for the fiscal year ended september 30 , 2012 from $ 15.6 million for fiscal year ended september 30 , 2011. the average yield on loans receivable decreased to 4.96 % for the fiscal year ended september 30 , 2012 from 5.31 % for the fiscal year 2011. the decrease in the average yield was primarily attributable to our variable rate loans adjusting downward as prime and short-term interest rates remained low as well as the origination of new loans in a generally lower interest rate environment and repayment/refinance of higher rate loans . average loans receivable increased by $ 2.2 million , or 0.7 % , to $ 296.2 million for the fiscal year ended september 30 , 2012 from $ 294.0 million for the fiscal year 2011. interest income on investment and mortgage-backed securities decreased by $ 142,000 , or 5.1 % , to $ 2.6 million for the fiscal year ended september 30 , 2012 from $ 2.8 million for the fiscal year ended september 30 , 2011. this decrease was due primarily to a decrease in the average yield earned on investments and mortgage-backed securities to 2.49 % for the fiscal year ended september 30 , 2012 from 2.78 % for the prior year due to new investments added in a lower interest rate environment , variable rate
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our revenue growth will depend , in part , on our ability to continue to launch new offerings and deliver solutions to financial advisers efficiently . while these investments may delay or reduce our profitability , we believe they will enable us to grow our revenue meaningfully in the long term . investments in growth we have made and expect to continue to make substantial investments across our business , including those related to increasing our total employee base , to support our continued growth . we intend to continue to expand our sales capacity and further improve sales productivity to drive additional revenue and support the growth of our client base . we may incur increased general and administrative expenses to support our growth and operations . our results of operations will depend in part on our ability to continue to manage such expenses , as well as on the effectiveness of our investments . we expect to continue managing such expenses and investments to support expansion of our adjusted ebitda margin . competition we compete with a broad range of wealth management firms that offer services to independent investment advisers . our competitive landscape is defined by three primary factors : 1 ) technological capabilities , 2 ) consulting and back-office servicing and 3 ) investment solutions . we may compete on these factors based on products , services or fees . while we anticipate that we will see increased competition and experience fee pressure , we believe that our technology platform , along with our personalized service and curated investment solutions , will continue to drive revenue expansion . value of platform assets our revenue is subject to fluctuations due to changes in general economic conditions , including market conditions and the changing interest rate environment . most of our revenue is based on the value of assets invested in products on our platform , which is heavily influenced by general economic conditions . fluctuations in securities prices may affect the value of such assets and may also influence an investor 's decision to select , grow , maintain or reduce an investment . we generate asset-based revenue from fees billed in advance of each quarter , providing visibility into near-term revenue . in addition , we realize spread-based revenue , which is influenced significantly by interest rate changes and the amount of cash held by investors at our proprietary trust company . acquisitions our success in pursuing and executing strategic transactions may impact our assets and revenue . from 2014 to 2019 , we acquired the platform assets of three firms , which collectively added $ 7.3 billion in assets . in september 2019 , we announced our agreement to acquire obs , which closed on february 29 , 2020 and which added approximately $ 2.1 billion in platform assets . we expect to continue to selectively seek acquisitions that will enhance our scale , operating leverage and capabilities to further deepen our offering to advisers and investors . 36 covid-19 pandemic beginning in early 2020 , the outbreak of covid-19 has rapidly evolved into a global pandemic and has adversely impacted global commercial activities . the near-term impacts related to the covid-19 pandemic have primarily been to our asset-based revenue and spread-based revenue . the impact of declining global equity and bond markets as well as a lower interest rate environment was evident in our financial statements beginning in the second quarter of 2020 , during which we incurred expenses related to the transition to an entirely remote workforce arrangement and increased expenditures for asset-based investment trading activities . management expects that the pandemic will continue to adversely affect our results of operations in future periods , although , given the uncertainty around the duration and extent of the covid-19 pandemic , management can not at this time quantify with any level of specificity the impact on our results of operations , financial condition or liquidity . the impact of covid-19 has not affected and is not expected to affect our capabilities to conduct business with our financial advisers . we have continued to generate positive operating cash flows , have adequate cash on hand , and maintain access to our existing line of credit to meet our short-term liquidity needs . we have experienced neither material impairments of our assets nor a significant change in the fair value of our assets and liabilities due to the covid-19 pandemic . we continue to monitor the developments relating to covid-19 and are coordinating our operational response based on existing business continuity plans and guidance from global health organizations , relevant governments and general pandemic response best practices . key operating metrics in addition to our gaap financials , we regularly review the following key metrics to measure performance , identify trends , formulate financial projections , compensate our employees and monitor our business . while we believe that these metrics are useful in evaluating our business , other companies may not use similar metrics or may not calculate similarly titled metrics in a consistent manner . key metrics for the years ended december 31 , 2020 , 2019 and 2018 include the following : replace_table_token_4_th platform assets we believe that the amount of assets on our platform is an important indicator of the strength and growth of our business , our increased customer footprint and the market acceptance of our platform . we define platform assets as all assets on the assetmark platform , whether these are assets for which we provide advisory services , referred to as regulatory assets under management 37 ( “ aum ” ) , or non-advisory assets under administration , assets held in cash accounts or otherwise not managed ( collectively , “ other assets ” ) . there is generally no material economic difference to our financial results whether assets are considered aum or other assets . we view our platform assets as reflective of our revenue growth and potential for future growth . story_separator_special_tag we had platform assets of $ 74,520 million , $ 61 , 608 million and $ 4 4 , 855 million as of december 31 , 20 20 , 201 9 and 201 8 , respectively . our regulatory aum totaled $ 46,982 million , $ 38,785 million and $ 29,959 million as of december 31 , 20 20 , 201 9 and 201 8 , respectively . we intend to continue growing our platform assets with enhancements to our technology , services and investment solutions . we expect the growth in our platform assets will remain a significant indicator of our business momentum and results of operations as existing advisers and new advisers realize the benefits of our platform . our platform assets in any period may continue to fluctuate as a result of several factors , including our adviser satisfaction with the functionality , features , performance or pricing of our offering , overall fluctuations in the securities markets and other factors , a number of which are beyond our control . the following table provides information regarding the degree to which production , redemptions , net flows and changes in the market value of existing assets contributed to changes in assets on our platform in the periods indicated . replace_table_token_5_th net flows , market impact net of fees and acquisition impact the changes in our platform assets from period to period are primarily driven by the amount of new assets that are added to existing and new client accounts , which we refer to as production , and the amount of assets that are withdrawn from client accounts , which we refer to as redemption . we refer to the difference between production and redemption as net flows . positive net flows indicate that the amount of assets added to client accounts exceeds the amount of assets that have been terminated or withdrawn from client accounts . the decrease in net flows from the year ended december 31 , 2018 to the year ended december 31 , 2019 was due to increased redemptions from gfpc 's adviser-managed business , which yielded nominal revenue to us . in addition to net flows , the change in the market value of investments held in client accounts between the beginning and end of a period , which we define as market impact , also influences platform assets . for each period , we show the market impact on platform assets net of the fees paid to financial advisers and custodians and certain fees embedded in investment vehicles . further , acquisition impact refers to the amount of assets added to our platform through acquisitions . net flows lift net flows lift refers to net flows over a given period divided by platform assets at the beginning of the year . net flows lift allows us to determine the percentage return we are attaining in terms of net new assets from our asset base at the beginning of year . we use beginning-of-year platform assets to calculate net flows lift for a given quarter to eliminate market and net flows impacts from previous quarters of the calendar year , which allows for a more accurate and consistent quarterly comparison . advisers ( at period-end ) adviser count reflects the total number of advisers who had at least one investor account on our platform at the end of the given period . engaged advisers ( at period-end ) engaged advisers are advisers with at least $ 5 million in platform assets . assets from engaged advisers ( at period-end ) assets from engaged advisers are total platform assets attributable to engaged advisers . households ( at period-end ) we define a “ household ” as one or more client accounts that are grouped together based on a relationship identification code as determined by the financial adviser . 38 new producing advisers new producing advisers ( “ npas ” ) for a given period represents the number of advisers that invested their first client assets on our platform in that period . production lift from existing advisers ( annualized ) existing advisers for a given period are defined as those who had invested client assets on our platform as of the beginning of the period . production lift from existing advisers for a given period is calculated by dividing production ( the amount of new assets that are added to client accounts ) attributable to existing advisers ( excluding gfpc advisers in 2019 and obs advisers in 2020 ) for such period by platform assets as of the beginning of such period and annualizing the result . this metric represents both the organic growth of these advisers as well as any incremental share of wallet of the adviser 's business that is added to our platform on an annualized basis . we previously disclosed production lift from existing advisers as a year-to-date metric , despite calculating the metric on an annualized basis . as such , we have revised the description of this metric to match our calculations . assets in custody at atc ( at period-end ) assets in custody at atc represents platform assets that are in custody at assetmark trust company ( “ atc ” ) . atc client cash ( at period-end ) in general , all accounts with atc are required to have cash at a minimum level ranging from of 1.5 % to 5 % of invested assets . in addition to this minimum amount , strategists and advisers have the discretion to hold additional invested assets in cash . we refer to the aggregate amount of cash held at atc as atc client cash . as of december 31 , 2020 , 2019 and 2018 , atc client cash accounted for 5 % , 4 % and 5 % , respectively , of the total assets in custody at atc .
| asset-based expenses asset-based expenses increased by $ 6.7 million , or 5.3 % , from $ 126.0 million in the twelve months ended december 31 , 2019 to $ 132.7 million in the twelve months ended december 31 , 2020. this increase was primarily driven by an increase in asset-based fees due to increased platform assets from prior year . spread-based expenses spread-based expenses decreased by $ 2.3 million , or 46.1 % , from $ 5.0 million in the twelve months ended december 31 , 2019 to $ 2.7 million in the twelve months ended december 31 , 2020. this decrease was primarily due to lower interest-credited payments to clients driven by lower interest rates on cash invested through atc 's insured cash deposit program . employee compensation employee compensation increased by $ 21.5 million , or 13.9 % , from $ 155.0 million in the twelve months ended december 31 , 2019 to $ 176.5 million in the twelve months ended december 31 , 2020. this increase was primarily due to a $ 17.6 million increase in share-based compensation , which was primarily attributed to our higher valuation measurement performed at the time of the ipo in july 2019. the increase was also attributed to $ 8.8 million in higher salaries and related expenses attributed to our ongoing growth . approximately $ 1.2 million of the increase in salaries and related expenses can be attributed to reorganization and integrations costs , $ 1.1 million can be attributed to acquisition-related expenses and an additional $ 1.1 million can be attributed to business continuity planning related expenses . the increase was partially offset by $ 3.3 million in higher capitalization of associates in software development , $ 1.0 million lower contractor spend and $ 0.6 million in lower compensation associated with our annual variable incentive compensation program . general and operating expenses general and operating expenses increased by $ 4.5 million , or 7.6 % from $ 58.0 million in the twelve months ended december 31 , 2019 to $ 62.5 million in the twelve months ended december 31 , 2020. the increase can be primarily attributed to $ 3.4 million in higher software and subscription costs ,
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on december 27 , 2020 the 2021 consolidated appropriations act was signed , which extended relief to the earlier of 60 days after the national emergency termination date or january 1 , 2022. this legislation included a $ 900 billion relief package and the extension of certain relief provisions from the march 2020 cares act that were set to expire at the end of 2020 , including the extension of the eviction moratorium and $ 286 billion of additional ppp funds . the consolidated appropriations act also continued to suspend the requirements under gaap for loan modifications related to the covid–19 pandemic that would otherwise be categorized as a tdr and suspend any determination of a loan modified as a result of the effects of the covid–19 pandemic as being a tdr , including impairment , for accounting purposes . if a bank elects a suspension noted above , the suspension ( i ) will be effective for the term of the loan modification , but solely with respect to any modification , including a forbearance arrangement , an interest rate modification , a repayment plan and any other similar arrangement that defers or delays the payment of principal or interest , that occurs during the applicable period for a loan that was not more than 30 days past due as of december 31 , 2019 and ( ii ) will not apply to any adverse impact on the credit of a borrower that is not related to the covid–19 pandemic . the company has applied this guidance to qualifying loan modifications . the short-term loan modification program has been offered to both retail and commercial borrowers . the majority of short-term loan modifications for retail loan borrowers consist of deferred payments ( which may include principal , interest and escrow ) , which are capitalized to the loan balance and recovered through the re-amortization of the monthly payment at the end of the deferral period . for commercial loan borrowers , the majority of short-term modifications consist of allowing the borrower to make interest-only payments with the deferred principal to be due at maturity or repaid as the monthly payment is re-amortized at the next interest reset date as is applicable to the individual loan structure . alternatively , commercial loan borrowers may defer their full monthly payment similar to the retail loan program outlined above . all loans modified under these programs are maintained on full accrual status during the deferral period . as of december 31 , 2020 , temporary payment relief continues for 4 loans with aggregate outstanding principal balances of $ 5.5 million and consists of 1 cre loan and 1 c+i loan with aggregate outstanding principal balances of $ 5.1 million and 2 res loans with aggregate outstanding principal balances of $ 392,000. under the applicable regulatory guidance , none of these loans were considered troubled debt restructurings as of december 31 , 2020. we continue to monitor the impact of covid-19 closely , as well as any effects that may result from the cares act ; however , the extent to which the covid-19 pandemic will impact our operations and financial results is highly uncertain . business strategy we believe we enjoy a strong , positive reputation among our customers and in our market area . we believe our name change to “ first seacoast bank ” in 2019 enhanced our brand and market visibility and associates us by name with the market area and communities we serve . as a community-oriented financial institution , we focus on serving the financial needs of local individuals and businesses by executing a safe and sound , service-oriented business strategy that seeks to produce earnings that increase over time and can be reinvested in our business and communities . our current business strategy consists of the following : grow our balance sheet , leverage existing infrastructure and improve profitability and operating efficiency . given our existing infrastructure and capabilities , we believe we are well-positioned to grow without a proportional increase in overhead expense or operating risk . in recent years , we have assembled an experienced management team and selectively hired lending , business development and support staff . our operations benefit 39 from established marketing , information technology and audit and compliance departments . additionally , we have invested in internet banking capabilities and introduced a mobile banking application . we have also continued to invest in our existing branch office network and have renovated all branch offices . the stock offering provide d us with funds to increase our lending and investment on a managed basis , which we expect will increase our earnings and improve our operating efficiency . grow our loan portfolio and increase commercial real estate and commercial and industrial lending . historically , our principal business activity has been the origination of one- to four-family residential mortgage loans . in recent years we have sought to supplement these originations by focusing on originating higher yielding commercial real estate loans ( including owner-occupied and non-owner-occupied commercial real estate and multi-family loans ) , construction loans , commercial and industrial loans and home equity loans and lines of credit . we intend to remain as a residential mortgage lender in our market area while increasing our focus on originating commercial real estate and commercial and industrial loans . the capital we raised in the offering increased our legal lending limits , which enables us to originate larger loans for our portfolio to new and existing customers and reduced our need to participate with other lenders to originate larger loans . maintain strong asset quality and manage credit risk . strong asset quality is a key to the long-term financial success of any financial institution . we have been successful in maintaining strong asset quality in recent years . our ratio of nonperforming assets to total assets was 0.20 % , 0.26 % , 0.02 % , 0.33 % and 0.06 % at december 31 , 2020 , 2019 , 2018 , 2017 and 2016 , respectively . story_separator_special_tag we attribute this historical credit quality to a conservative credit culture and an effective credit risk management environment . we have an experienced team of credit professionals , well-defined and implemented credit policies and procedures , what we believe to be conservative loan underwriting criteria and active credit monitoring policies and procedures . increase core deposits and reduce reliance on higher cost borrowings . deposits are our primary source of funds for lending and investment . core deposits ( which we define as all deposits except for certificates of deposit ) , particularly non-interest-bearing demand deposits , represent a low-cost , stable source of funds . core deposits were 85.13 % of our total deposits at december 31 , 2020 . we also rely on higher cost federal home loan bank borrowings as a supplemental funding source as indicated by our high loan-to-deposit ratio . at december 31 , 2020 , our ratio of net loans to deposits was 111.4 % , our federal home loan bank borrowings totaled $ 34.1 million , and our federal reserve bank borrowings totaled $ 18.2 million . we continue to focus on expanding core deposits by leveraging our business development officers and commercial lending and retail relationships . grow organically and through opportunistic acquisitions or de novo branching . our primary intention is to grow our balance sheet organically , and use the capital we raised in the offering to enable us to increase our lending and investment capacity . as a local independent bank , we believe we will have opportunities to gain market share from customer fallout resulting from the consolidation of competing financial institutions in our market area into larger , out-of-market acquirers . in addition to organic growth , we may also consider expansion opportunities in our market area or in contiguous markets that we believe would enhance both our franchise value and stockholder returns . these opportunities include establishing loan production offices , establishing new , or de novo , branch offices and or acquiring branch offices and the capital raised in the offering will help us fund any such opportunities that may arise . we have no current plans or intentions regarding any such expansion plans . these strategies were developed to guide our investment of the net proceeds of our initial stock offering . we intend to continue to pursue this business strategy , subject to changes necessitated by future market conditions , regulatory restrictions and other factors . covid-19 has impacted economic conditions , customer behaviors , credit and asset quality , and liquidity . while we are committed to the business strategies noted above , we recognize the challenges and uncertainties of the current environment and plan to execute these strategies as market conditions allow . critical accounting policies the discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements , which are prepared in conformity with generally accepted accounting principles used in the united states of america . the preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities and the reported amounts of income and expenses . we consider the accounting policies discussed below to be critical accounting policies . the estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions , resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations . 40 our critical accounting policies involve the calculation of the allowance for loan losses and the measurement of the fair value of financial instruments . a detailed description of these critical accounting policies can be found in notes 2 and 1 8 , respectively , to our consolidated financial statements of this annual report . emerging growth company status under the jobs act , a company with total annual gross revenues of less than $ 1.07 billion ( adjusted for inflation ) during its most recently completed fiscal year qualifies as an “ emerging growth company. ” first seacoast bancorp qualifies as an emerging growth company under the jobs act . an “ emerging growth company ” may choose not to hold non-binding advisory stockholder votes on annual executive compensation ( more frequently referred to as “ say-on-pay ” votes ) or on executive compensation payable in connection with a merger ( more frequently referred to as “ say-on-golden parachute ” votes ) . an emerging growth company also is not subject to the requirement that its auditors attest to the effectiveness of the company 's internal control over financial reporting and can provide scaled disclosure regarding executive compensation ; however , first seacoast bancorp will also not be subject to the auditor attestation requirement or additional executive compensation disclosure so long as it remains a “ smaller reporting company ” under securities and exchange commission regulations ( generally less than $ 250 million of voting and non-voting equity held by non-affiliates ) . finally , an emerging growth company may elect to comply with new or amended accounting pronouncements in the same manner as a private company , but must make such election when the company is first required to file a registration statement . such an election is irrevocable during the period a company is an emerging growth company . the extended transition period is generally one year , although it may vary for any particular accounting pronouncement . for example , the current expected credit losses accounting standard ( cecl ) carries an extended transition period of two years . we have opted to take advantage of the benefits of this extended transition period . accordingly , our consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards .
| non-accrual loans are loans for which collectability is questionable and , therefore , interest on such loans will no longer be recognized on an accrual basis . we generally cease accruing interest on our loans when contractual payments of principal or interest have become 90 days past due or management has serious doubts about further collectability of principal or interest , even though the loan is currently performing . interest received on non-accrual loans generally is applied against principal or applied to interest on a cash basis . generally , loans are restored to accrual status when the obligation is brought current , has performed in accordance with the contractual terms for at least six consecutive months and the ultimate collectability of the total contractual principal and interest is no longer in doubt . nonperforming loans were $ 884,000 and $ 1.1 million , or 0.24 % and 0.31 % of total loans , at december 31 , 2020 and 2019 , respectively . nonperforming loans consist primarily of an sba-guaranteed commercial and industrial loan , which had an outstanding balance of $ 822,000 at december 31 , 2020 , and is secured by all business assets . the sba guarantees 75 % of this loan balance . although this loan was performing according to its original terms at december 31 , 2020 , it was considered nonperforming due to the financial condition and prospects of the borrower . at december 31 , 2020 and 2019 , we had no troubled debt restructurings or foreclosed assets . comparison of operating results for the years ended december 31 , 2020 and 2019 net income . net income was $ 1.1 million for the year ended december 31 , 2020 , compared to a net loss of $ 79,000 for the year ended december 31 , 2019 , an increase of $ 1.2 million or 1,465.8 % . the increase was related primarily to a $ 691,000 increase in net interest and dividend income after provision for loan losses , a $ 514,000 increase in
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we estimate our bad debt reserve on a case-by-case basis due to a limited number of customers . we base these estimates on many factors including customer credit worthiness , past transaction history with the customer , current economic industry trends and changes in customer payment terms . our judgments and estimates regarding collectability of accounts receivable have an impact on our financial statements . valuation of inventory . our inventory is comprised of raw materials , assemblies and finished products . we must periodically make judgments and estimates regarding the future utility and carrying value of our inventory . the carrying value of our inventory is periodically reviewed and impairments , if any , are recognized when the expected future benefit from our inventory is less than its carrying value . valuation of intangible assets . intangible assets consist of technology , customer relationships , trade name portfolio and non-compete agreements acquired in the acquisition of genasys , and patents and trademarks that are amortized over their estimated useful lives . we must make judgments and estimates regarding the future utility and carrying value of intangible assets . the carrying values of such assets are periodically reviewed and impairments , if any , are recognized when the expected future benefit to be derived from an individual intangible asset is less than its carrying value . this generally occurs when certain assets are no longer consistent with our business strategy and whose expected future value has decreased . accrued expenses . we establish a warranty reserve based on anticipated warranty claims at the time product revenue is recognized . this reserve requires us to make estimates regarding the amount and costs of warranty repairs we expect to make over a period of time . factors affecting warranty reserve levels include the number of units sold , anticipated cost of warranty repairs , and anticipated rates of warranty claims . warranty expense is recorded in cost of revenues . we evaluate the adequacy of this reserve each reporting period . we use the recognition criteria of asc 450-20 , “ loss contingencies ” to estimate the amount of bonuses when it becomes probable a bonus liability will be incurred and we recognize expense ratably over the service period . we accrue bonus expense each quarter based on estimated year-end results , and then adjust the actual in the fourth quarter based on our final results compared to targets . deferred tax asset . we evaluate quarterly the realizability of the deferred tax assets and assess the need for a valuation allowance . we record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized . realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards . utilization of the net operating loss ( “ nol ” ) carryforwards in future years could be substantially limited due to restrictions imposed under federal and state laws upon a change in ownership or control . included in the nol carryforwards are deductions from stock options that , if recognized , will be recorded as a credit to additional paid-in capital rather than through our results of operations . in determining taxable income for financial statement reporting purposes , we must make certain estimates and judgments . these estimates and judgments are applied in the calculation of certain tax liabilities and in the determination of the ability to recover deferred tax assets . the company will continue to evaluate the ability to realize its net deferred tax assets on an ongoing basis to identify whether any significant changes in circumstances or assumptions have occurred that could materially affect the ability to realize deferred tax assets and will adjust the valuation accordingly . recent accounting pronouncements new pronouncements issued for future implementation are discussed in note 3 , recent accounting pronouncements , to our consolidated financial statements . 21 segment and related information we are engaged in the design , development and commercialization of directed and multidirectional sound technologies , voice broadcast products and location-based mass messaging solutions for emergency warning and workforce management . the company operates in two business segments : hardware ( lrad ) and software ( genasys ) and its principle markets are north and south america , europe , middle east and asia . as reviewed by the company 's chief operating decision maker , the company evaluates the performance of each segment based on sales and operating income . cash and cash equivalents , marketable securities , accounts receivable , inventory , property and equipment , deferred tax assets , goodwill and intangible assets are primary assets identified by segment . the accounting policies for segment reporting are the same for the company as a whole and transactions between the two operating segments are not material . see note 17 , segment information , in our consolidated financial statements for further discussion . comparison of results of operations for fiscal years ended september 30 , 2018 and 2017 the following table provides for the periods indicated certain items of our consolidated statements of operations expressed in dollars and as a percentage of net sales . the financial information and discussion below should be read in conjunction with the consolidated financial statements and notes contained in this annual report . replace_table_token_2_th ( a ) net sales excludes intercompany sales of $ 313,110 and zero for the years ended september 30 , 2018 and 2017 , respectively . 22 revenues revenues increased $ 5,992,612 , or 29.5 % , in the fiscal year ended september 30 , 2018. orders received in fiscal 2018 were a record $ 35.1 million , which contributed to higher revenue in fiscal 2018 and growth in the backlog at september 30 , 2018 compared to the prior year end . story_separator_special_tag the larger fiscal 2018 revenues were from both the ahd and mass notification product sales and from genasys , acquired in january 2018. genasys contributed $ 1,469,995 of revenue since its acquisition on january 18 , 2018 , mass notification systems increased $ 827,785 , or 16 % , over fiscal year 2017 and ahd increased $ 3,694,833 , or 24.4 % , over the prior year . domestic revenues increased 103.2 % over the prior year while international revenues decreased 11.7 % over the prior year . we had aggregate deferred revenue of $ 659,682 and $ 343,163 for prepayments from customers in advance of product shipment at september 30 , 2018 and 2017 , respectively . the receipt of orders will often be uneven due to the timing of customer 's approval or budget cycles . gross profit gross profit for the year ended september 30 , 2018 grew $ 2,461,113 , or 23.9 % , over fiscal year 2017 , primarily due to increased revenue . gross margin as a percentage of sales decreased this year compared to the prior year primarily due to higher manufacturing overhead , including occupancy costs from the overlapping of facility leases in the fourth quarter of the current year . the prior year benefitted from a reduction to the estimated warranty liability . our products have varying gross margins , so product mix may affect gross profits . in addition , our margins vary based on the sales channels through which our products are sold in a given period . we continue to implement product updates and changes , including raw material and component changes that may impact product costs . with such product updates and changes we have limited warranty cost experience and estimated future warranty costs can impact our gross margins . we do not believe that historical gross profit margins should be relied upon as an indicator of future gross profit margins . selling , general and administrative expenses selling , general and administrative expenses increased by $ 2,106,393 , or 24.5 % . this increase reflects the addition in 2018 of genasys expense of $ 1,230,177 ( including $ 169,652 for one-time audit fees and $ 224,685 for amortization of intangible assets ) , acquisition related costs of $ 371,331 , increase of $ 352,162 for computer related expenses , $ 276,419 for increased travel expense largely for selling and marketing related expenses , increase of $ 239,245 to facility expenses from larger facility and overlap of leases , a $ 150,000 charge to bad debt reserve for certain past due accounts and $ 148,250 of higher personnel related expense . this was partially offset by a $ 519,375 decrease in non-cash share-based compensation expense , primarily due to non-recurring expense for separation costs related to the departure of the company 's prior ceo . we incurred non-cash share-based compensation expenses allocated to selling , general and administrative expenses for fiscal 2018 and 2017 of $ 479,165 and $ 998,540 , respectively . we may expend additional resources on the marketing and selling of our products in future periods as we identify ways to optimize potential opportunities . commission expense will fluctuate based on the nature of our sales . research and development expenses r & d expenses increased by $ 1,023,445 , or 40.9 % , primarily due to a $ 593,962 increase in salaries and benefits and $ 360,942 increase for software development , and product development and testing . included in r & d expenses for the year ended september 30 , 2018 was $ 84,320 of non-cash share-based compensation expenses , compared to $ 93,709 for the year ended september 30 , 2017. other income other income decreased by $ 21,563 primarily due to the $ 20,949 of interest expense on notes payable at genasys in fiscal year 2018. there was no interest expense in fiscal year 2017. net loss the net loss was higher in fiscal 2018 largely due to income tax expense related to a reduction to the deferred tax asset resulting from the change to the u.s. corporate income tax rates effective for the calendar year ended december 31 , 2018. in addition , we generated a greater operating loss in 2018 due to additional investments in the business , including information technology , product development and selling and marketing , and acquisition related expenses for growth . in the year ended september 30 , 2018 , we recorded an income tax provision of $ 2,375,000 primarily due to a reduction in the value of the deferred tax asset resulting from the reduction to the u.s. corporate income tax rate . in the year ended september 30 , 2017 , we recorded $ 197,600 of tax provision resulting from an increase in the valuation allowance against deferred tax assets based on an assessment of the company 's historical and projected taxable income , along with tax planning strategies and any other positive or negative evidence , and determined it was more likely than not that a portion of the deferred tax assets will be realized . liquidity and capital resources cash , cash equivalents at september 30 , 2018 was $ 11,063,091 , compared to $ 12,764,421 at september 30 , 2017. in addition , we have short-term marketable securities of $ 3,592,175 at september 30 , 2018 , compared to $ 4,359,542 at september 30 , 2017 and long-term marketable securities of $ 1,200,541 and $ 711,124 at september 30 , 2018 and 2017 , respectively . other than cash and expected future cash flows from operating activities in subsequent periods , we have no other unused sources of liquidity at this time . 23 principal factors that could affect the availability of our internally generated funds include : ability to meet sales projections ; government spending levels ; introduction of competing technologies ; product mix and effect on margins ; ability to reduce and manage inventory levels ; and product acceptance in new markets .
| 18 ● received $ 3.4 million in ahd orders from the asia pacific and another international region for public safety , law enforcement , and defense applications . ● announced $ 2.5 million in mass notification orders for 360-xt systems integrated with a gas detection alarm and lrad 's solar-powered option , and a federal emergency management agency ( “ fema ” ) funded critical infrastructure project . ● acquired genasys holding , s.l . ( “ genasys ” ) , a leading software provider of advanced location-based mass messaging solutions for emergency warning systems and workforce management . ● addressed critical wildfire mass notification issues in the western u.s. and canada by detailing lrad systems ' use in northern california , southwestern colorado , and colombia for fire rescue and emergency warning . ● moved into a facility with expanded engineering and manufacturing capacity to support current and expected future business growth . business outlook our product line-up continues to gain worldwide awareness and recognition through media exposure , trade shows , product demonstrations , and word of mouth as a result of positive responses and increased acceptance of our products . we believe we have a solid global brand , technology , and product foundation with our ahd and mass notification systems product lines , which we have expanded over the years to serve new markets and customers for greater business growth . we believe that we have strong market opportunities for our ahd and mass notification product offerings throughout the world in the homeland security and defense sectors as a result of increasing threats to government , commerce , law enforcement , borders , and critical infrastructure . our directional and multidirectional product offerings also have many applications within the fire rescue , public safety , maritime , asset protection , and wildlife control and preservation business segments . we intend to expand our domestic and international mass notification business , particularly in the u.s. , middle east , europe , and asia where we believe there are greater market opportunities for our multidirectional mass notification systems and mass messaging solutions . in fiscal
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our auction and liquidation segment utilizes our significant industry experience , a scalable network of independent contractors and industry-specific advisors to tailor our services to the specific needs of a multitude of clients , logistical challenges and distressed circumstances . furthermore , our scale and pool of resources allow us to offer our services across north american as well as parts of europe , asia and australia . valuation and appraisal segment . our valuation and appraisal segment provides valuation and appraisal services to financial institutions , lenders , private equity firms and other providers of capital . these services primarily include the valuation of assets ( i ) for purposes of determining and monitoring the value of collateral securing financial transactions and loan arrangements and ( ii ) in connection with potential business combinations . our valuation and appraisal segment operates through limited liability companies that are majority owned by us . uk retail stores . we previously had an additional operating segment relating to uk retail stores . our uk retail stores segment included the operations of retail footwear stores in the united kingdom as a result of our investment in shoon trading limited ( “ shoon ” ) on may 4 , 2012. revenues from the sale of goods in our uk retail stores segment were recognized as revenue upon the sale of product to retail customers . our net sales represent gross sales invoiced to customers , less certain related charges for discounts , returns , and other promotional allowances and are recorded net of sales or value added tax . allowances provided for these items are presented in the consolidated financial statements primarily as reductions to sales and cost of sales . we ceased to consider this a separate operating segment in august 2013 following the amendment and restatement of a shareholders agreement for shoon which eliminated our control rights . as a result of this amendment , shoon 's operating results are not consolidated with the company 's for any periods after july 31 , 2013. notwithstanding the deconsolidation , our operating results for periods from july 31 , 2013 to january 2014 include the income ( loss ) from our 44.4 % equity investment in the common stock of shoon . in january 2014 , shoon was sold to a third party , and we no longer have a financial interest in the operations of shoon . historically , revenues from our auction and liquidation segment vary significantly from quarter to quarter and have a significant impact on our operating results from period to period . these revenues have historically comprised a significant amount of our total revenues and operating profits . during the years ended december 31 , 2015 , 2014 and 2013 , revenues from our auction and liquidation segment were 41.1 % , 35.0 % and 55.7 % of total revenues . our profitability in each reporting period is impacted by the number and size of retail liquidation engagements we perform on a quarterly or annual basis . revenues from liquidation service contracts to one retailer represented 12.4 % of our total revenues during the year ended december 31 , 2015. revenues from liquidation service contracts and financing activities to one retailer and the sale of four oil rigs to one customer represented 10.7 % and 12.2 % of our total revenues during the year ended december 31 , 2013. in addition , revenues from investment banking transactions in our capital markets segment will vary from quarter to quarter and have a material impact on our total revenues and operating profits . private placement and strategic combination on june 5 , 2014 , we completed a private placement of 10,289,300 shares of our common stock at a purchase price of $ 5.00 per share ( the “ private placement ” ) . fifty three accredited investors ( the “ investors ” ) participated in the private placement pursuant to the terms and provisions of a securities purchase agreement entered into among us and the investors on may 19 , 2014. at the closing of the private placement on june 5 , 2014 , we received net proceeds of approximately $ 51.2 million . on june 5 , 2014 , we used $ 30.2 million of the net proceeds from the private placement to repay long-term debt payable to andrew gumaer and harvey yellen , both of whom were executive officers and directors of the company at the time of such repayment . the $ 30.0 million principal payment and then outstanding accrued interest of $ 0.2 million retired the entire $ 48.8 million face amount of the long-term debt at a discount of $ 18.8 million . the discount of $ 18.8 million has been recorded as a capital contribution to additional paid in capital in our consolidated financial statements . on june 18 , 2014 , we completed the acquisition of b. riley and co. inc. ( “ brc inc. ” ) pursuant to the terms of the acquisition agreement ( the “ acquisition agreement ” ) , dated as of may 19 , 2014 , by and among the company , darwin merger sub i , inc. , a wholly owned subsidiary of the company , b. riley capital markets , llc , a wholly owned subsidiary of the company ( “ bcm ” ) , brc inc. , b. riley & co. holdings , llc ( “ brh ” ) , riley investment management llc ( “ rim ” ) , and collectively with brc inc. and brh , the ( “ b . riley entities ” ) and bryant riley , a director of the company and principal owner of each of the b. riley entities . in connection with the company 's acquisition of brc inc. , darwin merger sub i , inc. merged with and into brc inc. , and brc inc. subsequently merged with and into bcm , with bcm surviving as a wholly owned subsidiary of the company . story_separator_special_tag we completed the acquisitions of brh , whose operations include asset management and financial advisory services , and rim , which provides services to certain pooled investment vehicles , on august 1 , 2014 . 33 the total purchase price for the b. riley entities was $ 26.4 million , which was paid at closing on june 18 , 2014 or through post-closing adjustments and arrangements , in the form of 4,182,637 newly issued shares of our common stock . the fair value of the newly issued shares of the company 's common stock for accounting purposes was determined based on the closing market price of the company 's shares of common stock on the acquisition date , less a 25 % discount for lack of marketability as the shares issued are subject to certain restrictions that limit their trade or transfer in the open market . effective upon the closing of the acquisition on june 18 , 2014 , bryant riley , the principal owner of brc inc. , was appointed as our chief executive officer and chairman . as a result of the acquisition of brc inc. , bryant riley owns approximately 24.1 % of our outstanding common stock . recent developments during the second quarter of 2014 , we initiated a strategic review of our operations taking into account the planned synergies as a result of the acquisition of brc inc. as a result of the strategic review , we implemented cost savings measures that resulted in a reduction in corporate overhead and the restructuring of our operations in europe . in the third quarter of 2014 , we implemented a reduction in force for some of our corporate employees and a significant number of our employees in the united kingdom and we closed our office in deerfield , illinois . these initiatives resulted in a restructuring charge of $ 2.5 million in the third quarter of 2014. as part of the strategic review , we restructured our uk appraisal business whereby we entered into a joint marketing and strategic alliance with an entity owned and controlled by our former uk appraisal senior management . as a result of the restructuring , there has been a shift in our strategic focus from europe which has resulted in a substantial reduction in revenues from european operations . on january 2 , 2015 , we entered into a purchase agreement to acquire all of the membership interests of mk capital advisors , llc ( “ mk capital ” ) , a wealth management business with operations primarily in new york . on february 2 , 2015 , the pre-closing conditions were satisfied and we completed the purchase of mk capital . upon closing , we paid the members of mk capital $ 2.5 million in cash and issued 333,333 shares of our common stock to such members . the purchase agreement also requires the payment of contingent consideration of $ 1.25 million in cash and 166,667 shares of our common stock on the first anniversary date of the closing ( february 2 , 2016 ) and a final payment of $ 1.25 million in cash and 166,666 of our common stock on the second anniversary date of the closing ( february 2 , 2017 ) . such contingent consideration is contingent on mk capital generating a minimum amount of gross revenues as defined in the purchase agreement for the twelve months ending on the first and second anniversary dates of the closing . mk capital achieved the minimum amount of revenues for the first anniversary period and the contingent cash consideration and contingent stock consideration for such first anniversary period was paid and issued on february 2 , 2016. the acquisition of mk capital allows the company to expand into the wealth management business . on january 11 , 2015 , great american group energy equipment , llc ( “ gagee ” ) filed a voluntary petition with the united states bankruptcy court for the northern district of texas for relief under chapter 7 of title 11 of the united states code . at december 31 , 2014 , gagee had total assets of $ 6.6 million and total liabilities of $ 6.6 million . total assets included $ 2.5 million of other receivables included in prepaid and other current assets and $ 4.0 million of goods held for sale which was comprised of five oil rigs . total liabilities included $ 6.6 million notes payable that are collateralized by the assets of gagee pursuant to a credit agreement gagee entered into to finance the purchase of oil rigs and other equipment related to the oil exploration business to be sold at auction or liquidation . as a result of such bankruptcy filing , the assets and liabilities of gagee described above are no longer consolidated in our consolidated financial statements for periods subsequent to such bankruptcy filing . the loss on deconsolidation of gagee was less than $ 0.1 million during the year ended december 31 , 2015. on june 29 , 2015 , the trustee handling the bankruptcy case for gagee was discharged and the bankruptcy case was closed . as a result of this process , the lenders under the credit agreement described above are proceeding with the disposition of the assets of gagee in accordance with their security interest in connection with their loan . at the present time , the company does not have any remaining investment or any obligations with respect to gagee 's liabilities . the company intends to dissolve gagee and wind up its business . if any future expenses or losses are incurred by gagee during its wind up , the company will record its share of losses under the equity method of accounting . management does not expect these events or any subsequent related actions regarding gagee will have a material impact on the consolidated financial position of the company . in february 2015 , we were engaged to participate in a joint venture involving the liquidation of inventory for the going-out-of-business sale of 133 target stores located in canada .
| revenues from services and fees in the capital markets segment were $ 19.4 million during the year ended december 31 , 2014. these revenues included revenues for the period from june 18 , 2014 to december 31 , 2014 as a result of our acquisition of brc inc. and revenues for the period february 2 , 2015 to december 31 , 2015 as a result of our acquisition of mk capital . capital markets segment revenues in 2014 include revenues from investment banking fees of $ 10.3 million , commissions and other income primarily earned from research , sales and trading of $ 7.8 million , and trading income of $ 1.3 million . revenues from services and fees in the auction and liquidation solutions increased $ 18.5 million , or 107.6 % , to $ 35.6 million during the year ended december 31 , 2015 from $ 17.2 million during the year ended december 31 , 2014. the increase in revenues from services and fees in 2015 was primarily due to our participation in the joint venture involving the liquidation of inventory for the going-out-of-business sale of 133 target stores located in canada . the joint venture provided target canada with a minimum guarantee of amounts to be realized from the liquidation of inventory . the liquidation sale of inventory was completed in april 2015 and the amounts realized from the liquidation of inventory exceeded the minimum guarantee . revenues from our participation in the joint venture were $ 13.9 million during the year ended december 31 , 2015. the increase in revenues was also due to an increase in the mix of fee related retail liquidation engagements in 2015 as compared to 2014. in the comparable period in 2014 , revenues included a loss accrual $ 6.1 million for one retail liquidation engagement where we provided a minimum guarantee of amounts to be realized from the liquidation of inventory and we did not have any large retail liquidation engagements that generated a significant amount of revenues from services
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area and regional exploration efforts will continue throughout 2012. we have budgeted $ 5 million towards phase 2 development in 2012. united states we expect to continue to advance the gold bar project through the permitting process during 2012. exploration drilling is expected to take place at tonkin , limo and other areas in nevada , as warranted . further reconnaissance sampling and mapping will continue on our other nevada properties . we anticipate resumption of the core drilling program at the richardson project in alaska during in spring 2012 , as weather permits . the drilling budget for united states for 2012 is $ 5 million . argentina the focus at the los azules project will be a core drilling exploration program which began during the first quarter of 2012 and will continue until winter arrives at the project site approximately in may 58 and will resume again in the argentine springtime in the fourth quarter of the year . the drilling efforts are split between infill drilling to upgrade the confidence of the known mineralized material and to target new areas of mineralization , especially to the southwest side of the known deposit where we are targeting geophysical anomalies detected during geophysical surveys completed by minera andes in 2010. we have budgeted $ 12 million towards exploration at the los azules project for 2012. we will conduct a thorough review of our 100 % owned properties in santa cruz , argentina with extensive sampling and mapping taking place , along with selective drilling of prospective targets . we have budgeted $ 5 million towards exploration in santa cruz . at the san josé mine , we expect 2012 production , on a 100 % basis , to be approximately 5.7 million ounces of silver and 85,000 ounces of gold which would be generally consistent with production rates over the past two years . as agreed with our joint venture partner , hochschild mining plc , exploration both at the san josé mine and the surrounding joint venture property area will increase significantly in 2012 with a total budget of over $ 14 million to be spent on drilling . approximately half of this amount will be spent on brownfield drilling to locate new areas of mineralization . liquidity and capital resources as of december 31 , 2011 , we had working capital of $ 41.8 million , comprised of current assets of $ 47.9 million , including $ 22.8 million of gold and silver bullion , and current liabilities of $ 6.1 million . this represents an increase of approximately $ 28.3 million from the working capital of $ 13.5 million at fiscal year end december 31 , 2010. at december 31 , 2011 , the fair value of our gold bullion exceeded its book value by approximately $ 1.7 million . for the year ended december 31 , 2011 , an impairment of $ 3.4 million was recorded for our silver holdings due to fair value being lower than the carrying value . in february 2011 , we substantially increased our working capital when we issued 17.25 million shares of common stock at a price of $ 6.50 per share , which includes the entire exercise of the underwriters ' over-allotment option of 2.25 million shares in a public offering pursuant to a registration statement filed with the sec and a prospectus filed with canadian securities regulators . gross proceeds from the 17.25 million shares sold in the offering totaled $ 112.1 million . proceeds to us , net of commissions and expenses , were approximately $ 105.3 million . with the acquisition of minera andes on january 24 , 2012 , our working capital available during 2012 increased by approximately $ 44.6 million , including a dividend receivable from msc of $ 9.4 million , which was received in february 2012. we expect to receive further dividends from msc during 2012 , although the timing and amount of those dividends will depend upon silver and gold prices , production levels , operating costs , capital expenditures , and a variety of other factors beyond our control . in addition , we expect to begin operations of phase 1 at the el gallo complex , where we expect to begin generating revenue through mining operations in the third quarter 2012 but we can provide no assurance that this timeline will be met or provide guidance on the projected profitability of mining operations . our working capital at present is sufficient to fund the $ 11.9 million remaining budget required for phase 1 development along with ongoing exploration and corporate activities through the end of 2012. cash flow generated from mining operations in mexico would be expected to be reinvested in phase 2 development and construction at el gallo . net cash used in operations for the year ended december 31 , 2011 increased to $ 59.0 million from $ 25.9 million for 2010 and from $ 15.5 million in 2009 , primarily due to increase in cash paid to suppliers and employees . cash paid to suppliers and employees increased to $ 59.1 million for the 2011 period from $ 26.0 million and $ 15.6 million during the 2010 and 2009 periods respectively , primarily due to increased exploration activities in mexico and nevada and transaction costs associated with the minera andes acquisition . 59 cash used in investing activities for the year ended december 31 , 2011 was $ 40.3 million , primarily due to additional purchases of gold and silver bullion of $ 31.3 million , acquisition of mineral property interests in nevada and mexico of $ 10.1 million , additional land and drill rigs purchases of $ 8.0 million mostly in mexico , investment in short-term canadian treasury bills of $ 3.9 million with a maturity of 12 months , partially offset by proceeds from the sale of gold and silver bullion and marketable securities aggregating $ 13.6 million . story_separator_special_tag this compares to cash provided by investing activities in 2010 of $ 3.9 million , primarily due to the redemption of our short-term us and canadian treasury bills of $ 12.9 million that matured during the second quarter of 2010 , partially offset by additional purchases of gold bullion of $ 1.8 million , investment in marketable equity securities of $ 4.0 million , mining concessions in mexico of $ 1.3 million and property and equipment in mexico of $ 2.0 million . this compares to cash used in 2009 of $ 15.2 million , primarily due to investment in short-term us and canadian treasury bills with maturities between three and six months of $ 12.9 million , in gold bullion of $ 2.8 million , capital expenditures of $ 0.3 milion , which are partially offset by proceeds from disposal of property and equipment from our mexico operations . cash provided by financing activities for 2011 was $ 106.2 million from the public offering of 17.25 million shares and the exercise of stock options , compared to $ 0.8 million in the comparable period of 2010. cash provided by financing activities in 2009 was $ 46.4 million , which was primarily due to the public offering of 25.15 million shares and the exercise of stock options and warrants . tabular disclosure of contractual obligations schedule of contractual obligations . the following table summarizes our obligations and commitments as of december 31 , 2011 to make future payments under certain contracts , aggregated by category of contractual obligation , for specified time periods : replace_table_token_23_th story_separator_special_tag tangible assets . the amount capitalized relating to a mineral property interest represents its fair value at the time of acquisition , either as an individual asset purchase or as a part of a business combination . the value of mineral property interest is primarily driven by the nature and amount of mineralized material believed to be contained in the properties . if a mineable ore body is discovered , the capitalized costs would be amortized when production begins using the units-of-production method . exploration costs : exploration costs include costs incurred to identify new mineral resources , evaluate potential resources , and convert mineral resources into proven and probable reserves . exploration costs are expensed as incurred . proven and probable reserves : the definition of proven and probable reserves is set forth in the sec industry guide 7. proven reserves are reserves for which ( a ) quantity is computed from dimensions revealed in outcrops , trenches , workings or drill holes , grade and or quality are computed from the results of detailed sampling and ( b ) the sites for inspection , sampling and measurement are spaced so closely and the geological character is so well defined that size , shape , depth and mineral content of the reserves are well-established . probable reserves are reserves for which quantity and grade and or quality are computed from information similar to that used for proven ( measured ) reserves , but the sites for inspection , sampling , and measurement are farther apart or are otherwise less adequately spaced . the degree of assurance , although lower than that for proven ( measured ) reserves , is high enough to assume continuity between points of observations . as of december 31 , 2011 none of the company 's mineralized properties contain resources that meet the definition of proven and probable reserves . 62 design , construction , and development costs : certain costs to design and construct mining and processing facilities may be incurred prior to establishing proven and probable reserves . the company classifies the phase 1 development of the el gallo complex as an exploration stage project , and accordingly , substantially all costs , including design , engineering , construction , and installation of equipment are expensed . development costs are capitalized when proven and probable reserves exist and the property is a commercially minable property . mine development costs incurred either to develop new ore deposits , expand the capacity of operating mines , or to develop mine areas substantially in advance of current production are capitalized . costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations . costs of abandoned projects are charged to operations upon abandonment . the company evaluates , at least quarterly , the carrying value of capitalized mineral interest costs and related property , plant and equipment costs , if any , to determine if these costs are in excess of their net realizable value and if a permanent impairment needs to be recorded . the periodic evaluation of carrying value of capitalized costs and any related property , plant and equipment costs are based upon expected future cash flows and or estimated salvage value . impairment of long-lived assets : we review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable . recoverability is measured by comparing the net book value to the fair value . when the net book value exceeds the fair value , an impairment loss is measured and recorded . the underlying fair value of inactive mining equipment in mexico and inactive milling equipment in nevada were based on the estimated net realizable value . as at december 31 , 2011 , the carrying value for these assets is less than their fair value and as a result , no impairment was recorded . mineral properties are monitored for impairment based on factors such as our continued right to explore the area , exploration reports , assays , technical reports , drill results and our continued plans to fund exploration programs on the property .
| exploration spending in mexico increased by $ 17.7 million , from $ 11.5 million to $ 29.2 million in 2011 , which reflected a total of 372,523 ft ( 113,545 m ) of drilling activity in mexico as compared to 178,839 ft ( 54,510 m ) of drilling in the same period in 2010. engineering and technical work for the el gallo project was $ 2.0 million and included in exploration costs . during 2011 , exploration spending in nevada and alaska increased by $ 5.8 million , from $ 7.0 million to $ 12.8 million . during the 2011 period , a total of 86,287 ft ( 26,300 m ) was drilled in nevada and alaska as compared to 70,050 ft ( 21,351 m ) drilled in the same period in 2010. there was no drilling in alaska in 2010 since we signed the agreement in july 2011. total pre-feasibility costs incurred for the gold bar project for the year was $ 2.7 million as compared to $ 1.1 million for the same period in 2010. during 2011 , we also incurred $ 1.7 million on the construction and development of the el gallo complex in connection with phase 1 development of the project . these activities include mobilization and demobilization of mining equipment , road construction and management costs to oversee the construction . as noted in our critical accounting policies , these costs are expensed until proven and probable reserves are established . total stock-based compensation expense increased by $ 1.1 million , from $ 1.6 million in 2010 to $ 2.7 million in 2011 , reflecting increased expenses associated with stock option grants at the beginning of 2011. stock-based compensation expense is allocated to the general and administrative and exploration costs lines within the consolidated statements of operations and other comprehensive loss . accretion of the asset retirement obligation in nevada and mexico remained consistent at $ 0.5 million in 2011 and 2010. depreciation costs slightly increased to $ 0.6 million in 2011
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special charges , net in 2014 were $ 51.5 million for costs related to the business integration project . on an after-tax basis , the special charges , net resulted in a $ 45.2 million negative impact on net income and a negative $ 0.88 effect on diluted earnings per share . in 2013 we had special charges , net of $ 45.1 million for costs related to the business integration project . on an after-tax basis , the special charges , net resulted in a $ 35.3 million negative impact on net income and a negative $ 0.69 effect on diluted earnings per share . see note 5 to the consolidated financial statements for more information . project one : in december of 2012 our board of directors approved a multi-year project to replace and enhance our existing core information technology platforms . the scope for this project includes most of the basic transaction processing for the company including customer orders , procurement , manufacturing , and financial reporting . the project envisions harmonized business processes for all of our operating segments supported with one standard software configuration . the execution of this project , which we refer to as project one , is being supported by internal resources and consulting services . during 2013 a project team was formed and the global blueprint for the software configuration was designed and built . in the latter half of 2013 and in the early months of 2014 , the global blueprint was applied to the specific requirements of our north america adhesives business , the software was tested and the user groups were trained . on april 6 , 2014 , our north america adhesives business went live . the implementation process proved to be more difficult than we originally anticipated resulting in disruptions in our manufacturing network , lower productivity and deteriorated customer service levels . by the end of 2014 , most of the problems associated with the software implementation had been remediated and the business was stable and running at capacity with productivity levels approaching the levels experienced prior to the new software implementation . in late 2014 we suspended any further implementation projects in other geographic regions until we complete the optimization of the current platform in north america . we are preparing a revised implementation plan that leverages the experiences of our first go-live event and reduces the risk of significant business interruption . we expect to start subsequent implementations in 2016. the original capital expenditure plan for project one was approximately $ 60.0 million . in the fourth quarter of 2015 , we received a cash settlement of $ 12.8 million as a result of an arbitration proceeding related to our initial implementation of project one . of this amount , $ 12.0 million was related to capital expenditures , which allowed us to reduce our total project-to-date capital expenditures to $ 31.3 million . given the complexity of the initial implementation , we anticipate that the total investment to complete the project will exceed our original estimate . we will have a revised estimate of the total project costs and the expected completion timetable later in 2016 when the revised implementation plan is complete . our current plan is to proceed with the second phase implementation in our latin america region with the project commencing in the second half of 2016 and completion expected in early 2017. subsequent phases of the global implementation will be evaluated following the completion of this second implementation . 16 201 6 outlook : our key long term financial metrics remain unchanged : constant currency revenue growth , earnings before interest , taxes , depreciation and amortization ( ebitda ) margin , growth in earnings per share and return on invested capital ( roic ) . ebitda is a non-gaap financial measure defined on a consolidated basis as gross profit , less selling , general and administrative ( sg & a ) expense , plus depreciation expense , plus amortization expense . ebitda excludes special charges , net . ebitda margin is a non-gaap financial measure defined as ebitda divided by net revenue . roic is a non-gaap financial measure defined as ( gross profit less sg & a expense , less taxes at the effective tax rate plus income from equity method investments , calculated using trailing 12 month information ) divided by ( the sum of notes payable , current maturities of long-term debt , long-term debt , redeemable non-controlling interest and total equity ) . in 2016 we expect modest constant currency revenue growth of about 4 percent , mainly supported by continued growth in our asia pacific and construction products segments . our asia pacific segment will benefit from a full year of the acquired tonsan business as well as continued end market expansion , though at a slower rate . we anticipate slightly positive constant currency revenue growth in the americas adhesives and eimea operating segments . we expect that the strengthening of the us dollar relative to various currencies will dampen our revenue growth rate in 2016 relative to 2015 by up to 3 percentage points . our gross profit margin is expected to increase in 2016 , primarily driven by continuous productivity improvement in our manufacturing network , especially in europe , plus the carry over benefit of lower raw material costs that were realized in the second half of 2015. sg & a expenses should increase at a rate in line with the increase in net revenue . overall , we expect our ebitda margin to be approximately 14 percent for the full year . we expect total 2016 capital expenditures to be approximately $ 60.0 million , slightly above our long term expectations of ongoing capital requirements of about 2 to 2.5 percent of net revenue . story_separator_special_tag critical accounting policies and significant estimates : management 's discussion and analysis of our results of operations and financial condition are based upon the consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states of america ( u.s. 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 and related disclosure of contingent assets and liabilities . we believe the critical accounting policies and areas that require the most significant judgments and estimates to be used in the preparation of the consolidated financial statements are pension and other postretirement plan assumptions ; goodwill impairment assessment ; long-lived assets recoverability ; product , environmental and other litigation liabilities ; and income tax accounting . pension and other postretirement plan assumptions : we sponsor defined-benefit pension plans in both the u.s. and non-u.s. entities . also in the u.s. , we sponsor other postretirement plans for health care and life insurance benefits . expenses and liabilities for the pension plans and other postretirement plans are actuarially calculated . these calculations are based on our assumptions related to the discount rate , expected return on assets , projected salary increases and health care cost trend rates . note 10 to the consolidated financial statements includes disclosure of assumptions employed in these measurements for both the non-u.s. and u.s. plans . the discount rate assumption is determined using an actuarial yield curve approach , which results in a discount rate that reflects the characteristics of the plan . the approach identifies a broad population of corporate bonds that meet the quality and size criteria for the particular plan . we use this approach rather than a specific index that has a certain set of bonds that may or may not be representative of the characteristics of our particular plan . a higher discount rate reduces the present value of the pension obligations . the discount rate for the u.s. pension plan was 4.30 percent at november 28 , 2015 , as compared to 4.10 percent at november 29 , 2014 and 4.77 percent at november 30 , 2013. net periodic pension cost for a given fiscal year is based on assumptions developed at the end of the previous fiscal year . a discount rate reduction of 0.5 percentage points at november 28 , 2015 would increase u.s. pension and other postretirement plan expense approximately $ 0.3 million ( pre-tax ) in fiscal 2016. discount rates for non-u.s. plans are determined in a manner consistent with the u.s. plan . the expected long-term rate of return on plan assets assumption for the u.s. pension plan was 7.75 percent in 2015 , 2014 and 2013. our expected long-term rate of return on u.s. plan assets was based on our target asset allocation assumption of 60 percent equities and 40 percent fixed-income . management , in conjunction with our external financial advisors , determines the expected long-term rate of return on plan assets by considering the expected future returns and volatility levels for each asset class that are based on historical returns and forward looking observations . for 2015 the expected long-term rate of return on the target equities allocation was 8.5 percent and the expected long-term rate of return on the target fixed-income allocation was 5.0 percent . the total plan rate of return assumption included an estimate of the effect of diversification and the plan expense . for 2016 , the expected long-term rate of return on assets will continue to be 7.75 percent with an expected long-term rate of return on the target equities allocation of 8.5 percent and an expected long-term rate of return on target fixed-income allocation of 5.0 percent . a change of 0.5 percentage points for the expected return on assets assumption would impact u.s. net pension and other postretirement plan expense by approximately $ 2.0 million ( pre-tax ) . 17 management , in conjunction with our external financial advisors , uses the actual historical rates of return of the asset categories to assess the reasonableness of the expected long-term rate of return on plan assets . the most recent 10-year and 20-year historical equity returns are shown in the table below . our expected rate of return on our total portfolio is consistent with the historical patterns observed over longer time frames . replace_table_token_5_th ( * ) beginning in 2006 , our target allocation migrated from 100 percent equities to our current allocation of 60 percent equities and 40 percent fixed-income . the historical actual rate of return for the fixed income of 8.0 percent is since inception ( 9 years , 11 months ) . the expected long-term rate of return on plan assets assumption for non-u.s. pension plans was a weighted-average of 6.22 percent in 2015 compared to 6.17 percent in 2014 and 5.96 percent in 2013. the expected long-term rate of return on plan assets assumption used in each non-u.s. plan is determined on a plan-by-plan basis for each local jurisdiction and is based on expected future returns for the investment mix of assets currently in the portfolio for that plan . management , in conjunction with our external financial advisors , develops expected rates of return for each plan , considers expected long-term returns for each asset category in the plan , reviews expectations for inflation for each local jurisdiction , and estimates the effect of active management of the plan 's assets . our largest non-u.s. pension plans are in the united kingdom and germany . the expected long-term rate of return on plan assets for the united kingdom was 6.75 percent and the expected long-term rate of return on plan assets for germany was 5.75 percent . management , in conjunction with our external financial advisors , uses actual historical returns of the asset portfolio to assess the reasonableness of the expected rate of return for each plan .
| for the total indebtedness / ttm ebitda ratio , ttm ebitda is adjusted for the pro forma results from material acquisitions and material divestitures as if the acquisition or divestiture occurred at the beginning of the calculation period . additional detail is provided in the form 8-k dated october 31 , 2014 . ● pursuant to the credit agreement dated october 31 , 2014 , the company elected to increase the total indebtedness / ttm ebitda ratio to a maximum of 3.75 to 1.00 for four quarters beginning with the first fiscal quarter ending february 28 , 2015. the maximum ratio will return to 3.50 to 1.00 in the first fiscal quarter ending february 27 , 2016. we believe we have the ability to meet all of our contractual obligations and commitments in fiscal 2016. net financial assets replace_table_token_31_th of the $ 119.2 million in cash and cash equivalents as of november 28 , 2015 , $ 83.1 million was held outside the u.s. of the $ 83.1 million of cash held outside the u.s. , earnings on $ 74.7 million are indefinitely reinvested outside of the u.s. it is not practical for us to determine the u.s. tax implications of the repatriation of these funds . there are no contractual or regulatory restrictions on the ability of consolidated and unconsolidated subsidiaries to transfer funds in the form of cash dividends , loans or advances to us , except for : 1 ) a credit facility limitation restricting investments , loans , advances or capital contributions from the u.s. parent corporation , the irish financing subsidiary , and the construction products subsidiary in excess of $ 100.0 million , 2 ) a credit facility limitation that provides total investments , loans , advances or guarantees not otherwise permitted in the credit agreement for all subsidiaries shall not exceed $ 125.0 million in the aggregate and 3 ) typical statutory restrictions , which prohibit distributions in excess of net capital or similar tests . the 2012 forbo acquisition , the 2015 tonsan acquisition and any investments , loans , and advances established to consummate the forbo and tonsan acquisitions are excluded from the credit
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in addition , sales in our general office supplies category were improved in the second half of 2018. looking ahead , we remain focused on our core growth initiatives and maximizing the growth prospects for our diversified business , but will also continue to evaluate all opportunities that may help us more effectively navigate the evolving industry dynamics in which this group competes . net sales for business products were $ 1.9 billion in 2017 , an increase of 1.1 % from 2016 . the increase in sales reflects an approximate 5 % contribution from acquisitions , offset by an approximate 4 % decrease in comparable sales , inclusive of a 0.6 % increase in higher transaction values associated with price inflation . sales were up approximately 8 % in the first quarter , up 4 % in the second quarter , down 5 % in the third quarter and down 2 % in the fourth quarter of 2017 . cost of goods sold the company includes in cost of goods sold the actual cost of merchandise , which represents the vast majority of this line item . other items in cost of goods sold include warranty costs and in-bound freight from the suppliers , net of any vendor allowances and incentives . cost of goods sold was $ 12.75 billion in 2018 , $ 11.40 billion in 2017 and $ 10.74 billion in 2016 . cost of goods sold in 2018 and 2017 changed from the prior year periods in accordance with the related percentage change in sales for the same periods . the increases for these periods were partially offset by the favorable impact of the lower cost of goods sold model at aag as well as at certain other acquired companies and the improvement in the automotive and industrial businesses . primarily , the improvement in these businesses relates to the change in supplier incentives associated with higher purchasing volumes and product mix . cost of goods sold represented 68.1 % of net sales in 2018 , 69.9 % of net sales in 2017 and 70.0 % of net sales in 2016 and thus , as a percent of net sales , decreased in both 2018 and 2017 . in 2018 and 2017 , each of the company 's business segments experienced vendor price increases , while in 2016 , only the industrial and business products segments experienced vendor price increases . in any year where we experience price increases , we are able to work with our customers to pass most of these increases along to them . operating expenses the company includes in selling , administrative and other expenses ( “ sg & a ” ) all personnel and personnel-related costs at its headquarters , distribution centers , stores and branches , which accounts for approximately 65 % of total sg & a . additional costs in sg & a include our facilities , delivery , marketing , advertising , technology , digital , legal and professional costs . 18 sg & a of $ 4.6 billion in 2018 increased by $ 889 million or approximately 23.9 % from 2017 . this represents 24.6 % of net sales in 2018 compared to 22.8 % of net sales in 2017 . the increase in sg & a expenses from the prior year reflect a combination of factors , including the impact of increased sales for the year . in addition , our expenses reflect the impact of higher cost , and higher gross margin , models at select acquisitions , including aag . we also experienced rising costs in areas such as labor , freight and delivery , technology and warehousing . further , we incurred incremental costs associated with our 23 acquisitions during the year and , in addition , recorded $ 30.3 million in transaction and other costs primarily associated with the acquisition of aag and the attempted transaction to spin-off the company 's business products group , net of the favorable impact of a termination fee received . the increase in sg & a expenses as a percentage of net sales in 2018 from the prior year reflect the increases in costs described above as well as the loss of leverage associated with the first half and full year comparable sales growth in the automotive and business products businesses , respectively . to improve on our sg & a expense levels , we continue to work towards a lower cost , but highly effective infrastructure . these efforts include steps to accelerate the integration of our acquisitions , investments to enhance our productivity and innovative strategies to unlock greater savings and efficiencies across our operations . depreciation and amortization expense was $ 242 million in 2018 , an increase of approximately $ 74 million or 44 % from 2017 , due primarily to the impact of acquisitions and the increase in capital expenditures relative to the prior year . the provision for doubtful accounts was $ 17 million in 2018 , a $ 3 million increase from 2017 . we believe the company is adequately reserved for bad debts at december 31 , 2018 . sg & a of $ 3.73 billion in 2017 increased by $ 334 million or approximately 10 % from 2016 . this represents 22.8 % of net sales compared to 22.1 % of net sales in 2016 . the increase in sg & a expenses from the prior year reflect a combination of factors , including the impact of increased sales for the year . we also experienced rising costs in areas such as labor , freight , technology , warehousing , insurance , healthcare and other employee benefits . further , we incurred incremental costs associated with our 15 acquisitions during the year and , in addition , recorded $ 43.5 million in transaction-related costs primarily associated with the acquisition of aag . finally , our sg & a expenses reflect the impact of higher cost , and higher gross margin , models at select acquisitions , including aag . story_separator_special_tag the increase in sg & a expenses as a percentage of net sales from the prior year reflect the increases in costs described above as well as the loss of leverage associated with the company 's 1.5 % consolidated comparable sales growth . depreciation and amortization expense was $ 168 million in 2017 , an increase of approximately $ 20 million or 14 % from 2016 . the provision for doubtful accounts was $ 14 million in 2017 , an increase of $ 2 million from 2016 . total share-based compensation expense for the years ended december 31 , 2018 , 2017 and 2016 was $ 20.7 million , $ 16.9 million and $ 19.7 million , respectively . refer to the share-based compensation footnote in the consolidated financial statements for further information regarding share-based compensation . non-operating expenses and income non-operating expenses consist primarily of interest . interest expense was $ 102 million in 2018 , $ 41 million in 2017 and $ 21 million in 2016 . the $ 60.4 million increase in interest expense in 2018 reflects the combination of higher debt levels throughout the year , primarily related to the increase in debt associated with the aag acquisition on november 2 , 2017 , and rising interest rates on certain variable interest debt instruments . to offset these rising interest rates , the company has entered into interest hedge products to increase our fixed interest rate debt relative to total debt . in 2017 , the $ 20 million increase in interest expense reflects the combination of higher debt levels relative to the prior year , including the increase in debt for aag described above , and rising interest rates on certain variable interest debt instruments . in “ other ” , the net benefit of interest income , equity method investment income , investment dividends , noncontrolling interests and pension income in 2018 was $ 68 million , a $ 16 million increase from the prior year . the increase in other reflects higher interest income , pension income and investments income earned in 2018 relative to 2017. these items totaled $ 52 million in 2017 , a $ 5 million increase from 2016 due to higher investment income and interest income relative to the prior year . income before income taxes income before income taxes was $ 1.1 billion in 2018 , up 7 % from 2017 . as a percentage of net sales , income before income taxes , which we refer to as operating margin , was 5.7 % in 2018 compared to 6.2 % in 2017 . adjusted for $ 36.1 million in transaction and other costs primarily associated with the company 's acquisition of aag on november 2 , 2017 and the attempted transaction to spin-off the company 's business products group , net of the favorable impact of a termination fee received , income before income taxes was 5.9 % of net sales . in 2017 , income before income taxes was $ 1.0 billion , down 6 % from 2016 and as a percentage of net sales was 6.2 % compared to 7.0 % in 2016 . adjusted for $ 49.1 million in transaction-related costs primarily associated with the company 's acquisition of aag described above , income before income taxes was 6.5 % of net sales . 19 automotive group automotive income before income taxes increased 18.6 % in 2018 from 2017 and operating margin was 8.1 % in 2018 as compared to 8.4 % in 2017 . the decrease in operating margin reflects the loss of expense leverage due to the 2.5 % growth in comparable sales for automotive , as this group requires approximately 3 % comparable sales growth to leverage its fixed costs . in addition , rising costs in several areas as described above negatively impacted automotive 's operating margin . to improve automotive 's operating margin , this group is focused on several initiatives to grow sales and has also enhanced its cost management initiatives to drive savings in 2019 and the years ahead . automotive 's income before income taxes increased 0.7 % in 2017 and operating margin of 8.4 % was down from 8.8 % in 2016 . the decrease in operating margin primarily reflects the loss of expense leverage due to 1 % growth in comparable sales for automotive . industrial group industrial 's income before income taxes increased 10.6 % in 2018 from 2017 and operating margin was 7.7 % , an increase from 7.6 % in 2017 . the improvement in operating margin for this group primarily reflects the continued benefit of strong sales growth throughout the year , as gross margins benefited from the increase in supplier incentives and rebates and operating expenses were better leveraged . we believe that industrial enters 2019 in position to further expand their operating margin . industrial 's income before income taxes increased 10.9 % in 2017 and operating margin was 7.6 % , which was up from 7.4 % in 2016 . the improvement in operating margin for this group primarily reflects the positive impact of stronger sales growth in 2017 relative to 2016 , driven by an improved industrial economy . business products group business product 's income before income tax was down 10.2 % in 2018 from 2017 and operating margin decreased to 4.6 % from 5.1 % . the decrease in operating margin reflects the gross margin pressures associated with lower supplier incentives as well as increased costs and the deleveraging of expenses due to comparable sales declines . the business products group enters 2019 focused on its core growth initiatives , the further diversification of its business and the evaluation of options for new and enhanced opportunities to maximize the growth prospects for this business . business product 's income before income taxes was down 15.5 % in 2017 from 2016 and operating margin decreased to 5.1 % from 5.9 % , as gross margin pressures , rising costs and the deleveraging of expenses negatively impacted the operating margin for this business .
| the increase in sales for the year consists of an approximate 20 % contribution from acquisitions , a 2.5 % comparable sales increase and a slight negative impact of currency translation associated with our automotive businesses in canada , australasia , europe and mexico . automotive sales were positively impacted by product inflation of 1.8 % in the u.s. operations , although the majority of these supplier price increases became effective in the fourth quarter of 2018 and would not be reflected in our comparable sales increase . in 2018 , total automotive revenues were up approximately 30 % in the first quarter , up 28 % in the second quarter , up 23 % in the third quarter and up 11 % in the fourth quarter , with the lower fourth quarter increase due to the impact of the aag acquisition , which anniversaried on november 2 , 2018. in 2018 , the sales environment for the automotive aftermarket was condusive to growth . our international markets , including europe , australasia , canada and mexico , remained steady , and conditions in the u.s. aftermarket gradually improved during the year . in our view , the underlying fundamentals in the automotive aftermarket , including trends related to the overall number and age of the vehicle population as well as the continued increase in miles driven , remain supportive of sustained demand for automotive aftermarket maintenance and supply items across the markets we serve . we expect these fundamentals as well as key sales initiatives to drive sales growth for the automotive business in 2019 . 17 net sales for automotive were $ 8.6 billion in 2017 , a 6.8 % increase from 2016 . the increase in sales for the year consists of an approximate 5 % contribution from acquisitions , a 1 % comparable sales increase and an approximate 1 % positive impact of currency translation associated with our automotive businesses in canada , australasia and mexico . automotive sales were also positively impacted by product inflation of 0.3 % , which is
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the countrywide investor settlement was included in previous loss reserve estimates as other subrogation . during 2016 , ambac assurance purchased $ 9.6 million of unpaid accrued interest related to certain surplus notes that were previously repurchased under call options . ambac recognized a realized gain on these purchases of $ 3.1 million in the consolidated statements of total comprehensive income . in addition , ambac assurance purchased $ 18.6 million of its surplus notes during 2016. ambac recognized realized gains on these purchases of $ 1.7 million in the consolidated statements of total comprehensive income . the following table provides a comparison of both total and below investment grade ( `` big '' ) net par outstanding in the insured portfolio at december 31 , 2016 and 2015 . net par exposures within the u.s. public finance market include capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy . replace_table_token_23_th the overall reduction in total net par outstanding resulted from scheduled maturities , amortizations , refundings , refinancings and calls accelerated by several company-led initiatives , including an overall $ 935 million reduction of student loan net par exposure , including commutations of $ 387 million net par of national collegiate student loan trust bonds ; and the $ 458 million cancellation of net par exposure to local insight media ( `` lim '' ) . the reduction in below investment grade net par outstanding was primarily due to ( i ) the aforementioned commutations of student loan policies , ( ii ) reductions to residential mortgage-backed securities during the year as a result of both prepayments by issuers and claims presented to ambac assurance and ( iii ) the aforementioned cancellation of the lim insured bonds . although our insured portfolio has performed satisfactorily over the course of 2016 , we have experienced stress within our approximately $ 2.1 billion of exposures to puerto rico consisting of several different issuing entities ( all below investment grade ) . each issuing entity has its own credit risk profile attributable to discreet revenue sources , direct general obligation pledges and general obligation guarantees . refer to part i , item 1 in this form 10-k for a further discussion of our exposures to the commonwealth of puerto rico . ambac : as of december 31 , 2016 total cash and investments of ambac were $ 342.8 million , which include the following : liquid investments in asset backed and short-term securities of $ 212.1 million investments in ambac-insured securities with a fair value of $ 86.4 million investments in ambac assurance surplus notes with a fair value of $ 14.3 million , which is eliminated in consolidation residual interest in a vie trust that was created in 2014 to monetize ambac 's ownership interest in junior surplus notes issued by the segregated account . ambac 's carrying value , utilizing the equity method , of this investment was $ 30.0 million at december 31 , 2016 . refer to note 3. special purpose entities , including variable interest entities to the consolidated financial statements included in part ii , item 8 in this form 10-k , for more information on this transaction . during 2015 , the board of directors of ambac authorized the establishment of a warrant repurchase program that permits the repurchase of up to $ 10 million of warrants . on november 3 , 2016 , the board of directors of ambac authorized an additional $ 10 million to the warrant repurchase program . as of december 31 , 2016 , ambac had repurchased 985,331 warrants at a cost of $ 8.1 million , leaving 4,053,670 warrants outstanding , bringing the | ambac financial group , inc. 36 2016 form 10-k | remaining aggregate authorization to $ 11.9 million . ambac will opportunistically consider additional purchases in the future . as a result of positive taxable income at ambac assurance in 2015 , ambac received $ 70.9 million in tax tolling payments in may 2016 and $ 0.5 million in november 2016. additionally , based on ambac assurance 's 2016 taxable income , ambac is expected to receive approximately $ 28.7 million in tax tolling payments by june 2017 ( subject to rehabilitator review ) . foreign currency impacts : the strengthening of the u.s. dollar since the brexit referendum vote impacted ambac 's economic position . specifically , the impact of using march 31 , 2016 currency rates against the current balance sheet , excluding vies , provides for an approximate loss of $ 68 million , as follows : a reduction of investments and loan values held in british pounds and euros of approximately $ 37.2 million . as of december 31 , 2016 ambac held british pound and euro loans and investments of £171.2 million and 23.5 million , respectively . all but £3.4 million of these amounts were held by ambac uk . included within the british pound portfolio is £27.0 million invested in a uk property fund . ◦ since the referendum vote , there have been reduced valuations of commercial real estate and a number of such funds suspended redemptions . the uk property fund that ambac uk has invested in has not suspended redemptions as of this date . a reduction in premiums receivable denominated in british pounds and euros of $ 32.5 million . as of december 31 , 2016 premium receivables in british pounds totaled £144.4 million and euros totaled 33.1 million . a decrease in the carrying value of loss reserves related to policies where loss payments will be made in currencies other than the us dollar of $ 1.7 million . as of december 31 , 2016 , loss and loss expense reserves for british pounds totaled zero and euros totaled 20.3 million . story_separator_special_tag financial statement impacts : the impact of foreign currency as reported in ambac 's consolidated statement of total comprehensive income for the year ended december 31 , 2016 included the following : ( $ in millions ) net income ( 1 ) $ ( 39.1 ) gain ( losses ) on foreign currency translation ( 122.1 ) unrealized gains ( losses ) on non-functional currency available-for-sale securities 25.4 impact on total comprehensive income ( loss ) $ ( 135.8 ) ( 1 ) a portion of ambac uk 's , and to a lesser extent ambac assurance 's , assets and liabilities are denominated in currencies other than its functional currency and accordingly , we recognized net foreign currency transaction gains/ ( losses ) as a result of changes to foreign currency rates through our consolidated statement of total comprehensive income . refer to note 2. basis of presentation and significant accounting policies to the consolidated financial statements included in part ii , item 8 in this form 10-k for further details on transaction gains and losses . future changes to currency rates may adversely affect our financial results . refer to part ii , item 7a `` quantitative and qualitative disclosures about market risk '' for further information on the impact of future currency rate changes on ambac 's financial instruments . critical accounting policies and estimates ambac 's consolidated financial statements have been prepared in accordance with gaap . this section highlights accounting estimates management views as critical because they require management to make difficult and subjective judgments regarding matters that are inherently uncertain and subject to change . these estimates are evaluated on an on-going basis based on historical developments , market conditions , industry trends and other information that is reasonable under the circumstances . there can be no assurance that actual results will conform to estimates and that reported results of operations will not be materially adversely affected by the need to make future accounting adjustments to reflect changes in these estimates from time to time . management has identified the following critical accounting policies and estimates : ( i ) valuation of loss and loss expense reserves , ( ii ) valuation of financial instruments and ( iii ) valuation of deferred tax assets . management has discussed each of these critical accounting policies and estimates with the audit committee , including the reasons why they are considered critical , and how current and anticipated future events impact those determinations . additional information about these policies can be found in note 2. basis of presentation and significant accounting policies to the consolidated financial statements included in part ii , item 8 in this form 10-k. valuation of losses and loss expense reserves : the loss and loss expense reserves ( `` loss reserves '' ) discussed in this section relate only to ambac 's non-derivative financial guarantee business for insurance policies issued to beneficiaries , including unconsolidated vies . ambac 's loss reserves include loss reserve components of an insurance policy , including unpaid claims and the present value ( `` pv '' ) of expected net cash flows required to be paid under an insurance contract . unpaid claims , which include accrued interest , represent claims that have not yet been paid for policies allocated to the segregated account . the pv of expected net cash flows represents the pv of expected cash outflows less the pv of expected cash inflows discounted at a risk-free discount rate . while unpaid claims are known and therefore not a subjective estimate , expected future losses , net of expected future recoveries , are inherently uncertain . as such , the remaining discussion is limited to addressing expected future losses , net of expected future recoveries . the evaluation process for expected future losses is subject to certain estimates and judgments regarding the probability of default by the issuer of the insured security , probability of remediation and settlement outcomes ( which may include commutation , litigation settlements , refinancings and or other settlement outcomes ) , probability of a restructuring outcome ( which may include payment moratoriums , debt haircuts and or subsequent recoveries ) and the expected loss severity of credits for each insurance contract . as the probability of default for an individual credit increases and or the severity of loss given a default increases , our loss reserve for that insured obligation will also increase . political , economic , credit | ambac financial group , inc. 37 2016 form 10-k | or other unforeseen events could have an adverse impact on default probabilities and loss severities . the loss reserves for many transactions are derived from the issuer 's creditworthiness . for public finance issuers , loss reserves will consider not only creditworthiness but also political dynamics and economic status and prospects . the loss reserves for other transactions which have no direct issuer support , such as most structured finance exposures , including rmbs and student loan exposures , are derived from the default activity and loss given default of underlying collateral supporting the transactions . in addition , many transactions have a combination of issuer/entity and collateral support . loss reserves reflect our assessment of the transaction 's overall structure , support and expected performance . loss reserve volatility will be a direct result of the credit performance of our insured portfolio , including the number , size , bond types and quality of credits included in our loss reserves as well as our ability to execute workout strategies and commutations . the number and severity of credits included in our loss reserves depend to a large extent on transaction specific attributes , but will generally increase during periods of economic stress and decline during periods of economic prosperity . reinsurance contracts mitigate our loss reserve . since ambac has little exposure ceded to reinsurers , it is unlikely to have a significant effect on loss reserve volatility . loss reserve volatility will also be materially impacted by changes in interest rate projections from period to period .
| these changes resulted in an increase in net premiums earned of $ 0.8 million , $ 0.5 million and $ 2.2 million for the years ended december 31 , 2016 , 2015 and 2014 , respectively . pre-refundings of insured securities , primarily public finance transactions . since the maturity date of pre-refunded securities is shortened ( to a specified call date from its previous legal maturity ) , normal net premiums earned will increase over the remaining period of the related policy . the strengthening or weakening of the u.s. dollar relative to the british pound since ambac 's wholly-owned uk subsidiary , ambac uk , operates in the united kingdom and the british pound is its functional currency . normal net premiums earned and accelerated premiums are reconciled to total net premiums earned in the table below and are included in the financial guarantee segment . the following table provides a breakdown of net premiums earned by market : replace_table_token_26_th net investment income . the following table provides details of net investment income by segment for the periods presented : replace_table_token_27_th included in financial guarantee net investment income are net mark-to-market gains of $ 27.7 million , $ 12.6 million and $ 6.7 million in years ended 2016 , 2015 and 2014 , respectively , arising from pooled fund investments that are classified as trading securities with changes in market value recognized in earnings . ambac assurance has invested in high-yield loan funds beginning in 2015 as part of its overall portfolio allocation strategy . ambac uk 's pooled fund investments consist of diversified asset classes including equities , hedge funds , loans , clos and property . financial guarantee net investment income increased $ 43.5 million for the year ended december 31 , 2016 compared to 2015 , due to growth in the size of the portfolio and higher average returns . the larger portfolio primarily resulted from the receipt of $ 995 million in january 2016 in connection with a representation and warranty settlement with jp morgan . higher average portfolio
| 14,999 |
non-gaap financial measures are not a substitute for gaap financial results and should only be considered in conjunction with the company 's financial information that is presented in accordance with gaap . quantitative reconciliations of ebitda and debt to the non-gaap financial measures are presented below . 20 replace_table_token_4_th replace_table_token_5_th as a result of the ongoing pandemic , the company has continued to experience disruptions in supply chains , delays in deliveries to customers , and customer unwillingness to have the company 's employees work on site where safe distance measures are difficult to follow , as well as general weakness in demand as certain travel and work restrictions continued to be in place in most areas . most notably , the collapse in oil demand associated with reduced travel resulting from the covid-19 pandemic , which led to a significant drop in demand for certain products and services offered by our infrastructure solutions segment , has persisted . in the rail , transit , friction management , steel construction , and fabricated bridge businesses governmental stay-at-home and work-from-home orders both in the u.s. and globally , particularly in the u.k. , have resulted in reduced traffic and demand for our products and services , and many public works projects have been deferred or delayed as a result of pandemic mitigation efforts , adversely impacting our business . the company anticipates continued disruption at least through the first half of 2021 as various restrictive measures have remained in effect in the major markets we serve . the company has experienced minimal disruption with its on-premise workforce up to this point , and the company expects to continue to operate under its pandemic protocols with minimal changes . the company 's strong balance sheet should continue to allow the company to effectively manage operations through the current environment and remain a leading provider of products and services to the global infrastructure markets . during the fourth quarter of 2020 , the company reduced its net debt to $ 37,460 as of december 31 , 2020 from $ 39,793 as of september 30 , 2020 , a reduction of $ 2,333. the company 's total available funding capacity was $ 76,838 as of december 31 , 2020. in the fourth quarter of 2020 , the company realigned its operating segments under two senior business leaders to provide clear line of sight around the opportunities for growth and asset leverage in each of the two segments . the rail technologies and services , consisting of businesses previously reported in the former rail products and services segment , reflects the company 's current focus on serving transit and freight railway operators and related infrastructure . the company has been evolving from a track components supplier to one that has been introducing solutions that deliver greater benefits to operating efficiency , reducing disruption and improving safety through the deployment of more advanced technology in its solutions . services have become a greater part of the company 's offerings as end users look to the company for expertise in managing more sophisticated systems often coupled with these new technologies . the former construction products segment and former tubular and energy segment were realigned into the infrastructure solutions operating segment , as these businesses collectively provide a variety of products and services for infrastructure markets to support the efficient transportation of people , goods , commodities , and for general civil works , primarily in the united states . engineering and construction firms and general contractors seek assistance from the company for design and application engineering help when addressing needs across highway , bridge , ports , railways , heavy civil , marine , water and storm water , agricultural , commercial , and residential projects . the company 's expertise in fabricated steel , precast concrete , measurement systems and corrosion protection coupled with competencies around managing large complex projects results in custom solutions for each project . within the product offerings , there is a significant overlap of infrastructure markets , including water , transportation , energy , chemical and fabrication infrastructure markets . 21 the fourth quarter has historically seen a decline in activity for the company , but the current year was more severe as sales for the fourth quarter of 2020 declined by 18.2 % when compared to the prior year quarter . this contributed to a year-over-year sales decline of 19.3 % . along with the sales decline in the current year , both the rail technologies and services and infrastructure solutions segments reported reduced order activity during 2020 , as compared to 2019 , primarily as a result of the covid-19 pandemic . however , new order activity did outpace revenue volume for the year , which we consider a favorable indicator for the company . the book-to-bill ratio for the rail segment was 1.08 for 2020 , which drove the year-over-year increase in backlog of $ 17,537 , or 16.9 % . this increase highlights the ongoing spending in the infrastructure markets served by the rail segment despite pockets of weakness associated with rail and transit traffic volume and transportation related projects and services due to the pandemic . infrastructure solutions backlog increased by $ 1,663 or 1.3 % from the prior year despite a $ 27,643 decline in the coatings and measurement business unit , which principally serves the midstream energy markets . the energy market continues to have an unfavorable outlook and the industry expects significant difficulties in funding ongoing development activity that requires the company 's services . story_separator_special_tag as such , the company has experienced continued weakness in new order activity in the businesses serving the energy market and is forecasting sales to decline significantly year-over-year for its coatings and measurement business unit in 2021. despite the significant decrease in revenue year-over-year , and the significant challenges experienced by the midstream energy market focused businesses in 2020 , the company was able to generate a gross margin of 19.1 % , a 50 basis point decline from 2019 , with the rail segment reflecting a 20 basis point increase year-over-year to 20.0 % . in addition , the company decreased its selling , general and administrative costs to $ 73,644 , a 10.8 % decline from 2019 , partially due to cost reduction actions taken during the year . as a result , the company was able to generate income before taxes from continuing operations of $ 13,982 in 2020 , and after the impact of the tax benefits generated in the ios test and inspection services divestiture , the company produced net income from continuing operations of $ 25,823 , or $ 2.42 per diluted share . the rail segment is anticipating further recovery in rail technologies , although continued pandemic-related lockdowns in the u.k. may hamper such recovery in the near term . rail products bookings were strong in the fourth quarter of 2020 , reflecting a $ 15,064 increase over the third quarter of 2020. as the company monitors the budget shortfalls incurred by transit operators , projects associated with long-term planning have been moving forward . however , the company is not expecting a notable improvement in the sales of consumable products until passenger and freight volumes improve . the 1.3 % increase in the infrastructure solutions segment backlog as compared to december 31 , 2019 resulted from increases in the fabricated steel products and precast concrete products business units . the fabricated steel products division experienced substantial year-over-year increases in backlog of $ 22,276 as a result of securing several key projects during the year . in particular , the backlog for bridge decking is expected to continue to result in production rates at near capacity levels in 2021. the precast concrete products division continues to benefit from new infrastructure projects in the regions it serves , which is reflected in a year-over-year backlog increase of $ 7,030. while this business often depends on municipal , state , and federal spending that may experience budget pressures , these programs could benefit from continued government spending on infrastructure and economic stimulus efforts related to civil construction projects . offsetting these increases in the infrastructure solutions segment was the reduction in the coatings and measurement division 's backlog , which fell by $ 27,643 from december 31 , 2019. this decline is primarily due to coatings and measurement 's exposure to the midstream energy market , and the associated weakness in demand for oil in 2020. new orders for coatings and measurement reached its lowest point in the fourth quarter of 2020 at $ 6,057. current project inquiries lead the company to believe that the first half of 2021 will improve modestly from this level . since the middle of 2019 , the upstream energy markets that the company served have deteriorated as prices of oil and natural gas declined due to weakening demand . this deterioration accelerated as a result of the global covid-19 pandemic and the associated reduction in demand due to reduced travel and movement of goods throughout the world . as u.s. exploration and production companies have reduced production and implemented spending cuts , demand for much of what the company did in its upstream oil and gas test and inspection business ( “ test and inspection services ” ) had sharply declined . consequently , the company did not see a path to earning acceptable returns for the test and inspections services business . as a result , on september 4 , 2020 , the company completed the sale of the issued and outstanding membership interests of its test and inspection services business . proceeds from the sale were $ 4,000 and resulted in a loss of $ 10,034 , net of tax . as a result of the sale of this business , the company recognized an aggregate of $ 18,978 in tax benefits , including tax benefits recognized in discontinued operations , for the year ended december 31 , 2020. in addition , the company anticipates receiving approximately $ 9,008 in tax refunds within the next year due to extended carryback provisions in the coronavirus aid , relief , and economic security act of 2020 , as amended ( “ cares act ” ) , and the acceleration of existing deferred tax assets related to the sale . the sale represents a strategic shift away from providing services to the upstream oil and gas market . the company believes that this divestiture also changes the risk profile of the company by : ( a ) eliminating dependence on the upstream energy market and the liability associated with serving upstream applications ; ( b ) reducing exposure to a volatile industry that can turn off demand quickly under poor conditions ; and ( c ) avoiding the price and production cyclicality of the global oil market . on a prospective basis , the company 's coatings and measurement business will continue to be focused on core competencies around corrosion protection and measurement systems in midstream pipeline applications , where the market has been much less volatile and tends to have longer term investments and associated backlog compared to upstream activities . the company has reflected the results of operations of the test and inspection services business as discontinued operations in the consolidated financial statements and recast the infrastructure solutions segment results for all periods presented . 22 in october 2020 , during the covid-19 pandemic , the company was the subject of a cyber-attack ( the “ cybersecurity event ” ) .
| these decreases were partially offset by an increase in bad debt expense of $ 441 when compared to the prior year . as a result of the suppressed sales levels in 2020 , selling and administrative expenses increased by 140 bps as a percentage of net sales as compared to the prior year . for the year ended december 31 , 2020 , the company recorded expense of $ 673 related to relocation and closure activities and income of $ 1,874 from an unconsolidated partnership distribution recorded in “ other ( income ) expense - net. ” interest expense , net of interest income , for the year ended december 31 , 2020 was reduced by $ 1,150 as a result of the $ 13,114 reduction in outstanding debt . the company 's effective income tax rate for 2020 was ( 84.7 ) % , compared to ( 98.7 ) % in the prior year period . the company 's income tax benefit from continuing operations for 2020 included a discrete income tax benefit of $ 15,840 , net of valuation allowance , related to the disposition of the test and inspection services business . during 2019 , the company reversed $ 29,648 of its valuation allowance previously recorded against u.s. deferred tax assets . the positive evidence considered in evaluating u.s. deferred tax assets included cumulative financial income over the three-year period ended december 31 , 2020 , as well as the composition and reversal patterns of existing taxable and deductible temporary differences between financial reporting and tax . based on our evaluation , the company believed it was appropriate to rely on forecasted future taxable income to support its u.s. deferred tax assets . the amount of deferred tax assets considered to be realizable , however , could be adjusted if negative evidence outweighs additional subjective evidence such as our projections for growth . net income from continuing operations for the year ended december 31 , 2020 was $ 25,823 , or $ 2.42 per diluted share , compared to net income from continuing operations for the 2019 period of $
| 15,000 |
critical accounting policies and estimates management 's discussion and analysis of financial condition and results of operations discusses 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 management to make estimates and assumptions that affect the reported amounts 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 . on an on-going basis , we evaluate our estimates and judgments , including those related to revenue recognition , allowance for doubtful accounts , inventory , warranty costs , stock-based compensation expense , intangible assets , goodwill and other long-lived assets , in-process research and development and income taxes . we base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies affect the most significant judgments , assumptions and estimates we use in preparing our consolidated financial statements : revenue recognition and allowance for doubtful accounts . revenue from product sales is recorded upon transfer of title and risk of loss to the customer provided that there is evidence of an arrangement , the sales price is fixed or determinable , and collection of the related receivable is reasonably assured . in most transactions , we have no obligations to our customers after the date products are shipped other than pursuant to warranty obligations . we do not frequently enter into arrangements with multiple deliverables ; however , for those revenue arrangements with multiple deliverables , we allocate revenue to each element based upon its relative selling price using vendor-specific objective evidence ( vsoe ) , or third-party evidence ( tpe ) or based upon the relative selling price using estimated prices if vsoe or tpe does not exist . we then recognize revenue on each deliverable in accordance with our policies for product and service revenue recognition . we defer the fair value 25 of any undelivered elements until the undelivered element is delivered . fair value is the price charged when the element is sold separately . shipping and handling fees billed to customers , if any , are recognized as revenue . the related shipping and handling costs are recognized in cost of sales . we monitor and track the amount of product returns , provide for sales return allowances and reduce revenue at the time of shipment for the estimated amount of such future returns , based on historical experience . while product returns have historically been within our expectations and the provisions established , there is no assurance that we will continue to experience the same return rates that we have in the past . any significant increase in product return rates could have a material adverse impact on our operating results for the period or periods in which such returns materialize . while we maintain a credit approval process , significant judgments are made by management in connection with assessing our customers ' ability to pay at the time of shipment . despite this assessment , from time to time , our customers are unable to meet their payment obligations . we continuously monitor our customers ' credit worthiness , and use our judgment in establishing a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified . while such credit losses have historically been within our expectations and the provisions established , there is no assurance that we will continue to experience the same credit loss rates that we have in the past . a significant change in the liquidity or financial position of our customers could have a material adverse impact on the collectability of accounts receivable and our future operating results . inventory . we value our inventory at the lower of cost ( first-in , first-out method ) or market . we regularly review inventory quantities on hand and record a provision to write-down excess and obsolete inventory to its estimated net realizable value , if less than cost , based primarily on our estimated forecast of product demand . once our inventory value is written-down and a new cost basis has been established , the inventory value is not increased due to demand increases . demand for our products can fluctuate significantly . a significant increase in the demand for our products could result in a short-term increase in the cost of inventory purchases as a result of supply shortages or a decrease in the cost of inventory purchases as a result of volume discounts , while a significant decrease in demand could result in an increase in the charges for excess inventory quantities on hand . in addition , our industry is subject to technological change , new product development and product technological obsolescence that could result in an increase in the amount of obsolete inventory quantities on hand . therefore , any significant unanticipated changes in demand or technological developments could have a significant impact on the value of our inventory and our reported operating results . for 2014 , 2013 and 2012 , our total charges for excess and obsolete inventory totaled $ 12.1 million , $ 21.7 million and $ 15.0 million , respectively . included in our total charges for excess and obsolete inventory in 2013 is $ 6.4 million of special charges for obsolete inventory related to a unique product in a solar application as a result of slowing market conditions , which provided uncertainty as to the net realizable value of this inventory . warranty costs . story_separator_special_tag we provide for the estimated costs to fulfill customer warranty obligations upon the recognition of the related revenue . we provide warranty coverage for our products ranging from 12 to 36 months , with the majority of our products ranging from 12 to 24 months . we estimate the anticipated costs of repairing our products under such warranties based on the historical costs of the repairs and any known specific product issues . the assumptions we use to estimate warranty accruals are re-evaluated periodically in light of actual experience and , when appropriate , the accruals are adjusted . our determination of the appropriate level of warranty accrual is based upon estimates . should product failure rates differ from our estimates , actual costs could vary significantly from our expectations . stock-based compensation expense . we record compensation expense for all share-based payment awards to employees and directors based upon the estimated fair market value of the underlying instrument . accordingly , share-based compensation cost is measured at the grant date , based upon the fair value of the award . we typically issue restricted stock units ( rsus ) as stock-based compensation . we also provide employees the opportunity to purchase shares through an employee stock purchase plan ( espp ) . for rsus , the fair value 26 is the stock price on the date of grant . for shares issued under our espp , we have estimated the fair value on the date of grant using the black scholes pricing model , which is affected by our stock price as well as assumptions regarding a number of complex and subjective variables . these variables include our expected stock price volatility over the term of the awards , expected life , risk free interest rate and expected dividends . management determined that blended volatility , a combination of historical and implied volatility , is more reflective of market conditions and a better indicator of expected volatility than historical or implied volatility alone . we are also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates . certain rsus involve stock to be issued upon the achievement of performance conditions ( performance shares ) under our stock incentive plans . such performance shares become available subject to time-based vesting conditions if , and to the extent that , financial or operational performance criteria for the applicable period are achieved . accordingly , the number of performance shares earned will vary based on the level of achievement of financial or operational performance objectives for the applicable period . until such time that our performance can ultimately be determined , each quarter we estimate the number of performance shares more likely than not to be earned based on an evaluation of the probability of achieving the performance objectives . such estimates are revised , if necessary , in subsequent periods when the underlying factors change our evaluation of the probability of achieving the performance objectives . accordingly , share-based compensation expense associated with performance shares may differ significantly from the amount recorded in the current period . the assumptions used in calculating the fair value of share-based payment awards represents management 's best estimates , but these estimates involve inherent uncertainties and the application of management 's judgment . as a result , if factors change and we use different assumptions , our stock-based compensation expense could be materially different in the future . intangible assets , goodwill and other long-lived assets . as a result of our acquisitions , we have identified intangible assets and generated significant goodwill . definite-lived intangible assets are valued based on estimates of future cash flows and amortized over their estimated useful life . goodwill and indefinite-lived intangible assets are subject to annual impairment testing as well as testing upon the occurrence of any event that indicates a potential impairment . intangible assets and other long-lived assets are also subject to an impairment test if there is an indicator of impairment . the carrying value and ultimate realization of these assets is dependent upon estimates of future earnings and benefits that we expect to generate from their use . if our expectations of future results and cash flows are significantly diminished , intangible assets and goodwill may be impaired and the resulting charge to operations may be material . when we determine that the carrying value of intangibles or other long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment , we use the projected undiscounted cash flow method to determine whether an impairment exists , and then measure the impairment using discounted cash flows . to measure impairment for goodwill , we compare the fair value of our reporting units by measuring discounted cash flows to the book value of the reporting units . goodwill would be impaired if the resulting implied fair value was less than the recorded book value of the goodwill . the estimation of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside of our control . changes in these estimates can result in significant revisions to the carrying value of these assets and may result in material charges to the results of operations . we have elected to perform our annual goodwill impairment test as of october 31 of each year , or more often if events or circumstances indicate that there may be impairment . goodwill is the amount by which the cost of acquired net assets exceeded the fair value of those net assets on the date of acquisition . we allocate goodwill to reporting units at the time of acquisition or when there is a change in the reporting structure and base that allocation on which reporting units will benefit from the acquired assets and liabilities . reporting units are defined as operating segments or one level below an operating segment , referred to as a component .
| the industrial market decrease relates to specific projects . service revenues consisted mainly of fees for services related to the repair of our products , software license and maintenance , installation services and training . service revenues increased $ 6 million during 2014 compared to 2013. this increase was primarily attributed to increases in the semiconductor markets . service revenues decreased $ 5.6 million during 2013 compared to 2012. the decrease was primarily attributed to the timing and fulfillment of service orders as we transitioned and merged one of our service locations into an existing service site . total international net revenues , including product and service , were $ 332.4 million for 2014 or 42.6 % of net revenues , compared to $ 305.5 million for 2013 , or 45.6 % of net revenues , and $ 316.6 million , or 49.2 % of net revenues for 2012. the majority of our foreign revenues are to customers in korea and japan . the following table sets forth our net revenues by reportable segment : net revenues replace_table_token_6_th 30 net revenues for the advanced manufacturing capital equipment segment increased by 21.6 % in 2014 compared to 2013 and 9.6 % in 2013 compared to 2012. these increases were mainly due to volume increases of 27.4 % and 23.8 % , respectively , in revenues from our top two customers , which represented approximately 32 % and 29 % of our total revenues in 2014 and 2013 , respectively . net revenues for the analytical solutions group segment increased by 8.6 % in 2014 compared to 2013 and decreased 10.3 % in 2013 compared to 2012. net revenues increased for our europe region sales & service segment by 13.6 % in 2014 compared to the prior year and decreased 5.7 % in 2013 compared to 2012. for these segments , we sell to customers making up many different markets including general industrial solar , film , medical , analysis metrology and other
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based on the guidance received from the fda and introduction of a senior manufacturing leader to the louisville site , in calendar year 2016 we have been methodically engineering , testing and certifying the processes to be used in clinical manufacturing , to include the sterility assurance of the process and product as mandated by the fda . in the 3 rd quarter of calendar year 2016 we have successfully demonstrated our process by manufacturing sample batches of ab101 material at clinical scale . this has been a significant and complex scientific and engineering undertaking , as prior to this calendar year we had only manufactured ab101 in small non-sterile batches in our laboratories for use in animal studies and for analytical purposes . furthermore , as part of our testing process we have needed to make adjustments to certain equipment , including further customization in specific instances . this combined endeavor , coupled with delays that we have experienced in receiving specialized parts and equipment from third party suppliers , has contributed to extending the timeline that we established in calendar year 2015 to commence clinical studies . we have made significant progress in demonstrating that we can manufacture ab101 at clinical scale , but we still must demonstrate that our manufacturing process can be conducted in a sterile fashion prior to making ab101 material for the clinical study , a fundamental and mandated exercise to ensure patient safety in the clinic . qualifying the sterility of a manufacturing process and environment is generally complex and particularly so when manufacturing microsphere products as ab101 can not be sterile filtered as is common with most injectable products . based on our current timeline , which includes a capital raise to be completed prior to the end of calendar year 2016 , we are planning to have our facility fully qualified to enable the manufacture of clinical material by the end of the first quarter of calendar year 2017. following the financing and manufacturing campaign , we will plan to file an ind with the fda and commence the clinical study in the first half of calendar year 2017. naked short selling our stock price has been under downward pressure for over a year . following some investigation and with the assistance of outside advisors , we believe we are the target of naked short selling . naked short selling is when traders sell short shares they do not possess and have not confirmed their ability to possess . this means they are betting the price of the shares will go down and they do not intend to consummate the transaction , but instead intend to settle the transaction in cash . naked short selling , a practice that is prohibited by the sec 's regulation sho , damages the value of companies by artificially pushing a company 's stock price down . in fact , the lower the price , the better . upon tracking our trading activity , we have determined that approximately 44 % of our daily trading volume is short selling and we believe that short sellers have been lax in complying with regulation sho . we will continue working with outside advisors to address this problem . 24 significant accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to the useful lives of depreciable assets , the fair value of share-based payments and warrants , fair value of derivative instruments , income tax valuation allowances and the probability and potential magnitude of contingent liabilities . management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstance , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the methods , estimates , and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . patents costs of establishing patents consisting of legal fees paid to third parties and related costs are currently expensed as incurred . we will continue this practice unless we can demonstrate that such costs add economic value to our business , in which case we will capitalize such costs as part of intangible assets . the primary consideration in making this determination is whether or not we can demonstrate that such costs have , in fact , increased the economic value of our intellectual property . the $ 68,000 value of the patents acquired in connection with the asset acquisition from prp is being amortized over the remaining patent lives of approximately eight years . research and development research and development costs are expensed as incurred . these costs consist primarily of expenses for personnel engaged in the design and development of product candidates , the scientific research necessary to produce commercially viable applications of our proprietary drugs , early stage clinical testing of product candidates , and development equipment and supplies , facilities costs and other related overhead . stock-based compensation we account for stock-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant . we determine the estimated grant date fair value of options using the black-scholes option pricing model and recognize compensation costs ratably over the vesting period using the straight-line method . common stock issued in exchange for services story_separator_special_tag based on the guidance received from the fda and introduction of a senior manufacturing leader to the louisville site , in calendar year 2016 we have been methodically engineering , testing and certifying the processes to be used in clinical manufacturing , to include the sterility assurance of the process and product as mandated by the fda . in the 3 rd quarter of calendar year 2016 we have successfully demonstrated our process by manufacturing sample batches of ab101 material at clinical scale . this has been a significant and complex scientific and engineering undertaking , as prior to this calendar year we had only manufactured ab101 in small non-sterile batches in our laboratories for use in animal studies and for analytical purposes . furthermore , as part of our testing process we have needed to make adjustments to certain equipment , including further customization in specific instances . this combined endeavor , coupled with delays that we have experienced in receiving specialized parts and equipment from third party suppliers , has contributed to extending the timeline that we established in calendar year 2015 to commence clinical studies . we have made significant progress in demonstrating that we can manufacture ab101 at clinical scale , but we still must demonstrate that our manufacturing process can be conducted in a sterile fashion prior to making ab101 material for the clinical study , a fundamental and mandated exercise to ensure patient safety in the clinic . qualifying the sterility of a manufacturing process and environment is generally complex and particularly so when manufacturing microsphere products as ab101 can not be sterile filtered as is common with most injectable products . based on our current timeline , which includes a capital raise to be completed prior to the end of calendar year 2016 , we are planning to have our facility fully qualified to enable the manufacture of clinical material by the end of the first quarter of calendar year 2017. following the financing and manufacturing campaign , we will plan to file an ind with the fda and commence the clinical study in the first half of calendar year 2017. naked short selling our stock price has been under downward pressure for over a year . following some investigation and with the assistance of outside advisors , we believe we are the target of naked short selling . naked short selling is when traders sell short shares they do not possess and have not confirmed their ability to possess . this means they are betting the price of the shares will go down and they do not intend to consummate the transaction , but instead intend to settle the transaction in cash . naked short selling , a practice that is prohibited by the sec 's regulation sho , damages the value of companies by artificially pushing a company 's stock price down . in fact , the lower the price , the better . upon tracking our trading activity , we have determined that approximately 44 % of our daily trading volume is short selling and we believe that short sellers have been lax in complying with regulation sho . we will continue working with outside advisors to address this problem . 24 significant accounting policies and estimates our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period . on an on-going basis , management evaluates its estimates and judgments , including those related to the useful lives of depreciable assets , the fair value of share-based payments and warrants , fair value of derivative instruments , income tax valuation allowances and the probability and potential magnitude of contingent liabilities . management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstance , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . the methods , estimates , and judgments used by us in applying these most critical accounting policies have a significant impact on the results we report in our consolidated financial statements . patents costs of establishing patents consisting of legal fees paid to third parties and related costs are currently expensed as incurred . we will continue this practice unless we can demonstrate that such costs add economic value to our business , in which case we will capitalize such costs as part of intangible assets . the primary consideration in making this determination is whether or not we can demonstrate that such costs have , in fact , increased the economic value of our intellectual property . the $ 68,000 value of the patents acquired in connection with the asset acquisition from prp is being amortized over the remaining patent lives of approximately eight years . research and development research and development costs are expensed as incurred . these costs consist primarily of expenses for personnel engaged in the design and development of product candidates , the scientific research necessary to produce commercially viable applications of our proprietary drugs , early stage clinical testing of product candidates , and development equipment and supplies , facilities costs and other related overhead . stock-based compensation we account for stock-based payments by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant . we determine the estimated grant date fair value of options using the black-scholes option pricing model and recognize compensation costs ratably over the vesting period using the straight-line method . common stock issued in exchange for services
| we expect to generate operating losses for the foreseeable future , therefore we are continuing to evaluate raising additional capital in the near future to maintain the current operating plan . we can not assure you that we will secure such financing or that it will be adequate to execute our business strategy . even if we obtain this financing , it may be costly and may require us to agree to covenants or other provisions that will favor new investors over our existing stockholders . 26 net cash used in operating activities during the year ended june 30 , 2016 , our operating activities used approximately $ 10.5 million in cash . the use of cash was $ 4.6 million lower than the net loss due to non-cash charges for stock-based compensation , derivative expenses , amortization and depreciation as well as other non-cash activities . net cash used in operating activities also included a $ 42,083 increase in other assets and cash provided by a $ 26,370 increase in accounts payable and accrued expenses and a $ 105,484 decrease in the deferred lease liability . during the year ended june 30 , 2015 , our operating activities used approximately $ 7.1 million in cash . the use of cash was $ 3.9 million lower than the net loss due to non-cash charges for stock-based compensation , derivative expenses , amortization and depreciation as well as other non-cash activities . net cash provided by operating activities also included a $ 172,514 decrease in other assets and a $ 436,688 increase in accounts payable and accrued expense and cash used in operating activities of a $ 264,716 decrease in accounts payable and accrued expenses – related party . net cash used in investing activities net cash used in investing activities during the year ended june 30 , 2016 was $ 1,454,123. during the year , the company purchased $ 2,091,790 of fixed assets for the facility , received $ 187,500 as a return of
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8,007,826 , with claims relating to methods to improve walking in patients with ms by administering 10 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily . based 78 on the final patent term adjustment calculation of the united states patent and trademark office , or uspto , this patent will extend into 2027 . · the second is u.s. patent no . 5,540,938 ( “ the ‘ 938 patent ” ) , the claims of which relate to methods for treating a neurological disease , such as ms , and cover the use of a sustained release dalfampridine formulation , such as ampyra ( dalfampridine ) extended release tablets , 10 mg for improving walking in people with ms. in april 2013 , the ‘ 938 patent received a five year patent term extension under the patent restoration provisions of the hatch waxman act . with a five year patent term extension , the ‘ 938 patent will expire in 2018. we have an exclusive license to this patent from alkermes ( originally with elan , but transferred to alkermes as part of its acquisition of elan 's drug technologies business ) . · the third , which issued in january 2013 , is u.s. patent no . 8,354,437 , which includes claims relating to methods to improve walking , increase walking speed , and treat walking disability in patients with ms by administering 10 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily . this patent is set to expire in 2026 . · the fourth , which issued in may 2013 , is u.s. patent no . 8,440,703 , which includes claims directed to methods of improving lower extremity function and walking and increasing walking speed in patients with ms by administering less than 15 mg of sustained release 4-aminopyridine ( dalfampridine ) twice daily . this patent is set to expire in 2025. in january 2014 , a patent application was allowed that , assuming it issues , should also be eligible for listing in the orange book . in 2011 , the european patent office , or epo , granted ep 1732548 , the counterpart european patent to u.s. patent no . 8,354,437 with claims relating to , among other things , use of a sustained release aminopyridine composition , such as dalfampridine , to increase walking speed . in march 2012 , synthon b.v. and neuraxpharm arzneimittel gmbh filed oppositions with the epo challenging the ep 1732548 patent . we defended the patent , and in december 2013 , we announced that the epo opposition division upheld amended claims in this patent covering a sustained release formulation of dalfampridine for increasing walking in patients with ms through twice daily dosing at 10 mg. the decision of the opposition division is open to appeal . in december 2013 , synthon b.v. , neuraxpharm arzneimittel gmbh and actavis group ptc ehf filed oppositions with the epo challenging our ep 2377536 patent , which is a divisional of the ep 1732548 patent . both european patents are set to expire in 2025 , absent any additional exclusivity granted based on regulatory review timelines . zanaflex zanaflex capsules and zanaflex tablets are fda-approved as short-acting drugs for the management of spasticity , a symptom of many central nervous system , or cns , disorders , including ms and sci . these products contain tizanidine hydrochloride , one of the two leading drugs used to treat spasticity . we launched zanaflex capsules in april 2005 as part of our strategy to build a commercial platform for the potential market launch of ampyra . combined net revenue of zanaflex capsules and zanaflex tablets was $ 4.1 million for the year ended december 31 , 2013 and $ 13.2 million for the year ended december 31 , 2012. in 2012 , apotex commercially launched a generic version of tizanidine hydrochloride capsules , and we also launched our own authorized generic version , which is being marketed by watson pharma ( a subsidiary of actavis ) . in march 2013 , mylan pharmaceuticals commercially launched their own generic version of zanaflex capsules . the commercial launch of generic tizanidine hydrochloride capsules has caused a significant decline in net revenue from the sale of zanaflex capsules , and the launch of these generic versions and the potential launch of other generic versions is expected to cause the company 's net revenue from zanaflex capsules to decline further in 2014 and beyond . qutenza and np-1998 ; neurogesx transaction in july 2013 , we acquired two neuropathic pain management assets from neurogesx , inc. , including : qutenza , which is approved by the fda for the management of neuropathic pain associated with post-herpetic 79 neuralgia , also known as post-shingles pain ; and np-1998 , a phase 3 ready , prescription strength capsaicin topical solution , being assessed for the treatment of neuropathic pain . np-1998 was previously referred to as ngx-1998 . we made a $ 7.5 million payment to acquire development and commercialization rights for qutenza and np-1998 in the united states , canada , latin america and certain other territories . we may also make up to $ 5.0 million in payments contingent upon the achievement of certain regulatory and sales milestones related to np-1998 . astellas pharma europe ltd. has exclusive commercialization rights for qutenza in the european economic area ( eea ) including the 28 countries of the european union , iceland , norway , and liechtenstein as well as switzerland , certain countries in eastern europe , the middle east and africa . astellas also has an option to develop np-1998 in those same territories . qutenza is a dermal patch containing 8 % prescription strength capsaicin that can last up to three months and is approved for the management of neuropathic pain associated with post-herpetic neuralgia . story_separator_special_tag the drug was approved by the fda in 2010 and launched in april 2010 but neurogesx discontinued active promotion of the product in march 2012. net product revenue of qutenza to acorda was $ 407,000 for the year ended december 31 , 2013. in january 2014 , we re-launched qutenza using our existing commercial organization , including our specialty neurology sales force . np-1998 is a topical solution containing 20 % prescription strength capsaicin . we believe this liquid formulation of the capsaicin-based therapy has key advantages over the patch , and we are currently designing a plan to expedite development of this product as both a stand-alone therapy and as an adjunct to existing systemic therapies for neuropathic pain . np-1998 has the potential to treat multiple neuropathies , and we are evaluating which specific condition or conditions we will focus on in our development plan . in 2014 , we are expecting to receive data from a clinical trial being conducted by astellas to assess the use of its capsaicin ( 8 % ) cutaneous patch qutenza in the treatment of pain associated with painful diabetic neuropathy , or pdn . while the patch and np-1998 are different products , they contain the same active ingredient , capsaicin , so the results of this astellas trial will help inform our development plan for np-1998 . also , in february 2014 , astellas presented data from its elevate study at the 14 th asian australasian congress of anesthesiologists , which compared its capsaicin ( 8 % ) cutaneous patch qutenza to an oral therapy widely used to treat various neuropathic pain conditions . this open label study compared efficacy , tolerability , and safety , and the data may be useful in connection with our development of a plan for np-1998 . research & development programs we are developing what we believe is one of the industry 's leading pipelines of novel neurological therapies . we are developing plumiaz ( our trade name for diazepam nasal spray ) , a proprietary nasal spray formulation of diazepam , for the treatment of people with epilepsy who experience cluster seizures , also known as acute repetitive seizures . we are also studying a once-daily formulation of dalfampridine extended release tablets to improve walking in people who suffer from post-stroke deficits . in addition , we have several research and development programs focused on distinct therapeutic approaches to restoring neurologic and or cardiac function , as follows . we are developing the clinical stage compounds ggf2 for the treatment of heart failure , rhigm22 , a remyelinating monoclonal antibody , for the treatment of ms , and ac105 for acute treatment of sci . ggf2 is also being investigated in preclinical studies as a treatment for neurological conditions such as stroke and peripheral nerve injury . chondroitinase , an enzyme that encourages nerve plasticity in the damaged central nervous system , as in sci , is in preclinical development . we believe these programs for restoring neurologic and or cardiac function have the potential to be first-in-class therapies , and may be applicable across a number of cns disorders , including stroke and traumatic brain injury , or tbi , because many of the mechanisms of tissue damage and repair are similar . our research and development programs also include our recently acquired np-1998 program , described above . plumiaz in december 2012 , we completed the acquisition of neuronex , inc. , a privately-held pharmaceutical company developing plumiaz ( our trade name for diazepam nasal spray ) . plumiaz is a proprietary nasal spray 80 formulation of diazepam as an acute treatment for selected , refractory patients with epilepsy , on stable regimens of antiepileptic drugs , or aeds , who experience intermittent bouts of increased seizure activity , also known as cluster seizures or acute repetitive seizures , or ars . in november 2013 , we announced that we submitted a new drug application , or nda , filing for plumiaz to the fda . the filing is being reviewed according to the standard 10-month review timeframe under the criteria established by the prescription drug user fee act ( pdufa-4 ) . plumiaz was filed under section 505 ( b ) ( 2 ) of the food drug and cosmetic act , referencing data from a therapy previously approved by the fda ( diastat® rectal gel ) and providing pharmacokinetic data comparing the reference product to plumiaz . the company is seeking an indication for plumiaz in people with epilepsy who experience cluster seizures , also known as acute repetitive seizures . we are preparing for a potential launch in 2014 , subject to obtaining fda approval . we have obtained orphan drug designation , which would confer seven years of market exclusivity from the date of approval for diazepam containing drug products for the same indication . we licensed two patent families relating to the clinical formulation for diazepam nasal spray , including a granted u.s. patent that is set to expire in 2029. we anticipate that our current infrastructure can support sales and marketing of this product if it receives fda approval . we believe this product has the potential to generate peak annual sales significantly higher than $ 100 million . in june 2013 at the biennial international congress of the international league against epilepsy and international bureau for epilepsy , we announced results of the first clinical study to assess pharmacokinetics , safety , and tolerability of diazepam nasal spray in people with epilepsy . the study results showed that the diazepam nasal spray pharmacokinetics are comparable whether it is administered during or immediately following a seizure . ampyra/dalfampridine development programs we believe there may be potential for ampyra to be applied to other indications within ms and also in other neurological conditions . for example , we have conducted a phase 2 proof-of-concept trial of dalfampridine extended release tablets in post-stroke deficits .
| discounts and allowances also consist of discounts provided to medicare beneficiaries whose prescription drug costs cause them to be subject to the medicare part d coverage gap ( i.e. , the “ donut hole ” ) . payment of coverage gap discounts is required under the affordable care act , the health care reform legislation enacted in 2010. discounts and allowances may increase as a percentage of sales as we enter into managed care contracts in the 84 future . zanaflex we recognize product sales of zanaflex capsules and zanaflex tablets using a deferred revenue recognition model where shipments to wholesalers are recorded as deferred revenue and only recognized as revenue when end-user prescriptions of the product are reported . we also recognize product sales on the transfer price of product sold for an authorized generic of zanaflex capsules . we recognized net revenue from the sale of zanaflex capsules and zanaflex tablets of $ 4.1 million for the year ended december 31 , 2013 , as compared to $ 13.2 million for the year ended december 31 , 2012. net product revenues also include $ 3.2 million , which represents the sale of our zanaflex capsules authorized generic product to actavis for the year ended december 31 , 2013 as compared to $ 3.1 million for the year ended december 31 , 2012. generic competition has caused a significant decline in net revenue of zanaflex capsules and is expected to cause the company 's net revenue from zanaflex capsules to decline further in 2014 and beyond . the decrease in net revenues was also the result of a disproportionate decrease in discounts and allowances due to the mix of customers continuing to purchase our product . these customers receive higher levels of rebates and allowances . discounts and allowances , which are included as an offset in net revenue , consist of allowances for customer credits , including estimated chargebacks , rebates , and discounts . adjustments are recorded for estimated chargebacks ,
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should the government choose to acquire xoma 3ab or other biodefense products in the future , we expect to be able to produce these antibodies through an outside manufacturer . we also have developed antibody product candidates with premier pharmaceutical companies including novartis ag ( “ novartis ” ) and takeda pharmaceutical company limited ( “ takeda ” ) . two antibodies developed with novartis , lfa102 and hcd122 ( lucatumumab ) , are in clinical development by novartis . significant developments in 2013 gevokizumab · in january 2013 , we announced preliminary top-line data from an interim analysis of our phase 2 proof-of-concept study to evaluate the safety and efficacy of gevokizumab for the treatment of moderate-to-severe inflammatory acne . preliminary data from the 125-patient trial demonstrated clear activity according to the investigator 's global assessment ( “ iga ” ) parameter . gevokizumab was well-tolerated in this trial , with no significant differences in adverse events between gevokizumab and placebo and no serious drug-related adverse events were reported . based upon market analysis , we have decided not to pursue a pivotal program in moderate-to-severe inflammatory acne ; however , we will consider conducting pilot studies in rare acne indications classified under the umbrella diagnosis of neutrophilic dermatoses . · in april 2013 , the nei opened a non-infectious , active , anterior scleritis trial for patient enrollment . the open-label single-arm phase 1/2 study is designed to assess the safety and potential efficacy of gevokizumab in patients experiencing non-infectious , active , anterior scleritis , which is the inflammation of the sclera . · in may 2013 , we announced we had initiated a second clinical study in inflammatory osteoarthritis of the hand based upon our findings that patients who met all of the eligibility criteria for our original study were not able to participate due to the requirement c-reactive protein ( crp ) levels must be greater than or equal to 2.5 mg/l . this second study has the same design and eligibility requirements with the exception that participants with a crp level of less than 2.5 mg/l may enroll . the study is capturing the same pain and functional endpoints as the primary study , yet the design does not include radiographic/mri images of the affected joints . · in june 2013 , we opened enrollment in an open-label pilot study to determine gevokizumab 's potential to treat acute inflammatory pg . in october 2013 , we announced compelling data from our pilot study in patients with pg , and we have requested a meeting with the fda to solicit feedback regarding pg as a potential indication for gevokizumab in phase 3 trials . · in june 2013 , servier launched its own independent proof-of-concept clinical program to evaluate the safety and efficacy of gevokizumab in indications different from ours . the first such studies are in polymyositis/dermatomyositis , schnitzler syndrome , and giant cell arteritis . · in july 2013 , we announced the completion of patient enrollment in our phase 2 proof-of-concept study in eoa . · in august 2013 , we announced that a gevokizumab clinical study in patients with aied will be conducted by the north shore-long island jewish health system in collaboration with the national institute on deafness and other communication disorders . · in october 2013 , we announced three-month results from our gevokizumab phase 2 clinical study in patients with eoa who also have crp levels greater than or equal to 2.5 mg/l . the three-month results demonstrated that gevokizumab has a clinical effect on the target patient population . on march 4 , 2014 , we reported that despite early positive results in the first study , the top-line data at day 168 in that study , as well as data at day 84 in the second study , were not positive . these results led to our decision not to pursue phase 3 testing in the broad eoa population . we will continue to review the data to determine if there is a subgroup of the eoa population that could benefit from gevokizumab therapy . 41 perindopril franchise · in july 2013 , we transferred u.s. development and commercialization rights to the perindopril franchise to symplmed pharmaceuticals , llc ( “ symplmed ” ) . under the terms of the arrangement , we received a minority equity position in symplmed and up to double-digit royalties on sales of the first fixed-dose combination containing perindopril arginine and amlodipine besylate , if it is approved by the fda . we recorded the minority equity position in the other assets line of our consolidated balance sheets . symplmed , under a sublicense agreement , assumes u.s. marketing responsibilities for aceon ( perindopril erbumine ) , and we continue to manage and be reimbursed for sales and distribution within our established commercial infrastructure until the aceon new drug application ( “ nda ” ) is transferred to symplmed . the aceon nda was to be transferred on march 1 , 2014 , but symplmed has requested an extension . terms of an extension agreement , if any , are being negotiated . we will continue to record gross aceon sales in the contracts and other revenue line of our consolidated statements of comprehensive loss until the aceon nda is transferred . following the aceon nda transfer , symplmed will pay us single-digit royalties on sales of aceon . management addition · on march 18 , 2013 , the company announced tom klein has joined the company as vice president , chief commercial officer , a newly created position reporting to john varian , chief executive officer . financing · in august 2013 , we completed an underwritten public offering of 8,736,187 shares of our common stock for gross proceeds of $ 31.6 million , before deducting underwriting discounts and commissions and estimated offering expenses totaling approximately $ 2.2 million . story_separator_special_tag · in december 2013 , we completed an underwritten public offering of 10,925,000 shares of our common stock for gross proceeds of $ 57.4 million , before deducting underwriting discounts and commissions and estimated offering expenses totaling approximately $ 3.8 million . other · in december 2013 , we received a milestone payment of $ 7.0 million from novartis under the 2008 amended and restated research , development and commercialization agreement between novartis and xoma ( us ) llc , in connection with the clinical advancement of an undisclosed product in an undisclosed indication . pursuant to our obligations under the agreement , in january 2014 , we made a payment , equal to 25 percent of the milestone received , or $ 1.75 million , toward our outstanding debt obligation to novartis . critical accounting estimates the accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures , 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 , assumptions and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes . 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 . the consolidated financial statements include the accounts of xoma and its wholly-owned subsidiaries . all significant intercompany accounts and transactions have been eliminated . we believe the following policies to be the most critical to an understanding of our financial condition and results of operations because they require us to make estimates , assumptions and judgments about matters that are inherently uncertain . 42 revenue recognition license and collaborative fees revenue from non-refundable license , technology access or other payments under license and collaborative agreements where we have a continuing obligation to perform is recognized as revenue over the expected period of the continuing performance obligation . we estimate the performance period at the inception of the arrangement and re-evaluate it each reporting period . this re-evaluation may shorten or lengthen the period over which the remaining revenue is recognized . changes to these estimates are recorded on a prospective basis . milestone payments under collaborative and other arrangements are recognized as revenue upon completion of the milestone event , once confirmation is received from the third party and collectability is reasonably assured . this represents the culmination of the earnings process because we have no future performance obligations related to the payment . milestone payments that require a continuing performance obligation on our part are recognized over the expected period of the continuing performance obligation . amounts received in advance are recorded as deferred revenue until the related milestone is completed . contract revenue contract revenue for research and development involves our providing research and development and manufacturing services to collaborative partners , biodefense contractors or others . revenue for certain contracts is accounted for by a proportional performance , or output-based , method where performance is based on estimated progress toward elements defined in the contract . the amount of contract revenue and related costs recognized in each accounting period are based on estimates of the proportional performance during the period . adjustments to estimates based on actual performance are recognized on a prospective basis and do not result in reversal of revenue should the estimate to complete be extended . in addition , revenue related to certain research and development contracts is billed based on actual hours incurred by xoma related to the contract , multiplied by full-time equivalent ( “ fte ” ) rates plus a mark-up . the fte rates are developed based on our best estimates of labor , materials and overhead costs . for certain contracts , such as our government contracts , the fte rates are agreed upon at the beginning of the contract and are subject to review or audit by the contracting party at any time . under our contracts with niaid , a part of the nih , we bill using nih provisional rates and thus are subject to future audits at the discretion of niaid 's contracting office . these audits can result in adjustments to previously reported revenue . in 2011 , the nih conducted an audit of our actual data under two contracts for the period from january 1 , 2007 , through december 31 , 2009 , and developed final billing rates for this period . as a result , we retroactively applied these nih rates to the invoices from this period which resulted in an increase in revenue of $ 3.1 million from the nih , excluding $ 0.9 million billed to the nih in 2010 resulting from our performance of a comparison of 2009 calculated costs incurred and costs billed to the government under provisional rates . final rates were settled for one contract resulting in the recognition of revenue of $ 2.0 million in 2012. the remaining contract will be settled through negotiations with the nih . this revenue has been deferred and will be recognized upon completion of negotiations with and approval by the nih . upfront fees are recognized ratably over the expected benefit period under the arrangement . given the uncertainties of research and development collaborations , significant judgment is required to determine the duration of the arrangement . stock-based compensation the valuation of stock-based compensation awards is determined at the date of grant using the black-scholes option pricing model ( the “ black-scholes model ” ) . this model requires inputs such as the expected term of the option , expected volatility , and risk-free interest rate . further , the forfeiture rate also impacts the amount of aggregate compensation .
| contract and other revenues also include net product sales and royalties . the following table shows the activity in contract and other revenue for the years ended december 31 , 2013 , 2012 , and 2011 ( in thousands ) : 44 replace_table_token_4_th the 2013 decrease in contract and other revenue , as compared to 2012 , was primarily due to the 2012 recognition of $ 2.0 million in revenue related to an adjustment to previously reported revenue from niaid resulting from an audit by niaid 's contracting office . also contributing to the decrease were decreases of $ 1.4 million in cmc activity and $ 0.6 million in gevokizumab clinical development activity under our collaboration with servier , partially offset by a $ 0.9 million increase in partial funding received from servier for the fdc1 phase 3 trial . the 2012 decrease in contract and other revenue , as compared to 2011 , was primarily due to decreased activity under niaid contract no . hhsn272200800028c ( “ niaid 3 ” ) . this decrease of $ 12.0 million in niaid 3 revenue was partially offset by the recognition of $ 2.0 million in revenue related to an adjustment to previously reported revenue from niaid resulting from an audit by niaid 's contracting office . this revenue , which was previously deferred , was recognized upon the completion of negotiations with and approval by the nih in march 2012. also partially offsetting the decreases in niaid revenue was a $ 2.4 million increase in activity under contract no . hhsn272201100031c ( “ niaid 4 ” ) . the niaid 4 contract was executed in october 2011. in addition , a reduction in cmc activity under the collaboration with servier contributed to the decrease in contract and other revenue in 2012 , as compared to 2011 , partially offset by an increase in gevokizumab clinical development activity under the collaboration with servier and the recognition of partial funding received from servier for the fdc1 phase 3 trial . we
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the table below shows average crude oil and natural gas prices for west texas intermediate crude oil ( wti ) , united kingdom brent crude oil ( brent ) , and henry hub natural gas : replace_table_token_7_th average wti and brent oil prices were 17 % and 24 % higher , respectively , for the year ended december 31 , 2017 compared to 2016. the wti oil price was $ 60.46 and $ 53.75 per barrel as of the year ended december 31 , 2017 and 2016 , respectively . average natural gas prices were 19 % higher in 2017 than 2016. the table below shows the average number of active drilling rigs operating by geographic area and drilling for different purposes based on the weekly rig count information published by baker hughes , a ge company . replace_table_token_8_th 36 as a result of higher oil and natural gas prices , the average u.s. and canadian rig counts in 2017 increased 72 % and 58 % , respectively , as compared to 2016 , while the international rig count remained flat in 2017 compared to 2016. the u.s. rig count reached a trough of 404 rigs in the second quarter of 2016. since then , the number of working rigs in the u.s. has increased steadily to 929 rigs at the end of december 2017. a substantial portion of our revenue is impacted by the level of rig activity and the number of wells completed . while the u.s. land rig count has continued to recover , it remains low compared to historical norms . the table below shows the amount of total inbound orders by segment for the years ended december 31 , 2017 , 2016 and 2015 : replace_table_token_9_th acquisitions on october 2 , 2017 , we acquired all the remaining membership interests in global tubing , llc ( “ global tubing ” ) from our joint venture partner and management for total consideration of approximately $ 290.3 million , including approximately $ 116.8 million in cash and approximately 11.5 million shares of our common stock . we originally invested in global tubing with a joint venture partner in 2013. prior to acquiring a 100 % ownership interest in global tubing , we reported this investment using the equity method of accounting . located in dayton , texas , global tubing provides coiled tubing , coiled line pipe and related services to customers worldwide . global tubing is included in the completions segment . on july 3 , 2017 , we acquired multilift welltec , llc and multilift wellbore technology limited ( collectively , “ multilift ” ) for approximately $ 39.2 million in cash consideration . multilift , located in houston , texas , manufactures the patented sandguard tm and the cyclone tm completion tools . this acquisition increased our product offering related to artificial lift to our completions customers . multilift is included in the completion segment . on january 9 , 2017 , we acquired substantially all of the assets of cooper valves , llc as well as 100 % of the general partnership interests of innovative valve components ( collectively , “ cooper ” ) for total aggregate consideration of $ 14.0 million . the aggregate consideration includes the issuance of stock valued at $ 4.5 million and certain contingent cash payments . these acquisitions are included in the production & infrastructure segment . on april 28 , 2016 , we completed the acquisition of the wholesale completion packers business of team oil tools , inc. the acquisition includes a wide variety of completion and service tools , including retrievable and permanent packers , bridge plugs and accessories which are sold to oilfield service providers , packer repair companies and distributors on a global basis , and is included in the completions segment . on february 2 , 2015 , we completed the acquisition of j-mac tool , inc. ( “ j-mac ” ) for aggregate consideration of approximately $ 61.9 million . j-mac , located in fort worth , texas , manufactures hydraulic fracturing pumps , power ends , fluid ends and other pump accessories . the acquired business also provides repair and refurbishment services at its main location in fort worth and at other service center locations . j-mac is included in the completions segment . there are factors related to the businesses we have acquired that may result in lower net profit margins on a going-forward basis , primarily the federal income tax status of the legal entity and the level of depreciation and amortization charges arising out of the accounting for the purchase . for additional information regarding our 2017 , 2016 , and 2015 acquisitions , refer to note 4 acquisitions . evaluation of operations we manage our operations through our three business segments . we have focused on implementing financial reporting and controls at all of our operations to accelerate the availability of critical information necessary to support informed decision making . we use a number of financial and non-financial measures to routinely analyze and evaluate , on a segment and corporate level , the performance of our business . as an example of a non-financial measure , we measure our safety by tracking the total recordable incident rate , and we believe that there is a relationship between safety and the quality of our products . financial measures include the following : 37 revenue growth . we compare actual revenue achieved each month to the most recent estimate for that month and to the annual plan for the month established at the beginning of the year . we monitor our revenue to analyze trends in the relative performance of each of our product lines as compared to standard revenue drivers or market metrics applicable to that product line . we are particularly interested in identifying positive or negative trends and investigating to understand the root causes . in addition , we review these metrics on a quarterly basis . we also evaluate changes in the mix of products sold and the resultant impact on reported gross margins . story_separator_special_tag gross margin percentage . we define gross margin percentage as our gross margin , or net sales minus cost of sales , divided by our net sales . our management continually evaluates our consolidated gross margin percentage and our gross margin percentage by segment to determine how each segment is performing . this metric aids management in capital resource allocation and pricing decisions . selling , general and administrative expenses as a percentage of total revenue . selling , general and administrative expenses include payroll related costs for sales ; marketing ; administrative ; accounting ; information technology ; certain engineering and human resources functions ; audit , legal and other professional fees ; insurance ; franchise taxes not based on income ; travel and entertainment ; advertising and promotions ; certain depreciation and amortization expense ; bad debt expense ; and other office and administrative related costs . our management continually evaluates the level of our selling , general and administrative expenses in relation to our revenue and makes appropriate changes in light of activity levels to preserve and improve our profitability while meeting the on-going support and regulatory requirements of the business . operating income and operating margin percentage . we define operating income as revenue less cost of goods sold less selling , general and administrative expenses . we define our operating margin percentage as operating income divided by revenue . these metrics assist management in evaluating the performance of each segment as a whole , especially to determine whether the amount of administrative burden is appropriate to support current business activity levels . earnings per share . we calculate fully-diluted earnings per share , as prescribed under gaap , as net income divided by common shares outstanding , giving effect for unvested restricted shares and the assumed exercise of outstanding options with a strike price less than the average fair value of the shares over the period covered for the calculation . there is no dilutive effect for 2017 , 2016 and 2015 since we are in a net loss position . we believe this measure is important as it reflects the sum total of operating results and all attendant capital decisions , showing in one number the amount earned for the stockholders of our company . free cash flow . we define free cash flow as net cash provided by operating activities , less capital expenditures for property and equipment net of proceeds from the sale of property and equipment and other . we believe that this measure is important because it encompasses both profitability and capital management in evaluating results . free cash flow represents the business 's contribution in the generation of funds available to pay debt outstanding , invest in other areas , or return funds to our stockholders . free cash flow is a non-gaap financial measure and should not be considered as an alternative to cash provided by operating activities as a cash flow measurement . factors affecting the comparability of our future results of operations to our historical results of operations our future results of operations may not be comparable to our historical results of operations for the periods presented , primarily for the following reasons : since our initial public offering in 2012 , we have grown our business both organically and through strategic acquisitions . we have expanded and diversified our product portfolio and business lines with the acquisition of businesses in each of 2017 , 2016 , and 2015. we acquired three businesses in 2017 , one business in 2016 , and one business in 2015. the historical financial data for periods prior to the acquisitions does not include the results of any of the acquired companies for the periods presented and , as such , does not provide an accurate indication of our future results . as we integrate acquired companies and further implement internal controls , processes and infrastructure to operate in compliance with the regulatory requirements applicable to companies with publicly traded shares , it is likely that we will incur incremental selling , general and administrative expenses relative to historical periods . our future results will depend on our ability to efficiently manage our combined operations and execute our business strategy . 38 story_separator_special_tag other income and expense other income and expense includes interest expense , foreign exchange gains and losses , a gain realized on the previously held equity investment in global tubing , and the write-off of deferred loan costs . we incurred $ 26.8 million of interest expense during the year ended december 31 , 2017 , a decrease of $ 0.6 million compared to the year ended december 31 , 2016 primarily due to lower commitment fees on the unused portion of our revolving credit line . the foreign exchange loss was $ 7.3 million for the year ended december 31 , 2017 compared to a gain of $ 21.3 million for the year ended december 31 , 2016 . the foreign exchange gains and losses are primarily the result of movements in the british pound and the euro relative to the u.s. dollar . these movements in exchange rates create foreign exchange gains or losses when applied to monetary assets or liabilities denominated in currencies other than the location 's functional currency , primarily u.s. dollar denominated cash , trade account receivables and net intercompany receivable balances for our entities using a functional currency other than u.s. dollar . in 2017 , we recognized a gain of $ 120.4 million on the previously held equity investment in global tubing upon acquiring the remaining interest in the fourth quarter of 2017. in year ended december 31 , 2016 , we wrote off $ 3.0 million of deferred financing costs as a result of the amendments of our credit facility in the first and fourth quarters of 2016 which reduced the size of our revolving credit line .
| completions segment — revenue increased $ 128.4 million , or 97.4 % , to $ 260.2 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . the increase in drilling and completions budgets of exploration and production companies has led to an increase in market demand for our completions products . approximately $ 76 million of the increase is a result of higher sales volumes for our well stimulation and intervention products , particularly in north america . in addition , segment revenue includes $ 36 million of revenue from the acquisition of the remaining membership interests of global tubing in the fourth quarter of 2017. the remaining increase in segment revenues was due to higher sales of our downhole products , including revenue from our acquisition of multilift in the third quarter of 2017. production & infrastructure segment — revenue increased $ 93.5 million , or 40.0 % , to $ 327.3 million during the year ended december 31 , 2017 compared to the year ended december 31 , 2016 . the increase in drilling and completions budgets of exploration and production companies and resulting infrastructure spending have led to increased sales of our surface production equipment and valve products . approximately half of the increase is attributable to higher sales volumes in our activity-based production equipment . the remaining segment revenue increase was due to higher sales of valves , including revenue from our acquisition of cooper in the first quarter of 2017. segment operating income ( loss ) and segment operating margin percentage segment operating loss for the year ended december 31 , 2017 improved $ 61.5 million to a loss of $ 63.9 million for the year ended december 31 , 2017 compared to a loss of $ 125.4 million the year ended december 31 , 2016 . in the third quarter of 2017 , we were adversely affected by hurricane harvey , which temporarily idled facilities and operations , resulting in foregone revenue and under-absorption of manufacturing costs . the operating margin percentage improved
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we recognized net losses on disposition of property , equipment and other assets of $ 814,000 during fiscal 2009 , compared to gains of $ 83,000 during fiscal 2008. during fiscal 2009 , we incurred a loss of approximately $ 1.1 million related to an adjustment of prior pro-rated gains recorded on the sale of condominium units at our platinum hotel & spa in las vegas , nevada . with approximately 94 % of the units sold , prior gains were recorded on a percentage of completion method based upon estimated total proceeds once all 255 units were sold . as a result of the then-current economic environment and its impact on las vegas real estate values , we lowered our estimated total proceeds which we expected to receive when the remaining 16 units are sold . our pro-rated gain on sale of the previous units was reduced accordingly . excluding the unusual adjustment described above , the remaining fiscal 2009 gain on disposition of property , equipment and other assets was primarily the result of the sale of an outlot on a theatre land parcel . the fiscal 2008 gain was primarily the result of the sale of one of our last two remaining baymont inn joint ventures . 21 we reported net equity losses from unconsolidated joint ventures of $ 476,000 during fiscal 2009 compared to losses of $ 411,000 during the prior year . losses during fiscal 2009 and 2008 included losses from two hotel joint ventures in which we have a 15 % ownership interest and our remaining baymont 50 % joint venture . the slightly increased net losses were due to the challenging environment for hotel operations . we reported income tax expense for fiscal 2009 of $ 10.2 million , a decrease of approximately $ 3.0 million , or 23.1 % , compared to fiscal 2008 income tax expense of $ 13.2 million . our effective income tax rate during fiscal 2009 was 37.1 % , lower than our fiscal 2008 effective rate of 39.2 % . this lower rate was primarily due to a decrease in our liability for unrecognized tax benefits as a result of a lapse of the applicable statute of limitations during fiscal 2009. weighted-average shares outstanding were 29.8 million during fiscal 2009 and 30.2 million during fiscal 2008. current plans our aggregate capital expenditures , acquisitions and purchases of interests in joint ventures were approximately $ 25 million during fiscal 2010 compared to $ 36 million during fiscal 2009 and $ 65 million during fiscal 2008. we currently anticipate that our fiscal 2011 capital expenditures , including potential purchases of interests in joint ventures ( but excluding any other potential acquisitions ) may be in the $ 40- $ 60 million range . we will , however , continue to monitor our operating results and economic and industry conditions so that we may adjust our plans accordingly . our current strategic plans include the following goals and strategies : after opening three new theatres ( including our prototype majestic theatre in brookfield , wisconsin ) , adding three more successful 72-foot wide ultra screens ® at existing locations and acquiring 18 theatres and 205 screens in adjacent markets during the last four fiscal years , our current plans for growth in our theatre division include several opportunities for new theatres and screens . we continue to review opportunities to build additional new locations we currently own land in six different communities that may be used for new theatres at a future date . ultimately , we would like to build one to two new theatres per year . we will also continue to look for opportunities to expand our successful ultra screen concept at new and existing locations ( we currently have 13 of these very popular screens ) . our ultra screens have higher per-screen revenues and draw customers from a larger geographic region compared to our standard screens . in addition , we are very pleased with the results of our last two acquisitions and we will continue to consider additional potential acquisitions as opportunities arise . during fiscal 2010 , an increasing portion of our box office receipts have resulted from digital 3d presentations of films . as a result , we significantly expanded our digital 3d footprint during fiscal 2010 with the installation of six additional 3d systems in december 2009 and an additional 27 3d systems at new and existing locations during our fiscal 2010 fourth quarter . we are particularly excited by the fact that eight of these new digital 3d systems were installed in our signature 70-foot wide ultra screens in select locations . these 3d screens are among the largest in north america and have been branded as ultra screen xl3d . we now are able to offer digital 3d on 60 screens at 43 locations . with digital 3d technology available in nearly 80 % of our theatres and 10 % of our screens , we expect to continue to benefit from the increased number of digital 3d films being released and from the fact that 3d versions of the films have generally outperformed the corresponding 2d version of the same film , often by a factor of two to three times . an anticipated broad roll-out of digital cinema into our theatres , as well as the rest of the industry , was delayed during fiscal 2010 due to the increased difficulties of proposed third-party implementers to obtain the necessary financing during the current economic climate . during the latter half of fiscal 2010 , progress was made regarding financing and system pricing and an expected industry-wide roll-out is now expected to occur over the course of several years . story_separator_special_tag we currently expect to begin a broader roll-out of digital projection 22 technology in our circuit beginning in fiscal 2011. the actual costs that we may incur when such a roll-out begins are yet to be determined , but it is our expectation that the majority of the costs would be paid for by the film studios through the payment of virtual print fees to us or a selected digital cinema implementation partner . our goals from digital cinema include delivering an improved film presentation to our guests , increasing scheduling flexibility , as well as maximizing the opportunities for alternate programming that may be available with this technology . we continue to explore opportunities to further enhance our food and beverage offerings within our existing theatres . as part of a major renovation completed in may 2009 at our north shore cinema in mequon , wisconsin , we introduced an expanded concession hot zone that serves pizza , hamburgers , wraps , sandwiches and other hot appetizers , as well as our circuit 's second take five lounge that serves alcoholic beverages ( the first being at our flagship majestic theatre in brookfield , wisconsin ) . capitalizing on the success of the zaffiro 's pizza brand at the majestic , we also opened our first full-service restaurant within a theatre complex ( zaffiro 's pizzeria and bar ) at the north shore cinema . during fiscal 2010 , we expanded our exclusive cinedine sm in-theatre dining concept , first introduced at the majestic , to all five screens of a new theatre we are managing for another owner in omaha , nebraska . with each of these strategies , our goal continues to be to introduce and maintain entertainment destinations that would further define and enhance the customer value proposition for movie-going in the future . during fiscal 2011 , our current plans are to continue to refine these existing food and beverage opportunities so as to determine whether they may be profitably duplicated at additional locations in the future . as always , we will also continue to maintain and enhance the value of our existing theatre assets by regularly upgrading and remodeling our theatres in order to keep them looking fresh and new . in order to accomplish the strategies noted above , we currently anticipate that our fiscal 2011 capital expenditures in this division may be approximately $ 20- $ 30 million , excluding any potential acquisitions . in addition to the growth strategies described above , our theatre division continues to focus on several strategies that are designed to further improve the profitability of our existing theatres . these strategies include plans to expand ancillary theatre revenues , such as pre-show and lobby advertising ( thru our advertising provider , screenvision ) and additional corporate and group sales , sponsorships and alternate auditorium uses . we also continue to have a non-exclusive digital network affiliate agreement with national cinemedia , llc for the presentation of live and pre-recorded in-theatre events in 24 of our locations in multiple markets . the expanded programming , which has included live performances of the metropolitan opera , as well as sports , music and other events , continues to be well received by our customers and should benefit our future operating results by providing revenue during our theatres ' slower times . although the current economic environment has slowed hotel development and transaction activity significantly in the short-term , our hotels and resorts division remains committed to increasing the number of rooms under management in the coming years . we continue to pursue additional growth opportunities , with an emphasis on management contracts for other owners . a number of the projects that we are currently exploring may also include some small equity investments , similar to investments we have made in the past with strategic equity partners . although total revenues from an individual hotel management contract are significantly less than from an owned hotel , the operating margins are significantly higher due to the fact that all direct costs of operating the property are borne by the owner of the property . management contracts provide us with an opportunity to increase our total number of managed rooms without a significant investment , thereby increasing our returns on equity from this division . with an increasing number of hotels across the country experiencing financial difficulties due to reduced operating results and high debt service costs , we believe the opportunities to acquire high quality hotels or management contracts at attractive valuations will likely increase in the future for well-capitalized companies such as ours . unlike theatre assets , whereby the majority of the return on investment comes from the annual cash flow generated by operations , a portion of the return on a hotel investment is derived by effective portfolio management , which includes determining the proper branding strategy for a given asset and the proper level of investment and upgrades necessary , as well as identifying an effective divestiture strategy for the asset when appropriate . our past hotel investments have been very opportunistic as we have acquired assets at 23 favorable terms and then improved the properties and operations in order to create value . depending upon market conditions , we will periodically evaluate existing or future individual hotel assets in order to determine whether a divestiture strategy may be appropriate for that asset . we do not currently anticipate divesting any particular hotel assets during fiscal 2011. our plans for our hotels and resorts division also include continued reinvestment in our existing properties in order to maintain and increase their value . during fiscal 2009 , we began a major guest room renovation at the hilton milwaukee city center , as well as a guest room renovation and pool and spa update at our grand geneva resort . both of these projects have now been completed .
| operating results from our hotels and resorts division continued to be negatively impacted by reduced business spending on travel due to the current economic environment , resulting in lower average daily rates and reduced year-to-date occupancies compared to the prior year . a reduction in our interest expense favorably impacted our net earnings during fiscal 2010 compared to the prior year . comparisons to last year 's results were also favorably impacted by significant unusual investment losses and losses on property , equipment and other assets during fiscal 2009 totaling approximately $ 0.07 per diluted common share . our fiscal 2010 operating results also benefited from a change in estimate related to our deferred gift card revenue . we introduced a gift card program in our theatre division several years ago and subsequently expanded it to our hotels and resorts division . with very little history as to redemption patterns , we had been taking a very conservative approach to our deferred gift card liability . during our fiscal 2010 third quarter , we determined that we had enough historical gift card redemption data available to support a change in estimate of our gift card liability . accordingly , gift card breakage income will now be recognized based upon our historical redemption patterns and will represent the gift card balances for which we believe customer redemption is remote . as a result of this change in estimate , we reported cumulative gift card breakage income of $ 3.0 million ( pre-tax ) during our fiscal 2010 third quarter , of which approximately $ 2.4 million ( pre-tax ) , or approximately $ 0.05 per diluted common share , related to fiscal years 2009 and earlier . our theatre division benefited the most from this change in estimate , recognizing $ 2.5 million of gift card breakage income during our fiscal 2010 third quarter , of which $ 2.0 million related to fiscal years 2009 and earlier . based upon recent redemption levels , we currently estimate our future annual breakage to be in
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the $ 55.1 million decrease in loans classified as substandard was primarily driven by $ 39.8 million in principal payments received , $ 5.5 million in migration to oreo , $ 14.0 million in loans upgraded from substandard , and $ 5.8 million in charge-offs , offset by $ 10.1 million in loans moved to substandard during 2015 . 23 ● foreclosed properties were $ 19.2 million at december 31 , 2015 , compared with $ 46.2 million at december 31 , 2014. during the year ended december 31 , 2015 , the company acquired $ 5.5 million and sold $ 22.6 million of oreo . we incurred oreo losses totaling $ 9.9 million during the year ended december 31 , 2015 , reflecting fair value write-downs for reductions in listing prices for certain properties , updated appraisals , and certain properties liquidated through auctions , and $ 74,000 in net loss on sales of oreo . oreo expense may be elevated in future periods as we work to sell these properties , given the current size of the oreo portfolio . ● our non-performing assets decreased to $ 33.3 million or 3.51 % of total assets at december 31 , 2015 , compared with $ 93.5 million or 9.19 % of total assets at december 31 , 2014. in addition , accruing troubled debt restructurings declined to $ 17.4 million at december 31 , 2015 from $ 22.0 million at december 31 , 2014 . ● net interest margin increased 18 basis points to 3.27 % for the year ended 2015 compared with 3.09 % in the year ended december 31 , 2014. the increase in margin between periods was primarily due to a decrease in the cost of interest bearing liabilities from 1.11 % in 2014 to 0.85 % in 2015. the decrease in cost of interest bearing liabilities was primarily driven by the continued repricing of certificates of deposit at lower rates . average loans decreased 4.0 % to $ 635.9 million in 2015 compared with $ 662.4 million in 2014 . ● non-interest income increased $ 3.6 million in 2015 to $ 7.7 million compared with $ 4.1 million for the year ended december 31 , 2014 driven primarily by gains on the sales of securities totaling $ 1.8 million , compared to $ 92,000 for 2014 , as well as an increase in oreo rental income of $ 1.1 million between the two periods . the increase in oreo income is the result of several larger properties with tenants being transferred to oreo in the second quarter of 2014. non-interest income also increased due to an $ 883,000 gain on extinguishment of debt . ● non-interest expense increased $ 5.5 million in 2015 to $ 45.0 million compared with $ 39.4 million for 2014 , due to an increase in oreo expenses of $ 6.5 million primarily related to fair value write-downs for 2015 , and an increase in professional fees of $ 1.2 million related to legal fees and litigation expenses , offset by a decrease in loan collection expenses of $ 1.9 million . ● deposits decreased $ 48.8 million or 5.3 % to $ 878.0 million at december 31 , 2015 compared with $ 926.8 million at december 31 , 2014. certificate of deposit balances decreased $ 74.9 million during 2015 to $ 499.8 million at december 31 , 2015 , from $ 574.7 million at december 31 , 2014. demand deposits increased $ 5.1 million or 4.5 % during 2015 to $ 120.0 million compared with $ 114.9 million at december 31 , 2014 . ● on february 25 , 2015 , we completed the final step in the retirement of our preferred shares originally issued to the u.s. treasury when shareholders approved the conversion of all mandatorily convertible series b preferred shares into 4,053,600 common shares and the conversion of all mandatorily convertible series d preferred shares into 6,458,000 non-voting common shares . the conversion reduced preferred stockholders ' equity by $ 5.8 million and increased common stockholders ' equity by the same amount . a total of 26,947,533 common shares and non-voting common shares were issued and outstanding at december 31 , 2015 . ● in 2015 , the company took measures to preserve the value of its net operating loss carryforwards ( “ nols ” ) and other deferred tax assets under section 382 of the internal revenue code . on june 24 , 2015 , the board of directors adopted a tax benefits preservation plan intended to reduce the likelihood of an “ ownership change ” occurring as a result of purchases and sales of the company 's common stock . the tax benefits preservation plan is more fully described in note 9 – “ income taxes ” . on september 23 , 2015 , the company 's shareholders approved an amendment to its articles of incorporation designed to block transfers of common shares that could result in an ownership change . at december 31 , 2015 , the company 's net deferred tax asset totaled $ 52.1 million and was subject to a full valuation allowance . ● on september 30 , 2015 , we completed a common equity for debt exchange with the holders of $ 4.0 million of the capital securities issued by one of the company 's subsidiary trusts . accrued and unpaid interest on the trust securities totaled of approximately $ 330,000. in exchange for the $ 4.3 million debt and interest liability , the company issued 800,000 common shares and 400,000 non-voting common shares , for a total of 1.2 million shares . in the transaction , a wholly owned subsidiary of the company acquired one-third of the trust securities directly from an unrelated third party in exchange for the issuance of 400,000 common shares resulting in an $ 883,000 gain on extinguishment of debt . story_separator_special_tag the subsidiary also acquired two-thirds of the trust securities having a book value of $ 2.9 million from related parties in exchange for the issuance of 400,000 common shares and 400,000 non-voting common shares , which was recorded as a capital transaction in accordance with the applicable accounting rules . deferred distributions on the remaining $ 21.0 million of our trust preferred securities outstanding totaled $ 2.5 million as of december 31 , 2015. the common equity for debt exchange is more fully described in note 12 – “ junior subordinated debentures ” . 24 these items are discussed in further detail throughout this “ management 's discussion and analysis of financial condition and results of operations ” section . going concern consideration s and future plans 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 for the foreseeable future . however , the events and circumstances described in this section and in note 2 – “ going concern considerations and future plans ” create substantial doubt about the company 's ability to continue as a going concern . for the year ended december 31 , 2015 , we reported a net loss of $ 3.2 million compared with net loss of $ 11.2 million for the year ended december 31 , 2014 and a net loss of $ 1.6 million for the year ended december 31 , 2013. after deductions for dividends and accretion on preferred shares , allocating losses to participating securities , and the effect of the exchange of preferred shares for common stock , net loss attributable to common shareholders was $ 2.9 million for the year ended december 31 , 2015 , compared with net income attributable to common shareholders of $ 19.4 million for the year ended december 31 , 2014 , and a net loss attributable to common shareholders of $ 3.4 million for the year ended december 31 , 2013. despite substantial reductions in non-performing assets during the year , our financial performance in 2015 continued to be negatively impacted by the bank 's elevated level of non-performing assets . non-performing loans were 2.28 % of total loans and non-performing assets were 3.51 % of total assets , at december 31 , 2015 compared to 7.57 % and 9.19 % , respectively , at december 31 , 2014. see “ analysis of financial condition , ” below . beginning with the fourth quarter of 2011 , we have deferred paying interest on the junior subordinated debentures held by our trust subsidiaries , requiring our trust subsidiaries to defer distributions on our trust preferred securities held by investors . if we defer distributions on our trust preferred securities for 20 consecutive quarters , we must pay all deferred distributions in full or we will be in default . our deferral period expires at the end of the third quarter of 2016. deferred distributions on our trust preferred securities , which totaled $ 2.5 million as of december 31 , 2015 , are cumulative , and unpaid distributions accrue and compound on each subsequent payment date . if as a result of a default we become subject to any liquidation , dissolution or winding up , holders of the trust preferred securities will be entitled to receive the liquidation amounts to which they are entitled , including all accrued and unpaid distributions , before any distribution can be made to our shareholders . in addition , the holders of our series e and series f preferred stock will be entitled to receive liquidation distributions totaling $ 10.5 million before any distribution can be made to the holders of our common shares . we continue to be involved in various legal proceedings . we dispute the material factual allegations made against us , and after conferring with our legal advisors , we believe we have meritorious grounds on which to prevail . if we do not prevail , the ultimate outcome of any one of these matters could have a material adverse effect on our financial condition , results of operations , or cash flows . these matters are more fully described in note 24 – “ contingencies ” . as described in “ item 1 – business ” above , our consent order with the fdic and kdfi requires the bank to maintain a minimum tier 1 leverage ratio of 9 % and a minimum total risk based capital ratio of 12 % . as of december 31 , 2015 , the bank 's tier 1 leverage ratio and total risk based capital ratio were 6.08 % and 10.58 % , respectively , both less than the minimum capital ratios required by the consent order . if the bank should be unable to reach the required capital levels , and if directed in writing by the fdic , the consent order requires the bank to develop , adopt and implement a written plan to sell or merge itself into another federally insured financial institution or otherwise obtain a capital investment into the bank sufficient to recapitalize the bank . the bank has not been directed by the fdic to implement such a plan . in order to meet the 9.0 % tier 1 leverage ratio and 12.0 % total risk based capital ratio requirements of the consent order , the board of directors and management are continuing to evaluate and implement strategies to achieve the following objectives : ● increasing capital through the limited issuance of common stock to new and existing shareholders . ● continuing to operate the company and bank in a safe and sound manner . we have reduced our lending concentrations and the size of our balance sheet while continuing to remediate non-performing loans . ● executing on the sale of oreo and reinvestment in quality income producing assets .
| the tax benefit recorded in 2014 was entirely due to gains in other comprehensive income that are presented in current operations in accordance with applicable accounting standards . no tax benefit was recorded during the 2015. net loss attributable to common shareholders was $ 2.9 million for the year ended december 31 , 2015 , as compared to net income attributable to common shareholders of $ 19.4 million for 2014. this decrease was primarily attributable to the $ 36.1 million effect of the exchange of preferred shares for common shares recorded during 2014 . 27 the following table summarizes components of income and expense and the change in those components for 2014 compared with 2013 : replace_table_token_6_th net loss of $ 11.2 million for the year ended december 31 , 2014 increased by $ 9.6 million from net loss of $ 1.6 million for 2013. this was primarily due to a $ 2.4 million decrease in net interest income driven by lower average earning assets , an increase of $ 6.4 million in provision for loan losses expense , and reductions in non-interest income from our exit of trust services in 2013 and lower gains on the sale of securities . net income attributable to common shareholders of $ 19.4 million for the year ended december 31 , 2014 , improved $ 22.8 million from net loss to common shareholders of $ 3.4 million for 2013. this increase was primarily attributable to the $ 36.1 million effect of the exchange of preferred shares for common shares . net interest income – our net interest income was $ 29.6 million for the year ended december 31 , 2015 , a decrease of $ 167,000 , or 0.6 % , compared with $ 29.7 million for the same period in 2014. net interest spread and margin were 3.18 % and 3.27 % , respectively , for 2015 , compared with 2.98 % and 3.09 % , respectively , for 2014. average nonaccrual loans were $ 29.0 million and $ 63.1 million in 2015 and 2014 , respectively . the decrease in
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in such event , the prevailing market price of our common stock could be materially adversely affected . overview we are a biotechnology company that designs , optimizes and develops novel drugs that block key enzymes involved in the pathogenesis of diseases . we focus on rare and infectious diseases in which unmet medical needs exist and that are aligned with our capabilities and expertise . we integrate the disciplines of biology , crystallography , medicinal chemistry and computer modeling to discover and develop small molecule pharmaceuticals through the process known as structure-guided drug design . critical accounting policies and estimates the accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures , which have been prepared in accordance with u.s. gaap . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues , expenses and related disclosure of contingent assets and liabilities . we evaluate our estimates , judgments and the policies underlying these estimates on a periodic basis , as situations change , and regularly discuss financial events , policies , and issues with members of our audit committee and our independent registered public accounting firm . we routinely evaluate our estimates and policies regarding revenue recognition , administration , inventory and manufacturing , taxes , stock-based compensation , research and development , consulting and other expenses and any associated liabilities . story_separator_special_tag services , facility expenses , depreciation of development equipment and other overhead of our research and development efforts . r & d expenses vary according to the number of programs in clinical development and the stage of development of our clinical programs . later stage clinical programs tend to cost more than earlier stage programs due to the longer length of time of the clinical trials and the higher number of patients enrolled in these clinical trials . general and administrative ( g & a ) expenses decreased to $ 5.2 million in 2013 compared to $ 6.8 million in the prior year . the decrease of $ 1.6 million is primarily due to the december 2012 restructuring that reduced our cost structure and operations . interest expense , related to the non-recourse notes issued in conjunction with the peramivir royalty monetization transaction in march 2011 , increased slightly to $ 4.8 million in 2013 as compared to $ 4.7 million in 2012. in addition , a mark to market gain of $ 5.3 million was recognized in 2013 related to the foreign currency hedge entered into in conjunction with the royalty monetization transaction , compared to a mark to market loss of $ 0.7 million in the prior year , both resulting from changes in the u.s. dollar/japanese yen exchange rate during the respective years . we entered into the foreign currency hedge agreement to hedge changes in the value of the japanese yen relative to the u.s. dollar . the currency hedge does not qualify for hedge accounting treatment and therefore mark to market adjustments are recognized in our consolidated statements of comprehensive loss . although we can not predict the future yen/dollar exchange rate , the applicable foreign currency rates have moved such that we have reclaimed hedge collateral in 2013 ; however , it is possible that additional collateral will be required in 2014. we are unable to predict future changes in the yen/dollar exchange rate or increases/decreases in our hedge loss associated with the currency hedge agreement . restructuring in december 2012 , we announced that we had restructured our operations during the fourth quarter of 2012 to significantly reduce the size and operations of our company in order to extend our existing cash runway . we eliminated approximately 50 % of our workforce and decreased other costs , which significantly decreased our 2013 operating expenses and operating cash utilization , as compared to 2012 levels . in connection with the restructuring , we recorded restructuring charges of approximately $ 1.8 million for the year ended december 31 , 2012 , which was reported in a separate line item in our consolidated statements of comprehensive loss . significant components of the restructuring charge were termination benefits for employees impacted by the restructuring and losses associated with leased lab and office space that became underutilized . we do not expect to incur any additional restructuring changes as a result of our december 2012 restructuring and there was no restructuring accrual remaining at december 31 , 2013. year ended december 31 , 2012 compared to 2011 total 2012 revenues increased to $ 26.3 million as compared to 2011 revenues of $ 19.6 million . revenues in 2012 included the recognition of $ 7.8 million of previously deferred revenue associated with the amended and restated license and development agreement with mundipharma . the recognition of this revenue and the related expense did not impact our cash balance . the remaining 2012 revenue consisted of $ 3.3 million of royalty revenue from shionogi sales of rapiacta , $ 14.0 million of reimbursement of collaborative expenses from barda/hhs related to the development of i.v . peramivir and $ 1.2 million associated with collaborative revenue amortization from other corporate partnerships . revenue increased in 2012 due to the recognition of all previously deferred revenue associated with the mundipharma agreement as well as the recognition of rapiacta royalty revenue , for which no royalty was recognized in 2011. these two increases were partially offset by decreased barda/hhs revenue , as compared to 2011 , associated with a lower rate of enrollment in the 301 trial compared to 2011. revenues in 2011 consisted of $ 17.1 million of reimbursement of collaborative expenses from barda/hhs related to the continued development of i.v . peramivir and $ 2.5 million associated with collaborative revenue amortization from other corporate partnerships . story_separator_special_tag research and development expenses decreased to $ 51.5 million in 2012 as compared to $ 57.2 million for 2011. the $ 5.7 million decrease was driven by lower development costs associated with our peramivir development program and lower costs associated with our forodesine clinical programs . the decrease in aforementioned costs was partially offset by higher development costs associated with the ulodesine program for the treatment of gout during 2011 . 32 general and administrative expenses decreased to $ 6.8 million in 2012 compared to $ 12.0 million in 2011. the decrease of $ 5.2 million was primarily due to the continued realization of cost containment measures yielding a reduction of non-critical consulting and other administrative expenses , as well as avoidance of one-time expenses incurred in the 2011 relocation of our corporate headquarters . these reductions were offset somewhat by $ 1.5 million of transaction costs associated with the uncompleted merger of presidio pharmaceuticals , inc. interest expense related to the non-recourse notes issued in conjunction with the peramivir royalty monetization transaction in march 2011 increased to $ 4.7 million in 2012 , as compared to $ 3.8 million in 2011 , due to recognizing a full year of interest expense in 2012 compared to a partial year in 2011. in addition , a mark to market loss of $ 0.7 million was recognized in 2012 related to our foreign currency hedge , compared to a mark to market loss of $ 4.0 million in 2011 , resulting from changes in the u.s. dollar/japanese yen exchange rate . liquidity and capital resources cash expenditures have exceeded revenues since our inception and we expect our 2014 operating expenses to exceed our 2014 revenues . our operations have principally been funded through public offerings and private placements of equity securities ; cash from collaborative and other research and development agreements , including government contracts ; and to a lesser extent , the pharma notes financing . on february 24 , 2011 , we announced that barda/hhs had awarded us a $ 55.0 million contract modification intended to fund completion of the phase 3 development of i.v . peramivir , bringing the total award from barda/hhs to $ 234.8 million . on march 9 , 2011 , we completed a $ 30.0 million non-recourse debt financing transaction designed to monetize certain future royalty and milestone payments under our license agreement with shionogi . we received net proceeds from this transaction of approximately $ 22.7 million , excluding hedge collateral posted subsequent to the closing of the transaction . in june 2011 , we entered into an at market issuance sales agreement ( the atm agreement ) with mcnicoll , lewis & vlak ( mlv ) pursuant to which we may issue and sell $ 70.0 million in shares of our common stock at current market prices under a form s-3 registration statement with mlv acting as the sales agent . as of december 31 , 2013 , we have sold an aggregate of 7.8 million shares of common stock at an average per share price of $ 3.18 pursuant to the atm agreement for net proceeds of $ 24.0 million . in addition , in august 2013 , we raised $ 18.5 million in net proceeds derived from the sale of 4.6 million shares of common stock at $ 4.40 per share in a public offering . in addition to the above , we have received funding from other sources , including other collaborative and other research and development agreements ; government grants ; equipment lease financing ; facility leases ; research grants ; and interest income on our investments . as of december 31 , 2013 , we had net working capital of $ 26.9 million , an increase of approximately $ 2.1 million from $ 24.8 million at december 31 , 2012. the increase in working capital was principally due to $ 18.5 million in net proceeds derived from our august 2013 public offering , $ 5.2 million in net proceeds derived from the sale of approximately 2.9 million shares of common stock through the atm agreement , and $ 5.2 million in cash collateral collected under our foreign currency hedge , which was largely offset by our normal operating expenses associated with the development of our product candidates . our principal sources of liquidity at december 31 , 2013 were approximately $ 21.3 million in cash and cash equivalents ; approximately $ 19.5 million in investments considered available-for-sale ; and approximately $ 1.7 million in barda/hhs and niaid/hhs receivables . in december 2012 , we announced that we had restructured our operations to significantly reduce the size and operations of our company in order to extend our existing cash runway . we anticipate our cash and investments will fund our operations into the first quarter of 2015. we intend to contain costs and reduce cash flow requirements by closely managing our third party costs and headcount , leasing scientific equipment and facilities , contracting with other parties to conduct certain research and development projects and using consultants . we expect to incur additional expenses , potentially resulting in significant losses , as we continue to pursue our research and development activities , primarily related to our clinical trial activity . we may incur additional expenses related to the filing , prosecution , maintenance , defense and enforcement of patent and other intellectual property claims and additional regulatory costs as our clinical programs advance through later stages of development . the objective of our investment policy is to ensure the safety and preservation of invested funds , as well as maintaining liquidity sufficient to meet cash flow requirements . we place our excess cash with high credit quality financial institutions , commercial companies , and government agencies in order to limit the amount of our credit exposure . we have not realized any significant losses on our investments .
| 2nd generation hae compounds in december 2013 , we announced the selection of two optimized plasma kallikrein inhibitors to advance into preclinical development as potential once-daily , oral treatments for the prevention of hae attacks . the second generation discovery program 's goals of improving selectivity and bioavailability compared to bcx4161 were both met , with no identified off-target effects . bcx4430 on december 26 , 2013 , niaid/hhs exercised an option under its agreement with us to conduct the ind-enabling program and to submit an ind application . this option represented an additional $ 2.5 million to us in order to advance the development of bcx4430 as a treatment for marburg virus disease . in september 2013 , niaid/hhs contracted with us for the development of bcx4430 as a treatment for marburg virus disease . niaid/hhs , part of the national institutes of health , made an initial award of $ 5.0 million to us . the total funding under the contract could be up to $ 22.0 million , if all contract options are exercised by niaid/hhs . the goals of this contract are to file ind applications for i.v . and i.m . bcx4430 for the treatment of marburg virus disease and to conduct an initial phase 1 human clinical trial . the aggregate $ 22.0 million contract and option funding supports the appropriate ind-enabling program and the initial clinical trial . accordingly , with this option exercise , total obligated funding aggregates to $ 7.5 million under the $ 22.0 million contract . on november 12 , 2012 , we announced proof-of-principle data demonstrating that bcx4430 is efficacious and well-tolerated in a preclinical disease model for evaluating efficacy against yellow fever virus infection at the 2nd antivirals congress in cambridge . we are continuing our collaboration with the usamriid regarding filoviruses , while seeking additional u.s. government funding ( beyond the $ 22.0 million niaid/hhs contract ) for the further development of bcx4430 . the primary focus of the program is the treatment of hemorrhagic fever viruses , such as marburg virus and ebola virus . results of operations year
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26 concentration of customers in fiscal 2015 and fiscal 2014 , straight path spectrum 's revenues from transactions with a single customer that amounted to 10 % or more of total revenues were as follows : replace_table_token_5_th the loss of any of these major customers would have a material adverse effect on our results of operations and cash flows . critical accounting policies our combined and consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the united states of america , or u.s. gaap . the preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets , liabilities , revenue and expenses as well as the disclosure of contingent assets and liabilities . critical accounting policies are those that require application of management 's most subjective or complex judgments , often as a result of matters that are inherently uncertain and may change in subsequent periods . our critical accounting policy relates to the valuation of intangible assets with indefinite useful lives . management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . see note 1 to the combined and consolidated financial statements in this annual report for a complete discussion of our significant accounting policies . revenue recognition straight path spectrum lease revenues are recognized on a straight-line basis over the contractual lease period , which generally range from one to three years . revenues from sale of rights in fcc licenses are recognized upon execution of the agreement by both parties , provided that the amounts are fixed or determinable , there are no significant undelivered obligations and collectability is reasonably assured . revenues from sale of rights in fcc licenses less applicable costs of the sale are classified as “ gain on sale of rights in wireless spectrum ” in the accompanying combined and consolidated statements of operations . straight path spectrum recorded the amounts that the former chief executive officer of straight path spectrum ( the “ former spsi ceo ” ) was entitled to , related to leases , in “ selling , general and administrative ” expense , in the same period the related revenues were recognized . straight path spectrum recorded the amounts that the former spsi ceo was entitled to , related to the sale of rights in spectrum , in “ gains on sale of rights of wireless spectrum ” , in the same period the related revenues were recognized . straight path ip group licenses its portfolio of patents to companies who use these patents in the provision of their service . the contractual terms of the license agreements generally provide for payments over an extended period of time . for the licensing agreements with fixed royalty payments , straight path ip group generally recognizes revenue on a straight-line basis over the contractual term of the license , once collectability of the amounts is reasonably assured . for the licensing agreements with variable royalty payments which are based on a percentage of sales , straight path ip group earns royalties at the time that the customers ' sales occur . straight path ip group 's customers , however , do not report and pay royalties owed for sales in any given period until after the conclusion of that period . as straight path ip group is unable to estimate the customers ' sales in any given period to determine the royalties due to straight path ip group , it recognizes royalty revenues when sales and royalties are reported by customers and when other revenue recognition criteria are met . 27 in addition , straight path ip group may enter into certain settlements of patent infringement disputes . the amount of consideration received upon any settlement ( including but not limited to past royalty payments and future royalty payments ) is allocated to each element of the settlement based on the fair value of each element . in addition , revenues related to past royalties are recognized upon execution of the agreement by both parties , provided that the amounts are fixed or determinable , there are no significant undelivered obligations and collectability is reasonably assured . straight path ip group does not recognize any revenues prior to execution of the agreement since there is no reliable basis on which it can estimate the amounts for royalties related to previous periods or assess collectability . direct cost of revenues direct cost of revenues for straight path spectrum consists primarily of network and connectivity costs and associated regulatory taxes and fees . such costs are charged to expense as incurred . direct cost of revenues for straight path ip group consists of legal expenses directly related to revenues from litigation settlements . expenses incurred for which revenue has not yet been recognized is classified as prepaid expenses – settlements in the consolidated balance sheet . intangible assets with indefinite useful lives intangible assets consists of the cost of the wireless spectrum licenses that were transferred to us by an entity controlled by the former spsi ceo in connection with the june 2013 settlement of all outstanding claims and disputes with the former spsi ceo and parties related to the former spsi ceo . the wireless spectrum licenses are not amortized since they are deemed to have an indefinite life . these assets are reviewed annually or more frequently under certain conditions for impairment using a fair value approach . on august 1 , 2013 , we adopted the accounting standard update that reduced the complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and improved consistency in impairment testing guidance among long-lived asset categories . we may first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test . story_separator_special_tag prior to the adoption of this update , we were required to test indefinite-lived intangible assets for impairment by comparing the fair value of the asset with its carrying amount . we would estimate the fair value of the asset using discounted cash flow methodologies , as well as considering third party market value indicators . cash flow projections and fair value estimates , as well as assessing qualitative factors to determine whether it is more likely than not that an asset is impaired , require significant estimates and assumptions by management . should our estimates and assumptions prove to be incorrect , we may be required to record impairments in future periods . recently issued accounting pronouncements effective january 1 , 2014 , the company adopted accounting standards update no . 2013-11 , “ income taxes ( topic 740 ) : presentation of an unrecognized tax benefit when a net operating loss carryforward , a similar tax loss , or a tax credit carryforward exists ” ( “ asu 2013-11 ” ) . asu 2013-11 is expected to reduce diversity in practice by providing guidance on the presentation of unrecognized tax benefits and will better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards , similar tax losses , or tax credit carryforwards exist . this guidance is effective prospectively for the company for annual and interim periods beginning january 1 , 2014. the adoption of asu 2013-11 did not have a material effect on the company 's financial position , results of operations or cash flows . in may 2014 , asu no . 2014-09 , “ revenue from contracts with customers ” ( `` asu 2014-09 '' ) was issued . the comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services . the guidance will also require that certain contract costs incurred to obtain or fulfill a contract , such as sales commissions , be capitalized as an asset and amortized as revenue is recognized . adoption of the new rules could affect the timing of both revenue recognition and the incurrence of contract costs for certain transactions . the guidance permits two implementation approaches , one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards . asu 2014-09 was scheduled to be effective for annual reporting periods beginning after december 15 , 2016 , including interim periods within that reporting period . early application is not permitted . in august 2015 , the fasb issued asu 2015-14 , `` revenue from contracts with customers ( topic 606 ) : deferral of effective date `` ( `` asu 2015-14 '' ) which defers the effective date of asu 2014-09 by one year . asu 2014-09 is now effective for annual reporting periods after december 15 , 2017 including interim periods within that reporting period . earlier application is permitted only as of annual reporting periods beginning after december 15 , 2016 , including interim reporting periods within that reporting period . the company will adopt the new standard effective august 1 , 2018. the company is currently evaluating the impact of adoption and the implementation approach to be used . 28 in june 2014 , asu 2014-12 , “ accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period ” ( “ asu no . 2014-12 ” ) was issued . asu no . 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition . an entity should recognize compensation cost in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered . if the performance target becomes probable of being achieved before the end of the requisite service period , the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period . the total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest . asu 2014-12 becomes effective for interim and annual periods beginning on or after december 15 , 2015. early adoption is permitted . the company is currently evaluating the effects of adopting asu 2014-12 on its consolidated financial statements but the adoption is not expected to have a significant impact on the company 's consolidated financial statements . in june 2014 , asu 2014-15 , “ presentation of financial statements – going concern ( subtopic 205-40 ) : disclosure of uncertainties about an entity 's ability to continue as a going concern ” ( “ asu no . 2014-15 ” ) was issued . before the issuance of asu 2014-15 , there was no guidance in u.s. gaap about management 's responsibility to evaluate whether there is substantial doubt about an entity 's ability to continue as a going concern or to provide related footnote disclosures . this guidance is expected to reduce the diversity in the timing and content of footnote disclosures . asu 2014-15 requires management to assess an entity 's ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in u.s. auditing standards as specified in the guidance . asu 2014-15 becomes effective for the annual period ending after december 15 , 2016 and for annual and interim periods thereafter . early adoption is permitted .
| selling , general and administrative expenses increased in fiscal 2015 compared to fiscal 2014 primarily as a result of the increase in the number of employees , compensation costs in terms of increased salaries , and primarily due to non-cash stock-based compensation charges related to the issuances of restricted common stock to employees . there were also anticipated increased legal costs due to straight path ip group 's sipnet appeal and iprs . stock-based compensation expense included in consolidated selling , general and administrative expense was $ 3.34 million and $ 758,000 in fiscal 2015 and fiscal 2014 , respectively . at july 31 , 2015 , unrecognized compensation cost related to non-vested stock-based compensation was an aggregate of $ 3.3 million . the unrecognized compensation cost is expected to be recognized over the remaining vesting period , of which $ 1.81 million is expected to be recognized in the year ending july 31 , 2016 , $ 985,000 in the year ending july 31 , 2017 , $ 400,000 in the year ending july 31 , 2018 and $ 64,000 in the year ending july 31 , 2019. interest and other income . interest and other income in fiscal 2015 included interest income of $ 37,000 , gain on the sale of a patent of $ 35,000 , the reversal of prior period accruals of $ 143,000 and the reduction in commissions owed totaling $ 130,000 from the settlement with the former chief executive officer of straight path spectrum ( the “ former spsi ceo ” ) . interest and other income in fiscal 2014 consisted solely of interest income . income from idt corporation payments of liabilities . in connection with the spin-off , we and idt entered into a separation and distribution agreement to effect the separation and provide a framework for our relationship with idt after the spin-off . the separation and distribution agreement includes , among other things , that idt is obligated to reimburse us for the payment of liabilities arising or related to the period prior to the spin-off . in fiscal 2015 , no amounts were paid by idt pursuant to this obligation . in fiscal 2014 , idt paid $ 386,000 pursuant
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depreciation and amortization for the twelve months ended december 31 , 2015 , depreciation and amortization increased $ 1.0 million , or 2.3 % compared to the twelve months ended december 31 , 2014. the dollar increase was due primarily to depreciation increasing $ 2.7 million as we depreciate our customer relationship management software “ boss ” , while amortization of intangible assets decreased as we fully amortized several intangible assets during the 12 month period . sales , general and administrative for the twelve months ended december 31 , 2015 , sales , general and administrative ( sg & a ) expenses increased $ 22.0 million , or 5.0 % compared to the twelve months ended december 31 , 2014. sg & a decreased to 31.2 % of revenues compared to 31.3 % of revenues in the prior year . as a percentage of revenues , sg & a decreased due to the company 's leveraging our sg & a expenses against higher revenues , reducing our bad debt expense with our collections efforts and experiencing lower gasoline costs , partially offset by higher sales salaries . gain on sales of assets , net gain on sales of assets , net increased to $ 2.0 million for the year ended december 31 , 2015 compared to $ 0.6 million gain in 2014. the company recognized gains from the sale of owned vehicles and property in 2015 and 2014. the increase was due to the company selling two buildings in 2015 . 15 interest ( income ) /expense , net interest income , net for the year ended december 31 , 2015 was $ 0.2 million , a decrease of $ 0.1 million compared to $ 0.3 million in 2014. interest income for the year is due to interest received on cash balances in the company 's various cash accounts . taxes the company 's effective tax rate increased to 37.4 % in 2015 compared to 37.3 % in 2014 , due primarily to differences in state and foreign income taxes . liquidity and capital resources cash and cash flow cash from operating activities is the principal source of cash generation for our businesses . the most significant source of cash in rollins ' cash flow from operations is customer-related activities , the largest of which is collecting cash resulting from services sales . the most significant operating use of cash is to pay our suppliers , employees , tax authorities and others for a wide range of material and services . the company 's cash and cash equivalents at december 31 , 2016 , 2015 , and 2014 were $ 142.8 million , $ 134.6 million , and $ 108.4 million , respectively . replace_table_token_9_th cash provided by operating activities the company 's operations generated cash of $ 226.5 million for the year ended december 31 , 2016 primarily from net income of $ 167.4 million , compared with cash provided by operating activities of $ 196.4 million in 2015 and $ 194.1 million in 2014. the company believes its current cash and cash equivalents balances , future cash flows expected to be generated from operating activities and available borrowings under its $ 175.0 million credit facility will be sufficient to finance its current operations and obligations , and fund expansion of the business for the foreseeable future . the company made contributions totaling $ 3.3 million to the rollins , inc. and its wholly-owned subsidiaries ' defined benefit retirement plans ( the “ plans ” ) during the year ended december 31 , 2016 and $ 5.0 million and $ 5.3 million during the years ended december 31 , 2015 and 2014 , respectively , as a result of the plans ' funding status . the company is considering making contributions to its plans of approximately $ 5.5 million during fiscal year 2017. in the opinion of management , additional plan contributions will not have a material effect on the company 's financial position , results of operations or liquidity . cash used in investing activities the company used $ 76.8 million on investing activities for the year ended december 31 , 2016 compared to $ 69.9 million and $ 89.5 million during 2015 and 2014 , respectively , and of that , invested approximately $ 33.1 million in capital expenditures during 2016 compared to $ 39.5 million and $ 28.7 million during 2015 and 2014 , respectively . capital expenditures for the year consisted primarily of property purchases , equipment replacements and technology related projects . the company expects to invest between $ 25.0 million and $ 28.0 million in 2017 in capital expenditures . during 2016 , the company 's subsidiaries acquired several small companies totaling $ 46.3 million compared to $ 33.5 million in acquisitions during 2015 and $ 63.3 million in 2014. the expenditures for the company 's acquisitions were funded with cash on hand . the company continues to seek new acquisitions . cash used in financing activities the company used cash of $ 136.4 million on financing activities for the year ended december 31 , 2016 , compared to $ 97.2 million and $ 106.5 million during 2015 and 2014 , respectively . a total of $ 109.0 million was paid in cash dividends ( $ 0.50 per share ) during the year ended december 31 , 2016 including a special dividend paid in december 2016 of $ 0.10 per share , compared to $ 91.8 million paid in cash dividends ( $ 0.42 per share ) during the year ended december 31 , 2015 , including a special dividend paid in december 2015 of $ 0.10 per share and $ 75.8 million ( $ 0.35 per share ) during the year ended december 31 , 2014 , including a special dividend paid in december 2014 of $ 0.07 per share . story_separator_special_tag the company used $ 22.7 million to repurchase on the open market 0.8 million shares of its common stock at a weighted average price of $ 27.19 per share during 2016 compared to $ 0.4 million to purchase 19 thousand shares at an weighted average price of $ 22.42 in 2015 and $ 29.3 million to purchase 1.5 million shares at a weighted average price of $ 19.46 in 2014. there remain 5.1 million shares authorized to be repurchased under prior board approval . in addition to the shares purchased on the open market , the company repurchased $ 8.4 million , $ 7.0 million and $ 6.2 million of common stock for the years ended december 31 , 2016 , 2015 and 2014 , respectively , from employees for the payment of taxes on vesting restricted shares . the company 's $ 142.8 million of total cash at december 31 , 2016 , is primarily cash held at various banking institutions . approximately $ 54.4 million is held in cash accounts at international bank institutions and the remaining $ 88.4 million is primarily held in federal deposit insurance corporation ( “ fdic ” ) insured non-interest-bearing accounts at various domestic banks which at times may exceed federally insured amounts . 16 the company 's international business is expanding and we intend to continue to grow the business in foreign markets in the future through reinvestment of foreign deposits and future earnings as well as acquisitions of unrelated companies . repatriation of cash from the company 's foreign subsidiaries is not a part of the company 's current business plan . the company maintains a large cash position in the united states while having no third-party debt to service . rollins maintains adequate liquidity and capital resources , without regard to its foreign deposits , that are directed to finance domestic operations and obligations and to fund expansion of its domestic business . on october 31 , 2012 , the company entered into a revolving credit agreement with suntrust bank and bank of america , n.a . for an unsecured line of credit of up to $ 175.0 million , which includes a $ 75.0 million letter of credit subfacility , and a $ 25.0 million swingline subfacility . the credit agreement was amended on october 30 , 2014 to extend the maturity date to october 31 , 2018 and add three optional one year extensions . on october 27 , 2015 the company exercised a one year extension option to extend the maturity date to october 31 , 2019. as of december 31 , 2016 , no borrowings were outstanding under the line of credit or under the swingline subfacility . the company maintains approximately $ 35.0 million in letters of credit . these letters of credit are required by the company 's fronting insurance companies and or certain states , due to the company 's self-insured status , to secure various workers ' compensation and casualty insurance contracts coverage . the company believes that it has adequate liquid assets , funding sources and insurance accruals to accommodate such claims . the revolving credit agreement is guaranteed by certain of rollins ' domestic-subsidiaries . the maturity date of the credit agreement is october 31 , 2019 , subject to up to two optional extensions of the credit agreement for one year each . revolving loans under the revolving credit agreement bear interest at one of the following two rates , at the company 's election : · the base rate , which shall mean the highest of ( i ) the per annum rate which the administrative agent publicly announces from time to time as its prime lending rate , ( ii ) the federal funds rate , plus 0.50 % per annum , and ( iii ) the adjusted libor rate ( which equals libor as increased to account for the maximum reserve percentages established by the u.s. federal reserve ) determined on a daily basis for an interest period of one ( 1 ) month , plus 1.0 % per annum . · with respect to any eurodollar borrowings , the adjusted libor rate plus an additional amount , which varies between .75 % and 1.00 % , based upon rollins ' then-current debt-to-ebitda ratio . as of december 31 , 2015 , the additional rate allocated was .75 % . the revolving credit agreement contains customary terms and conditions , including , without limitation , certain financial covenants including covenants restricting the company 's ability to incur certain indebtedness or liens , or to merge or consolidate with or sell substantially all of its assets to another entity . further , the revolving credit agreement contains financial covenants restricting the company 's ability to permit the ratio of the company 's consolidated debt to ebitda to exceed certain limits . the company remained in compliance with applicable debt covenants at december 31 , 2016 and expects to maintain compliance throughout 2017. litigation for discussion on the company 's legal contingencies , see note 13 to the accompanying financial statements . off balance sheet arrangements , contractual obligations and contingent liabilities and commitments other than the operating leases disclosed in the table that follows , the company has no material off balance sheet arrangements . the impact that the company 's contractual obligations as of december 31 , 2016 are expected to have on our liquidity and cash flow in future periods is as follows : replace_table_token_10_th ( 1 ) these amounts represent expected payments with interest for unrecognized tax benefits as of december 31 , 2016 . ( 2 ) minimum pension funding requirements are not included as funding will not be required . the company is considering making contributions to its pension plans of approximately $ 5.5 million during 2017 . 17 critical accounting policies the company views critical accounting policies to be those policies that are very important to the portrayal of our financial condition and results of operations , and that require management 's most difficult , complex or subjective judgments .
| 13 the company is pleased with the successful orkin rollout of the customer relationship management ( crm ) system ( boss ) , and is benefiting from the investments made updating this system to improve the customer experience . strategic acquisitions remain a priority for rollins , and as in the past , we will continue to seek out companies that are a “ fit ” for us in both , the pest control and wildlife areas of our business . results of operations—2016 versus 2015 overview the company 's revenues increased to $ 1.573 billion in 2016 , a 5.9 % increase compared to 2015. gross margin increased to 50.9 % for 2016 from 50.4 % in 2015. sales , general and administrative expense remained flat at 31.2 % of revenues in 2016 compared to 2015. the company 's depreciation and amortization margin increased 0.2 percentage points to 3.2 % in 2016 compared to 3.0 % in 2015. rollins ' net income of $ 167.4 million in 2016 was an increase of $ 15.2 million or 10.0 % over $ 152.1 million in 2015. net profit margin improved to 10.6 % in 2016 from 10.2 % in 2015. rollins continued to expand our global brand recognition with acquisitions in the united states , australia , and the united kingdom as well as expanding our orkin international franchise program in numerous countries around the globe . the company is now in 47 countries and continues to seek new opportunities . revenues revenues for the year ended december 31 , 2016 were $ 1.573 billion , an increase of $ 88.2 million or 5.9 % from 2015 revenues of $ 1.485 billion . growth occurred across all service lines and brands with our canadian and australian companies being hindered by unfavorable foreign currency exchange rates . organic growth and pricing accounted for approximately 5.2 % of our increase and our acquisitions contributed the remaining revenue growth . commercial pest control represented approximately 40 % of the company 's revenue in 2016 and grew 4.4 % due to increases in sales , increased bed bug revenue , an increase in commercial fumigations , and acquisitions . commercial pest control was negatively impacted by foreign currency exchange as orkin canada and
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adjusted ebitda allows our chief operating decision makers to assess the performance and liquidity of our business on a consolidated basis to assess the ability of our operating segments to produce operating cash flow to fund working capital needs , to fund capital expenditures and to pay dividends . in particular , our management believes that adjusted ebitda permits a comparative assessment of our operating performance and liquidity , relative to a performance and liquidity based on gaap results , while isolating the effects of depreciation and amortization , which may vary among our operating segments without any correlation to their underlying operating performance , and of non-cash stock-based compensation expense , which is a non-cash expense that varies widely among similar companies , and gains and losses on derivative instruments , whose immediate recognition can cause net income to be volatile from period to period due to the timing of the valuation change in the derivative instruments relative to the sale of biofuel . 36 the following table reconciles adjusted ebitda with net income , the most directly comparable gaap financial measure . ( dollars in thousands ) replace_table_token_9_th the following table reconciles adjusted ebitda with cash flows from operations , the most directly comparable gaap liquidity financial measure : ( dollars in thousands ) replace_table_token_10_th revenues revenues for the year ended december 31 , 2014 were $ 341,838,000 as compared to revenues for the year ended december 31 , 2013 of $ 444,919,000 , a decrease of 23 % . revenues from biofuels decreased 31 % and accounted for 57 % of total revenues in 2014 as compared to 64 % in 2013. revenues from chemicals decreased 10 % and accounted for 43 % of total revenues in 2014 as compared to 36 % in 2013. within the chemicals segment , revenues for 2014 changed as follows as compared to 2013 : ( i ) revenues from the bleach activator decreased 22 % ; ( ii ) revenues from the legacy and new proprietary herbicide and intermediates increased 4 % ; ( iii ) revenues from dipb and cpos increased 12 % ; ( iv ) revenues from other custom products decreased 16 % ; and ( v ) revenues from proprietary chemicals increased 26 % . revenues from the bleach activator and the legacy proprietary herbicide and intermediates are together the most significant components of our chemicals segment revenue base , accounting for 14 % of total revenues for the year ended december 31 , 2014 as compared to 17 % for the year ended december 31 , 2013. the contract with the legacy customer ceased in 2014. we are unable to predict with any certainty the revenues we will receive from the bleach activator in the future . 37 revenues from cpos and dipb together increased 12 % during 2014. the primary end market for cpos is the automotive industry , an industry whose economic activity can vary significantly from year to year . this product line experienced a decrease in demand from 2013 to 2014. dipb , however , experienced an increase in sales revenue from 2013 to 2014. dipb is an intermediate in the production of hydroquinone . our customer experienced increased sales in 2014 , some of which were driven by a change in its customers ' order patterns . revenues from other custom chemical products decreased 17 % in 2014 as compared to 2013. this decrease was primarily due to products we no longer sell and reduced sales volumes for existing products . these reductions were partially offset by shortfall payments totaling $ 8,816,000 from a former customer that previously contracted to purchase certain minimum quantities of graphite anode material . this contract was cancelled effective august 9 , 2014. revenues from proprietary chemicals increased 26 % in 2014 as compared to 2013 and account for approximately 5 % of total revenues in 2014. this increase was due in part to increased volumes from existing products and the addition of two new products . revenues from biofuels decreased 31 % or $ 87,726,000 from $ 283,418,000 in 2013 to $ 195,692,000 in 2014. the expiration of the btc on december 31 , 2013 and the absence of the government mandated renewable fuel standard for biodiesel combined to weaken the economics of biodiesel in 2014. the btc was reinstated in late december 2014 and made retroactive to january 1 , 2014 , but has not been extended into 2015. as a result of contractual provisions with certain customers , a share of the btc was owed upon reinstatement of a retroactive btc . revenues from our biofuels have also benefited by our sales of refined petroleum products as a shipper on common carrier pipelines which totaled $ 40,263,000 in 2014 compared to $ 12,521,000 in 2013. a portion of our biodiesel sold in 2014 was to a major refiner in the united states and no assurances can be given that we will continue to sell to such major refiner , or , if we do sell , the volume we will sell or the profit margin we will realize . we continue to expand our regional blended-fuel distribution business . cost of goods sold and distribution total cost of goods sold and distribution for 2014 were $ 275,865,000 as compared to total cost of goods sold and distribution of $ 344,754,000 in 2013 , a decrease of 20 % , which compares to a 23 % decrease in revenues for the period . cost of goods sold and distribution for 2014 for our chemicals segment totaled $ 100,084,000 as compared to cost of goods sold and distribution for 2013 of $ 106,793,000 , a 6 % reduction . this reduction in cost of goods sold and distribution was primarily due to reduced sales volumes of certain chemical products including the bleach activator and the other custom products we no longer produce . story_separator_special_tag on a percentage basis , the 6 % reduction in costs of goods sold and distribution in 2014 is less than the 10 % decrease in chemical segment revenues as a result of ( i ) the change in product mix ; ( ii ) increased fixed cost share with reduced biodiesel production ; and ( iii ) from adjustments in our inventory carrying value as determined utilizing the lifo method of inventory accounting . cost of goods sold and distribution for 2014 for our biofuel segment were $ 175,781,000 as compared to cost of goods sold and distribution for 2013 of $ 237,961,000. on a percentage basis , cost of goods sold and distribution decreased 26 % versus a decrease in revenues of 31 % . despite the retroactive reinstatement of the btc in december 2014 for the year 2014 , market conditions were less favorable for biodiesel in 2014 as compared to 2013. such market conditions were largely the result of the industry not having clarity for most of the year as to whether or not the btc would exist in 2014. additionally in 2014 , the industry operated , and continues to operate , without a clear government mandate for renewable fuel . the btc expired on december 31 , 2014 and has not been reinstated . we recorded this credit as a reduction in cost of goods sold and distribution expense in our consolidated statement of operations . as a result of the current year reinstatement , we recognized a $ 28,954,000 reduction to cost of goods sold in the fourth quarter of 2014. as a result of the 2012 retroactive reinstatement , we recognized a $ 2,535,000 reduction to cost of goods sold in the first quarter of 2013. furthermore , increases in cost of goods sold and distribution resulted from adjustments in our inventory carrying value as determined utilizing the lifo method of inventory accounting . our hedging activity helped offset the increased cost of goods sold . for 2014 , our hedging gain was $ 12,757,000 as compared to a hedging gain for 2013 of $ 1,151,000. finally , and to a lesser extent , the biodiesel segment benefited from a reduced share of plant allocated fixed costs . 38 operating expenses operating expenses decreased 1 % from $ 9,911,000 in 2013 to $ 9,845,000 in 2014. this decrease was primarily the result of reduced travel expenses and research and development partially offset by increased compensation expense from the issuance of restricted stock awards . provision for income taxes the effective tax rates for the years ended december 31 , 2014 and 2013 reflect our expected tax rate on reported operating earnings before income taxes . in 2013 , as a result of then recently issued technical guidance from the u.s. internal revenue service , futurefuel changed its position related to the benefit from the $ 1 biodiesel btc to exclude this credit from taxable income for the years 2010 through 2013. this change had a significant impact on futurefuel 's provision for income taxes in the fourth quarter of 2013. this benefit reduced futurefuel 's provision for income taxes by $ 11,633,000 in 2013 , with $ 7,755,000 related to the years 2010 through 2012 and $ 3,878,000 related to 2013. this same treatment was followed in 2014 when the $ 1 biodiesel btc was retroactively reinstated for 2014 in december of 2014. this benefit is not expected to recur in the future as the $ 1 biodiesel btc expired on december 31 , 2014 and has not been reinstated . futurefuel 's treatment of the $ 1 biodiesel btc for income tax purposes is expected to result in refunds from the u.s. internal revenue service and various state taxing authorities for a portion of the amount futurefuel has paid for income taxes in prior years . income taxes our liability for uncertain tax positions totaled $ 3,027,000 and $ 1,718,000 at december 31 , 2014 and 2013 , respectively . see note 14 to our consolidated financial statements included herein . fiscal year ended december 31 , 2013 compared to fiscal year ended december 31 , 2012 revenues revenues for the year ended december 31 , 2013 were $ 444,919,000 as compared to revenues for the year ended december 31 , 2012 of $ 351,829,000 , an increase of 26 % . revenues from biofuels increased 48 % and accounted for 64 % of total revenues in 2013 as compared to 54 % in 2012. revenues from chemicals increased 1 % and accounted for 36 % of total revenues in 2013 as compared to 46 % in 2012. within the chemicals segment , revenues for 2013 changed as follows as compared to 2012 : ( i ) revenues from the bleach activator decreased 7 % ; ( ii ) revenues from the proprietary herbicide and intermediates decreased 35 % ; ( iii ) revenues from dipb and cpos decreased 6 % ; and ( iv ) revenues from other custom products increased 36 % . revenues from the bleach activator and the proprietary herbicide and intermediates were together the most significant components of our chemicals segment revenue base , accounting for 17 % of total revenues for the year ended december 31 , 2013 as compared to 25 % for the year ended december 31 , 2012. these products comprised a smaller percentage of our total revenues in 2013 as revenues from our biofuels segment assumed a larger percentage . additionally , revenues from the bleach activator and the proprietary herbicide decreased in 2013. this decrease was attributable to reduced volumes for both products in 2013 , and was partially offset by increased per unit sales prices . revenues from cpos and dipb together decreased 6 % during 2013. the primary end market for cpos is the automotive industry , an industry whose economic activity can vary significantly from year to year .
| this customer has informed us that , due to a decline in demand for the household detergent , associated demand for the bleach activator is likely to fall . the financial impact of any future decline in demand is not known at this time . from 1992 through the fourth quarter of 2013 , we ( and our predecessor at our batesville plant ) had been the primary manufacturer of a proprietary herbicide and certain intermediates for a customer ( and its predecessors ) . as a result of generic competition from asia and price pressure exerted by our customer , we terminated the existing contracts effective in september and october of 2013. we discontinued sales of the proprietary herbicide to the customer in 2014 and are retrofitting assets deployed to other growth opportunities . currently , we are seeking additional customers for this product , although no assurances can be given that additional sales will be achieved . in 2013 , we completed a supply agreement with a major multi-national life sciences company to manufacture an intermediate to a new herbicide . the equipment utilized for this project is , in part , the equipment vacated from the termination of the contracts on the proprietary herbicide mentioned above . the contract is effective through december 31 , 2016 and has a provision for two , two-year extensions at the customer 's option . no assurances can be given , however , that the agreement will be extended past 2016. in 2008 , we entered into a contract with a new customer for the toll manufacture of an industrial intermediate utilized in the antimicrobial industry . we invested approximately $ 10 million in capital expenditures to modify and expand our plant to produce this industrial intermediate . the customer reimbursed these expenditures , which reimbursements have been classified as deferred revenue on our balance sheet and will be earned into income over the expected life of the product . the contract stipulates a price curve based on volumes sold and has an inflationary pricing provision whereby we pass along most inflationary changes in production costs to the customer . pricing
| 15,011 |
in addition , through its geotraq inc. ( “ geotraq ” ) subsidiary , we are engaged in the development , design and , ultimately , we expect the sale of wireless transceiver modules with technology that provides lbs directly from global mobile iot networks we operate three reportable segments : recycling : our recycling segment is a turnkey appliance recycling program . we receive fees charged for recycling , replacement and additional services for utility energy efficiency programs and have established 15 regional processing centers ( “ rpcs ” ) for this segment throughout the united states and canada biotechnology : our biotechnology segment is engaged in the development of new and innovative solutions for ending the opioid epidemic ranging from digital technologies to educational advocacy . technology : geotraq is in the process of developing technology to enable low cost , location-based products and services . 45 reporting period . we report on a 52-or 53-week fiscal year . our 2019 fiscal year ( “ 2019 ” ) ended on december 28 , 2019. our 2018 fisca l year ( “ 2018 ” ) ended on december 29 , 2018. application of critical accounting policies our discussion of the financial condition and results of operations is based upon our consolidated financial statements , which have been prepared in conformity with accounting principles generally accepted in the united states . the preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities , revenues and expenses , and related disclosure of any contingent assets and liabilities at the date of the financial statements . management regularly reviews its estimates and assumptions , which are based on historical factors and other factors believed to be relevant under the circumstances . actual results may differ from these estimates under different assumptions , estimates or conditions . critical accounting policies are defined as those that are reflective of significant judgments and uncertainties and potentially result in materially different results under different assumptions and conditions . arca 's critical accounting policies include intangible impairment under asc 350 , revenue recognition under asc 606 , and going concern under asc 205. story_separator_special_tag claimed by gea in the arbitration and in the lawsuit pending in kentucky . those amounts have been paid into escrow pending the outcome of the arbitration . arbitration proceedings were held in october and november 2019. on march 5 , 2020 , the arbitrator ruled in part in favor of the company and in part in favor of gea , and , as a result , the company recorded a gain on litigation settlement of $ 694. there were no similar transactions for the fiscal year ended december 29 , 2018. see notes 14 and 15 of the consolidated financial statements for a complete discussion of the recleim and gea litigation . other income other income increased $ 618 for the fiscal year ended december 28 , 2019 as compared to the fiscal year ended december 29 , 2018 primarily due to the discussion below . sears holdings management corp – logistics services on february 18 , 2019 , the company informed sears holdings management corp – logistics services ( “ sears ” ) that sears may have overcharged arca recycling $ 642 and that it planned on filing a proof of claim with the trustee in the sears ' bankruptcy against sears for the overcharged amount . the company requested that sears provide contractual written proof to the contrary supporting their claim for invoices submitted in excess of the contractually agreed upon amounts for transportation services . sears provided transportation services to arca recycling in fiscal years 2013 through 2018. arca recycling recorded $ 559 as outstanding and un-paid accounts payable as of december 28 , 2019 and december 30 , 2018. in addition , sears owes arca recycling a net amount due of $ 83. the company has recorded the overcharged amount of $ 559 as other income in the consolidated results for the fiscal year ended december 28 , 2019. the company filed a proof of claim on april 5 , 2019 for a net amount owing the company of $ 83 , of which sears accepted . 48 benefit for inc o me taxes we recorded an income tax benefit of $ 3,197 for the fiscal year ended december 28 , 2019 , compared with a benefit from income taxes of $ 727 for in the same period of 2018 , an increase of $ 2,470 primarily due to the increase in net loss before taxes . net loss the factors described above led to a net loss of $ 11,964 for the fiscal year ended december 28 , 2019 , an increase in loss of $ 6,356 from a net loss of $ 5,608 for the fiscal year ended december 29 , 2018 . segment performance we report our business in the following segments : biotechnology , recycling and technology . we identified these segments based on a combination of business type , customers serviced and how we divide management responsibility . our revenues and profits are driven through our recycling centers , e-commerce , individual sales reps and our internet services for our recycling and technology segment . we expect revenues and profits for our biotechnology segment to be driven by the development of pharmaceuticals that treat the root cause of pain but are non-opioid painkillers . operating loss by operating segment , is defined as loss before net interest expense , other income and expense , provision for income taxes . replace_table_token_4_th recycling segment the recycling segment consists of arca recycling , customer connexx , and arca canada . story_separator_special_tag revenue for the fiscal year ended december 28 , 2019 , decreased $ 1,697 or 4.6 % for the fiscal year ended december 28 , 2019 as compared to the fiscal year ended december 29 , 2018. replacement appliance revenue increased $ 1,600 or 13.3 % due to higher volumes , offset by a decrease in recycling and byproducts revenue of $ 3,297 or 13.3 % due to a decrease in refrigerant sales and lower scrap metal prices , cost of revenue increased $ 1,570 , or 6.1 % for the fiscal year ended december 28 , 2019 as compared to the fiscal year ended december 29 , 2018 , primarily due to an increase in primarily due to an increase in volume , transportation costs and labor , partially offset by a decrease in costs related to our facilities . operating loss for the fiscal year ended december 28 , 2019 , increased $ 5,118 as compared to the prior year period . this represents a decrease in gross profit of $ 3,267 and increased selling , general and administrative expense of $ 2,079 related to higher employee costs and factoring fees , due to increased factoring to support operations . technology segment the technology segment consists of geotraq . results for the fiscal year ended december 28 , 2019 include a loss of $ 4,996 which approximated the fiscal year ended december 29 , 2018 loss of $ 5,046. the loss represents intangible asset amortization expense and other selling general and administrative expense for each period . 49 biotechnology segment our biotechnology segment started during september 2019 , and , as a result , incurred expenses of $ 1,038 related to employee costs and the operating license issued during the fourth quarter of 2019. liquidity and capital resources overview based on our current operating plans , we believe that available cash balances , funds available under our factoring agreement with prestige capital corporation ( “ prestige capital ” ) , and or other refinancing of existing indebtedness will provide sufficient liquidity to fund our operations , our continued investments in store openings and remodeling activities for at least the next 12 months . as of december 28 , 2019 , we had total cash on hand of $ 481. as we continue to pursue strategic transactions to expand and grow our business , we regularly monitor capital market conditions and may raise additional funds through borrowings or public or private sales of debt or equity securities . the amount , nature and timing of any borrowings or sales of debt or equity securities will depend on our operating performance and other circumstances ; our then-current commitments and obligations ; the amount , nature and timing of our capital requirements ; any limitations imposed by our current credit arrangements ; and overall market conditions . in december 2019 , the 2019 novel coronavirus surfaced in wuhan , china . the world health organization declared a global emergency on january 30 , 2020 , with respect to the outbreak . the widespread health crisis has adversely affected the global economy , resulting in an economic downturn that could impact demand for our products . to date , the outbreak has started to have a material adverse impact on our operations . for example , several customers in our appliance recycling and appliance replacement business have suspended our ability to pick up and or replace their customers ' appliances resulting in decreased revenues for both recycling and replacement business . the future impact of the outbreak is highly uncertain and can not be predicted and there is no assurance that the outbreak will not have a material adverse impact on the future results of the company . the extent of the impact , if any , will depend on future developments , including actions taken to contain the coronavirus . cash flows during the fiscal year ended december 28 , 2019 , cash used in operations was $ 3,510 , compared to cash provided by operations of $ 4,145 during the fiscal year ended december 29 , 2018. the decrease in cash provided by operations was primarily due to the increase in net loss , discussed above , offset by noncash impairment charges of $ 2,992 and an increase in deferred income taxes of $ 2,251. additionally , changes in working capital accounts affecting operating cash flows were as follows : an increase in accounts receivable of $ 4,712 and accounts payable and accrued expenses of $ 3,398. cash provided by investing activities was $ 345 and cash used in investing activities of $ 172 for fiscal year ended december 28 , 2019 and the fiscal year ended december 29 , 2018 , respectively . the increase in cash provided by investing activities , as compared to the prior period is primarily attributable to increase in net payments received on a note receivable from appliancesmart of $ 675 , offset by the increase in purchases of property and equipment of $ 189 and intangible assets of $ 288. cash provided by financing activities was $ 2,462 for the fiscal year ended december 28 , 2019 was primarily related to the $ 2,500 proceeds on the related party note . cash used by financing activities of $ 6,109 for the fiscal year ended december 29 , 2018 was attributable to the $ 5,605 payment for midcap financial trust revolver and net payments on short term notes payable of $ 504. sources of liquidity we utilize cash on hand and factor on occasion certain accounts receivable invoices to cover normal and seasonal fluctuations in cash flows and to support our various growth initiatives . our cash and cash equivalents are carried at 50 cost and consist primarily of demand deposits with comm ercial banks . on march 26 , 2018 , the company entered into a purchase and sale agreement with prestige capital , whereby from time to time the company can factor
| operating loss as a result of the factors described above , operating loss of $ 12,431 for the fiscal year ended december 28 , 2019 represented an increase in loss of $ 6,334 over the comparable prior fiscal year ended december 29 , 2018 of $ 6,097 . 47 interest expense , net interest expense net increased $ 812 or 136 % , for the fiscal year ended december 28 , 2019 as compared to the fiscal year ended december 29 , 2018 primarily due to accrued interest related to the california sales tax payable and , the increase in other note payables , partially offset by repayment of the midcap revolver in march 2018 . impairment charges on december 9 , 2019 , appliancesmart , a related party , filed a voluntary petition in the united states bankruptcy court for the southern district of new york seeking relief under chapter 11 of title 11 of the united states code . as a result , the company has recorded an impairment charge of $ 2,992 for the amount owed by appliancesmart to the company as of december 28 , 2019. there were no similar impairment charges for the fiscal year ended december 29 , 2018. see note 4 of the consolidated financial statements for a complete discussion of the appliancesmart note . gain on litigation settlement on august 14 , 2017 as a part of the sale of the company 's equity interest in aap , recleim llc , a delaware limited liability company ( “ recleim ” ) , agreed to undertake , pay or assume the company 's ge obligations consisting of a promissory note ( ge 8 % loan agreement ) a nd other payables which were incurred after the issuance of such promissory note . \the company has an offsetting receivable due from recleim . recleim has paid into an escrow account the money to pay the ge 8 % loan agreement in full . on november 15 , 2016 , the company served an arbitration demand on haier us appliance solutions , inc. , dba ge appliances ( “ gea ” ) , alleging breach of contract and interference with prospective business advantage . on april 18 , 2017 ,
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we use a statistical model to estimate the expected collection rate for each consumer loan at the time of assignment . we continue to evaluate the expected collection rate of each consumer loan subsequent to assignment . our evaluation becomes more accurate as the consumer loans age , as we use actual performance data in our forecast . by comparing our current expected collection rate for each consumer loan with the rate we projected at the time of assignment , we are able to assess the accuracy of our initial forecast . the following table compares our forecast of consumer loan collection rates as of december 31 , 2019 , with the forecasts as of december 31 , 2018 , as of december 31 , 2017 , and at the time of assignment , segmented by year of assignment : replace_table_token_9_th ( 1 ) represents the total forecasted collections we expect to collect on the consumer loans as a percentage of the repayments that we were contractually owed on the consumer loans at the time of assignment . contractual repayments include both principal and interest . forecasted collection rates are negatively impacted by canceled consumer loans as the contractual amount owed is not removed from the denominator for purposes of computing forecasted collection rates in the table . consumer loans assigned in 2010 through 2013 and 2018 have yielded forecasted collection results materially better than our initial estimates , while consumer loans assigned in 2015 and 2016 have yielded forecasted collection results materially worse than our initial estimates . for consumer loans assigned in 2014 , 2017 and 2019 , actual results have been close to our initial estimates . for the year ended december 31 , 2019 , forecasted collection rates improved for consumer loans assigned in 2019 , declined for consumer loans assigned in 2017 and were generally consistent with expectations at the start of the period for all other assignment years presented . for the year ended december 31 , 2018 , forecasted collection rates improved for consumer loans assigned in 2018 , declined for consumer loans assigned in 2016 and were generally consistent with expectations at the start of the period for all other assignment years presented . the changes in forecasted collection rates impacted forecasted net cash flows ( forecasted collections less forecasted dealer holdback payments ) as follows : replace_table_token_10_th 25 in addition to the statistical model used to forecast collection rates , we use a model to forecast the timing of future net cash flows . during the fourth quarter of 2017 , we updated our net cash flow timing model to incorporate more recent data . the revised forecast resulted in an expected cash flow stream with a lower net present value as compared to the prior forecast , as less cash flows were expected in earlier periods and more cash flows were expected in later periods . the reduction in net present value was primarily the result of a change in the expected timing of cash flows from longer-term consumer loans . due to our limited historical experience with longer-term consumer loans , our prior model relied on extrapolations from the historical performance of shorter-term consumer loans to predict the timing of future net cash flows on longer-term consumer loans . we used our additional historical experience on these longer-term loans to refine our estimate . the revision to our net cash flow timing forecast did not impact the amount of undiscounted net cash flows we expected to receive . as a result , the dollar amount of future net portfolio revenue ( finance charges less provision for credit losses ) was not impacted by the revision . however , the revision did impact the period in which those net revenues are recorded as a portion of the impact of the revised timing estimate was recorded as a current period expense and a portion was recorded as a yield adjustment . for the fourth quarter of 2017 , the revision increased provision for credit losses by $ 41.6 million , reduced finance charge revenue by $ 7.3 million and reduced net income by $ 30.8 million . the revision reduced the yield on our loan portfolio by 90 basis points , which impacts the timing of revenue recognition in future periods . the following table presents information on the average consumer loan assignment for each of the last 10 years : replace_table_token_11_th ( 1 ) represents the repayments that we were contractually owed on consumer loans at the time of assignment , which include both principal and interest . ( 2 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program . payments of dealer holdback and accelerated dealer holdback are not included . forecasting collection rates accurately at loan inception is difficult . with this in mind , we establish advance rates that are intended to allow us to achieve acceptable levels of profitability , even if collection rates are less than we initially forecast . 26 the following table presents forecasted consumer loan collection rates , advance rates , the spread ( the forecasted collection rate less the advance rate ) , and the percentage of the forecasted collections that had been realized as of december 31 , 2019 . all amounts , unless otherwise noted , are presented as a percentage of the initial balance of the consumer loan ( principal + interest ) . the table includes both dealer loans and purchased loans . replace_table_token_12_th ( 1 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program as a percentage of the initial balance of the consumer loans . payments of dealer holdback and accelerated dealer holdback are not included . ( 2 ) presented as a percentage of total forecasted collections . story_separator_special_tag the risk of a material change in our forecasted collection rate declines as the consumer loans age . for 2015 and prior consumer loan assignments , the risk of a material forecast variance is modest , as we have currently realized in excess of 90 % of the expected collections . conversely , the forecasted collection rates for more recent consumer loan assignments are less certain as a significant portion of our forecast has not been realized . the spread between the forecasted collection rate and the advance rate has ranged from 20.3 % to 33.1 % over the last 10 years . the spread was at the high end of this range in 2010 , when the competitive environment was unusually favorable , and much lower during other years ( 2015 through 2019 ) when competition was more intense . the decrease in the spread from 2018 to 2019 was primarily the result of the performance of 2018 consumer loans , which has exceeded our initial estimates by a greater margin than those assigned to us in 2019 . 27 the following table compares our forecast of consumer loan collection rates as of december 31 , 2019 with the forecasts at the time of assignment , for dealer loans and purchased loans separately : replace_table_token_13_th ( 1 ) the forecasted collection rates presented for dealer loans and purchased loans reflect the consumer loan classification at the time of assignment . the following table presents forecasted consumer loan collection rates , advance rates , and the spread ( the forecasted collection rate less the advance rate ) as of december 31 , 2019 for dealer loans and purchased loans separately . all amounts are presented as a percentage of the initial balance of the consumer loan ( principal + interest ) . replace_table_token_14_th ( 1 ) the forecasted collection rates and advance rates presented for dealer loans and purchased loans reflect the consumer loan classification at the time of assignment . ( 2 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program as a percentage of the initial balance of the consumer loans . payments of dealer holdback and accelerated dealer holdback are not included . although the advance rate on purchased loans is higher as compared to the advance rate on dealer loans , purchased loans do not require us to pay dealer holdback . the spread on dealer loans decreased from 22.0 % in 2018 to 21.3 % in 2019 primarily as a result of the performance of the 2018 consumer loans in our dealer loan portfolio , which has exceeded our initial estimates by a greater margin than those assigned to us in 2019. the spread on purchased loans decreased from 20.8 % in 2018 to 19.5 % in 2019 primarily as a result of the performance of the 2018 consumer loans in our purchased loan portfolio , which has exceeded our initial estimates by a greater margin than those assigned to us in 2019 . 28 access to capital our strategy for accessing capital on acceptable terms needed to maintain and grow the business is to : ( 1 ) maintain consistent financial performance ; ( 2 ) maintain modest financial leverage ; and ( 3 ) maintain multiple funding sources . our funded debt to equity ratio was 1.9 to 1 as of december 31 , 2019 . we currently utilize the following primary forms of debt financing : ( 1 ) a revolving secured line of credit ; ( 2 ) warehouse facilities ; ( 3 ) term abs financings ; and ( 4 ) senior notes . consumer loan volume the following table summarizes changes in consumer loan assignment volume in each of the last three years as compared to the same period in the previous year : replace_table_token_15_th ( 1 ) represents advances paid to dealers on consumer loans assigned under our portfolio program and one-time payments made to dealers to purchase consumer loans assigned under our purchase program . payments of dealer holdback and accelerated dealer holdback are not included . consumer loan assignment volumes depend on a number of factors including ( 1 ) the overall demand for our financing programs , ( 2 ) the amount of capital available to fund new loans , and ( 3 ) our assessment of the volume that our infrastructure can support . our pricing strategy is intended to maximize the amount of economic profit we generate , within the confines of capital and infrastructure constraints . during 2019 , unit volume decreased 0.9 % while dollar volume grew 4.9 % , as the number of active dealers grew 7.0 % while average volume per active dealer decreased 7.4 % . dollar volume grew while unit volume declined during 2019 due to an increase in the average advance paid per unit . this increase was the result of an increase in the average size of the consumer loans assigned primarily due to an increase in the average vehicle selling price and an increase in purchased loans as a percentage of total unit volume . during 2018 , unit and dollar volumes grew 13.6 % and 25.2 % , respectively , as the number of active dealers grew 8.5 % while average volume per active dealer increased 4.9 % . dollar volume grew faster than unit volume during 2018 due to an increase in the average advance paid per unit . this increase was the result of an increase in the average size of the consumer loans assigned primarily due to increases in the average initial loan term and average vehicle selling price and an increase in purchased loans as a percentage of total unit volume . 29 the following table summarizes the changes in consumer loan unit volume and active dealers : replace_table_token_16_th ( 1 ) active dealers are dealers who have received funding for at least one consumer loan during the period .
| the increase of $ 37.4 million , or 12.8 % , was primarily due to the following : an increase in salaries and wages expense of $ 25.5 million , or 15.2 % , comprised of the following : an increase of $ 19.1 million in cash-based incentive compensation expense primarily due to an improvement in company performance measures . excluding the change in cash-based incentive compensation expense , salaries and wages expense increased $ 6.4 million , primarily due to an increase in the number of team members in our support function . an increase in general and administrative expense of $ 9.4 million , or 16.9 % , primarily due to higher building expenses . provision for credit losses . under gaap , when the present value of forecasted future cash flows declines relative to our expectations at the time of assignment , a provision for credit losses is recorded immediately as a current period expense and a corresponding allowance for credit losses is established . for purposes of calculating the required allowance , dealer loans are grouped by dealer and purchased loans are grouped by month of purchase . as a result , regardless of the overall performance of the portfolio of consumer loans , a provision can be required if any individual loan pool performs worse than expected . conversely , a previously recorded provision can be reversed if any previously impaired individual loan pool experiences an improvement in performance . during the year ended december 31 , 2019 , overall consumer loan performance was generally consistent with our expectations at the start of the year . however , the performance of certain loan pools declined from our expectations during the year , resulting in a provision for credit losses of $ 76.4 million for the year ended december 31 , 2019 , of which $ 65.9 million related to dealer loans and $ 10.5 million related to purchased loans . during the year ended december 31 , 2018 , overall consumer loan performance was generally consistent with our expectations at the start of the year . however , the performance of certain loan pools declined from
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we based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources . actual results may differ from these estimates . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements . revenue recognition revenue is recognized when persuasive evidence of an arrangement exists , delivery has occurred , the fee is fixed and determinable , collectability is reasonably assured , contractual obligations have been satisfied and title and risk of loss have been transferred to the customer . we generate our revenue from two different types of contractual arrangements : cost-reimbursable grants and contracts and fixed-cost grants . costs consist primarily of actual internal labor charges , subcontractor and material costs incurred , plus an allocation of fringe benefits , overhead and general and administrative expenses , based on the terms of the contract . revenues on cost-reimbursable grants and contracts are recognized in an amount equal to the costs incurred during the period , plus an estimate of the applicable fee earned . the estimate of the applicable fee earned is determined by reference to the contract : if the contract defines the fee in terms of risk-based milestones and specifies the fees to be earned upon the completion of each milestone , then the fee is recognized when the related milestones are earned . otherwise , we compute fee income earned in a given period by using a proportional performance method based on costs incurred during the period as compared to total estimated project costs and application of the resulting fraction to the total project fee specified in the contract . 51 revenues on fixed-cost grants are recognized using a percentage-of-completion method , which uses assumptions and estimates , as appropriate . these assumptions and estimates are developed in coordination with the principal investigator performing the work under the fixed-price grants to determine levels of accomplishments throughout the life of the grant . our most significant fixed-cost grant was from the state of new york under a sponsored research agreement with rpci . revenue from this grant was deferred and recognized as allowable costs are incurred . at december 31 , 2011 , all revenue under this grant had been recognized . stock-based compensation we expense all share-based awards to employees and consultants , including grants of stock options and shares , based on their estimated fair value at the date of grant . costs of all share-based payments are recognized over the requisite service period that an employee or consultant must provide to earn the award ( i.e . the vesting period ) and allocated to the functional operating expense associated with that employee or consultant . fair value of financial instruments the carrying value of cash and cash equivalents , accounts receivable , short-term investments , accounts payable and accrued expenses approximates fair value due to the relatively short maturity of these instruments . common stock warrants , which are classified as liabilities , are recorded at their fair market value as of each reporting period . the measurement of fair value requires the use of techniques based on observable and unobservable inputs . observable inputs reflect market data obtained from independent sources , while unobservable inputs reflect our market assumptions . the inputs create the following fair value hierarchy : · level 1 – quoted prices for identical instruments in active markets . · level 2 – quoted prices for similar instruments in active markets ; quoted prices for identical or similar instruments in markets that are not active ; and model-derived valuations where inputs are observable or where significant value drivers are observable . · level 3 – instruments where significant value drivers are unobservable to third parties . we use the black-scholes model to determine the fair value of certain common stock warrants on a recurring basis and classify such warrants in level 3. the black-scholes model utilizes inputs consisting of : ( i ) the closing price of our common stock ; ( ii ) the expected remaining life of the warrants ; ( iii ) the expected volatility using a weighted-average of historical volatilities of cbli and a group of comparable companies ; and ( iv ) the risk-free market rate . as of december 31 , 2011 , we held approximately $ 16.3 million in money market funds , classified as a level 1 security , and held approximately $ 7.7 million in accrued expenses classified as a level 3 security , primarily related to warrants to purchase common stock . income taxes determining the consolidated provision for income tax expense , deferred tax assets and liabilities and related valuation allowance , if any , involves judgment . on an on-going basis , we evaluate whether a valuation allowance is needed to reduce our deferred income tax assets to an amount that is more likely than not to be realized . the evaluation process includes assessing historical and current results in addition to future expected results . upon determining that we would be able to realize our deferred tax assets , an adjustment to the deferred tax valuation allowance would increase income in the period we make such determination . recently issued accounting pronouncements in may 2011 , the financial accounting standards board , or fasb , issued accounting standards update no . 2011-04 , amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss , or asu 2011-04 , which is intended to result in convergence between u.s. gaap and international financial reporting standards requirements for measurement of , and disclosures about , fair value . story_separator_special_tag asu 2011-04 clarifies or changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements . this pronouncement is effective for reporting periods beginning after december 15 , 2011 , with early adoption prohibited for public companies . the new guidance will require prospective application . we do not expect its adoption to have a material effect on our financial position or results of operations . 52 in october 2009 , the fasb issued accounting standards update no . 2009-13 , multiple-delivery revenue arrangements , or asu 2009-13 , which establishes the accounting and reporting guidance for arrangements including multiple deliverable revenue-generating activities , and provides amendments to the criteria for separating deliverables , and measuring and allocating arrangement consideration to one or more units of accounting . the amendments of asu 2009-13 also establish a hierarchy for determining the selling price of a deliverable , and require significantly enhanced disclosures to provide information about a vendor 's multiple-deliverable revenue arrangements , including information about their nature and terms , significant deliverables , and the general timing of delivery . the amendments also require disclosure of information about the significant judgments made and changes to those judgments , and about how the application of the relative selling price method affects the timing and amount of revenue recognition . the amendments of asu 2009-13 are effective prospectively for revenue arrangements entered into or materially modified in annual reporting periods beginning on or after june 15 , 2010 , or january 1 , 2011 for us . we adopted these provisions as of january 1 , 2011. the adoption of asu 2009-13 did not have a material impact on our financial position or results of operations . story_separator_special_tag approximately 55 % . this increase was primarily a result of growth in non-cash , stock-based compensation expense for the year ended december 31 , 2010. other expenses other expenses increased by approximately $ 9.5 million to approximately $ 15.9 million for the year ended december 31 , 2010 from approximately $ 6.4 million for the year ended december 31 , 2009 , representing an increase of approximately 148 % . this increase was primarily due to the change in the fair market value of our accrued warrant liability , primarily due to the change in the fair market value of our stock and the additional warrants issued during the year , as determined by the black scholes valuation model . liquidity and capital resources at december 31 , 2011 , we had $ 22.9 million in cash and cash equivalents and $ 5.5 million in short-term investments . as of december 31 , 2011 , we also had accounts receivable of approximately $ 1.7 million , and $ 2.8 million in funded backlog from the federal government . 56 during the year ended december 31 , 2011 , we received net proceeds of $ 21.9 million from the issuance of 5,872,500 shares of our common stock and warrants to purchase 2,936,250 shares of our common stock , $ 1.5 million from the exercise of options and warrants to purchase shares of our common stock , and $ 11.3 million from new investments in our majority-owned subsidiaries . finally , we are in active discussions with barda for continued funding of our research and development of cblb502 as a medical countermeasure for ars . in addition , we are actively responding to all other contract and grant award possibilities we believe appropriate . however , there can be no assurance that any of these contract and grant award applications will result in funding . operating activities net cash used in operations during the years ended december 31 , 2011 , 2010 and 2009 was approximately $ 16.9 million , $ 5.9 million and $ 4.2 million , respectively . the increase in net cash used in operations is due to the maturing nature of our research activities as our compounds advance from pre-clinical research into clinical development , and as the breadth of our drug candidate pipeline expands . with regard to 2011 in particular , the reduction in barda funding required us to use more of our own cash resources to continue the development of our ars drug candidate cblb502 . investing activities net cash used in investing activities during the years ended december 31 , 2011 and 2010 was approximately $ 6.1 million , and $ 1.2 million , respectively , compared to cash provided by investing activities of approximately $ 0.6 million for the year ended december 31 , 2009. most of this activity related to the management of our cash resources in and out of short-term investments , which amounted to approximately ( $ 5.1 ) million , ( $ 0.5 ) million and $ 1.0 million in 2011 , 2010 , and 2009 , respectively . the remainder represents investments in equipment and intellectual property , which increased over this period of time as did our expanding r & d efforts noted above . financing activities cash provided by financing activities during the years ended december 31 , 2011 , 2010 and 2009 was approximately $ 34.8 million , $ 17.1 million and $ 4.3 million , respectively . net proceeds from the sale of equity securities during the years ended december 31 , 2011 , 2010 and 2009 were approximately $ 21.9 million , $ 12.2 million and $ 4.4 million , respectively . investments from noncontrolling interest holders in our majority-owned subsidiaries during the years ended december 31 , 2011 , 2010 and 2009 were approximately $ 11.3 million , $ 3.5 million and $ 0 million , respectively . in 2009 , approximately $ 0.9 million was paid in a preferred stock dividend . the remaining net proceeds for the years ended december 31 , 2011 , 2010 and 2009 was approximately $ 1.6 million , $ 1.4 million and $ 0.8 million , respectively , which resulted from
| year ended december 31 , 2011 compared to year ended december 31 , 2010 revenue revenue decreased by approximately $ 6.5 million to approximately $ 8.8 million for the year ended december 31 , 2011 from approximately $ 15.3 million for the year ended december 31 , 2010 , representing a decrease of approximately 42 % . this decrease resulted primarily from a decrease in revenue from u.s. government contracts and grants , the most significant of which was the reduction in revenue recognized from barda as a result of our completion of work under such contract in february 2011. we are presently engaged in discussions with barda to continue funding research for cblb502 as a medical countermeasure for ars , but do not have assurance that funding will be awarded . see the table below for further details regarding the sources of our government grant and contract revenue : replace_table_token_3_th ( 1 ) the grant received from skolkovo foundation is denominated in russian rubles ( rur ) . the revenue above was calculated using the average exchange rate for the period . we anticipate our revenue over the next year to continue to be derived mainly from government grants and contracts . we plan to submit or have submitted proposals for additional government contracts and grants to funding sources that have awarded contracts and grants to us in the recent past , but there can be no assurance that we will receive future funding awards . research and development expenses r & d expenses increased by approximately $ 6.7 million to approximately $ 22.8 million for the year ended december 31 , 2011 from approximately $ 16.1 million for the year ended december 31 , 2010 , representing an increase of approximately 42 % . of our consolidated r & d expenses , subcontractor costs increased by approximately $ 4.6 million , or 51 % , to $ 13.7 million ; and personnel related expenses grew by approximately $ 1.0 million , or 20 % , to $ 6.2 million . combined these cost elements represent 84 % of the total increase in r & d expense , with the remaining increase of approximately $ 1.1 million
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we encourage our partners to co-market , pursue joint sales initiatives and drive broader adoption of our technology , helping us grow our business more efficiently and focus our engineering resources on continued innovation . our track record of success with customers and their implementations are central to our strategy . we continue to focus and invest time and resources in increasing the number of qualified consultants 25 employed by our si partners , develop relationships with new sis in existing and new markets , and ensure that all partners are ready to assist with implementing our products . we face a number of risks in the execution of our strategy including risks related to expanding to new markets , managing lengthy sales cycles , competing effectively in the global market , relying on sales to a relatively small number of large customers , developing new products successfully , and increasing the overall adoption of our products . in response to these and other risks we might face , we continue to invest in many areas of our business . our investments in sales and marketing align with our goal of winning new customers in both existing and new markets , and enable us to maintain a persistent , consultative relationship with our existing customers . our investments in product development are designed to meet the evolving needs of our customers . seasonality we have historically experienced seasonal variations in our revenues as a result of increased customer orders in our second and fourth fiscal quarters . we generally see increased orders in our second fiscal quarter , which is the quarter ended january 31 , due to customer buying patterns . we also see increased orders in our fourth fiscal quarter due to efforts by our sales team to achieve annual incentives . our services revenues are also subject to seasonal fluctuations , though to a lesser degree than our license revenues . our services revenues and gross margins are impacted by the number of billable days in a given fiscal quarter while we pay our services professionals the same amounts throughout the year . key business metrics we use certain key metrics to evaluate and manage our business , including rolling four-quarter recurring revenues from term licenses and total maintenance . in addition , we present select gaap and non-gaap financial metrics that we use internally to manage the business and that we believe are useful for investors . these metrics include adjusted ebitda and operating cash flow . four-quarter recurring revenues we measure four-quarter recurring revenues by adding the total term license revenues and total maintenance revenues recognized in the preceding four quarters ended in the stated period and excluding perpetual license revenues , revenues from perpetual buyout rights and services revenues . this metric allows us to better understand the trends in our recurring revenues because it typically reduces the variations in any particular quarter caused by seasonality , the effects of the annual invoicing of our term licenses and certain effects of contractual provisions that may accelerate or delay revenue recognition in some cases . our four-quarter recurring revenues for each of the nine periods presented were : replace_table_token_5_th adjusted ebitda we believe adjusted ebitda , a non-gaap financial measure , is useful in evaluating our operating performance compared to that of other companies in our industry , as this metric generally eliminates the effects of certain items that may vary for different companies for reasons unrelated to overall operating performance . we believe that : adjusted ebitda provides investors and other users of our financial information consistency and comparability with our past financial performance , facilitates period-to-period comparisons of operations and facilitates comparisons with other companies , many of which use similar non-gaap financial measures to supplement their gaap results ; and it is useful to exclude non-cash charges , such as depreciation and amortization , stock-based compensation and one-time charges such as our prior litigation provisions from adjusted ebitda because the amount of such 26 expense in any specific period may not directly correlate to the underlying performance of our business operations and these expenses can vary significantly between periods . we use adjusted ebitda in conjunction with traditional gaap measures as part of our overall assessment of our performance , including the preparation of our annual operating budget and quarterly forecasts , to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance . adjusted ebitda should not be considered as a substitute for other measures of financial performance reported in accordance with gaap . there are limitations to using non-gaap financial measures , including that other companies may calculate these measures differently than we do . we compensate for the inherent limitations associated with using adjusted ebitda through disclosure of these limitations , presentation of our financial statements in accordance with gaap and reconciliation of adjusted ebitda to the most directly comparable gaap measure , net income ( loss ) .the following provides a reconciliation of net income to adjusted ebitda : replace_table_token_6_th operating cash flows we monitor our cash flows from operating activities , or operating cash flows , as a key measure of our overall business performance , which enables us to analyze our financial performance without the effects of certain non-cash items such as depreciation and amortization and stock-based compensation expenses . additionally , operating cash flows takes into account the impact of changes in deferred revenues , which reflects the receipt of cash payment for products before they are recognized as revenues . our operating cash flows are significantly impacted by timing of invoicing and collections of accounts receivable , annual bonus payment , as well as payments of payroll and other taxes . as a result , our operating cash flows fluctuate significantly . operating cash flows were $ 63.7 million , $ 75.5 million and $ 32.5 million for fiscal years 2015 , 2014 and 2013 , respectively . story_separator_special_tag for a further discussion of our operating cash flows , see “ liquidity and capital resources—cash flows from operating activities. ” critical accounting policies and estimates our consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the united states . the preparation of our consolidated financial statements requires our management to make estimates , assumptions , and judgments that affect the reported amounts of assets and liabilities and disclosures for contingent assets and liabilities as of the date of the financial statements , and the reported amounts of revenues and expenses during the applicable periods . we believe that of our significant accounting policies , which are described in note 1 “ the company and a summary of significant accounting policies ” to our consolidated financial statements , the following accounting policies require significant judgments , assumptions , and estimates used in the preparation of the consolidated financial statements and actual results could differ materially from the amounts reported based on these policies . to the extent there are material differences between our estimates and the actual results , our future consolidated results of operations may be affected . revenue recognition we enter into arrangements to deliver multiple products or services ( multiple-elements ) . we apply software revenue recognition rules and allocate the total revenues among elements based on vendor-specific objective evidence ( “ vsoe ” ) of fair value of each element . we recognize revenue on a net basis excluding taxes collected from customers and remitted to government authorities . revenues are derived from three sources : 27 ( i ) license fees , related to term ( or time-based ) licenses , perpetual software licenses , and other ; ( ii ) maintenance fees , related to email and phone support , bug fixes and unspecified software updates and upgrades released when , and if available during the maintenance term ; and ( iii ) services fees , related to professional services related to implementation of our software , reimbursable travel and training . revenues are recognized when all of the following criteria are met : persuasive evidence of an arrangement exists . evidence of an arrangement consists of a written contract signed by both the customer and management prior to the end of the period . delivery or performance has occurred . our software is delivered electronically to the customer . delivery is considered to have occurred when we provide the customer access to the software along with login credentials . fees are fixed or determinable . we assess whether a fee is fixed or determinable at the outset of the arrangement , primarily based on the payment terms associated with the transaction . for perpetual licenses , we do not generally offer extended payment terms with typical terms of payment due between 30 and 60 days from delivery of software . fees from term licenses are generally due in annual or , in certain cases , quarterly installments over the term of the agreement beginning on the effective date of the license . accordingly , fees from term licenses are not considered to be fixed or determinable until they become due . collectability is probable . collectability is assessed on a customer-by-customer basis , based primarily on creditworthiness as determined by credit checks and analysis , as well as customer payment history . payment terms generally range from 30 to 90 days from invoice date . if it is determined prior to revenue recognition that collection of an arrangement fee is not probable , revenues are deferred until collection becomes probable or cash is collected , assuming all other revenue recognition criteria are satisfied . vsoe of fair value does not exist for our software licenses ; therefore , we allocate revenues to software licenses using the residual method . under the residual method , the amount recognized for license fees is the difference between the total fixed and determinable fees and the vsoe of fair value for the undelivered elements under the arrangement . the vsoe of fair value for elements of an arrangement is based upon the normal pricing and discounting practices for those elements when sold separately . vsoe of fair value for maintenance is established using the stated maintenance renewal rate in the customer 's contract . we generally enter into term licenses ranging from 2 to 7 years . for term licenses with duration of one year or less , no vsoe of fair value for maintenance exists . vsoe of fair value for services is established if a substantial majority of historical stand-alone selling prices for a service fall within a reasonably narrow price range . if the undelivered elements are all service elements and vsoe of fair value does not exist for one or more service element , the total arrangement fee is recognized ratably over the longest service period starting at software delivery , assuming all the related services have been made available to the customer . in certain offerings sold as fixed fee arrangements , we recognize services revenues on a proportional performance basis as performance obligations are completed by using the ratio of labor hours to date as an input measure compared to total estimated labor hours for the consulting services . in cases where professional services are deemed to be essential to the functionality of the software , the arrangement is accounted for using contract accounting until the essential services are complete . if reliable estimates of total project costs can be made , we apply the percentage-of-completion method whereby percentage toward completion is measured by using the ratio of service billings to date compared to total estimated service billings for the consulting services . service billings approximate labor hours as an input measure since they are generally billed monthly on a time and material basis . the fees related to the maintenance are recognized over the period the maintenance is provided .
| our maintenance revenues are generally recognized over the committed maintenance term . our maintenance fees are typically priced as a fixed percentage of the associated license fees . a substantial majority of our services engagements generate revenues on a time and materials basis and revenues are typically recognized upon delivery of our services . we derive our services revenues primarily from implementation services performed for our customers , reimbursable travel expenses and training fees . refer to note 1 of notes to consolidated financial statements for a description of our accounting policy related to revenue recognition . 31 replace_table_token_9_th license revenues the $ 27.3 million increase in license revenues during fiscal year 2015 was primarily driven by increased adoption of insurancesuite and sales of newer products to both new and existing customers . our license revenue growth across geographies was led by international markets . our license revenues are comprised of term license revenues and perpetual license revenues . term license revenues as a percentage of total license revenues increased for fiscal year 2015 , which reflects a continuing shift from perpetual license to term license arrangements . replace_table_token_10_th term license revenues grew 21 % from $ 139.9 million in fiscal year 2014 to $ 169.4 million in fiscal year 2015. this $ 29.5 million growth was the result of $ 30.8 million of revenues recognized from current year orders from new and existing customers , offset by a net decline of $ 1.3 million in revenues related to prior year orders that were recognized in fiscal year 2014 but were not recognizable in fiscal year 2015 due to timing of invoicing and corresponding due dates , early payments made by our customers or other contractual terms that affected license revenue recognition from customer contracts . the $ 2.2 million decrease in perpetual license revenues during fiscal year 2015 was primarily due to fewer perpetual buyouts and perpetual license contracts as compared to fiscal year 2014 , driven by our
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in doing so , we will continue to evaluate acquisition opportunities that enhance our subject matter knowledge , broaden our service offerings , and or provide scale in specific geographies . we believe that the combination of internally-generated funds , available bank borrowings , and cash and cash equivalents on hand will provide the required liquidity and capital resources necessary to fund on-going operations , potential acquisitions , customary capital expenditures , and other current working capital requirements . while we continue to see favorable long-term market opportunities , there are certain near-term challenges facing all government service providers . the federal government 's budget deficit , the national debt , and prevailing economic conditions could negatively affect federal government expenditures on programs we support . substantial congressional debate has occurred , and is ongoing , regarding the amount of government spending , spending priorities , and deficit reduction actions . although there is an appropriated budget for fiscal year 2014 , there are still top-line legislative constraints on federal discretionary spending though 2021 that limit expenditure growth . we anticipate this debate will continue to be an industry overhang for the foreseeable future for us and our peers . while actions by congress could result in reductions in discretionary spending by the federal government that could delay or reduce our revenue , profit , and cash flow and have a negative impact on our business and results of operations , we believe we are well positioned in markets that have been , and will continue to be , priorities to the federal government . the federal government 's fiscal year ends on september 30 of each year . if a federal budget for the next fiscal year has not been approved by that date , some of our clients may have to suspend engagements on which we are working or may delay new engagements until a budget has been approved . any such suspension or delay may reduce our revenue in the quarter ending september 30 ( our third quarter ) or the subsequent quarter . the federal government 's fiscal year end can also trigger increased contracting activity , which could affect our third and or fourth quarter revenue , profit , and cash flow . in addition , it is possible that congress could enact a continuing resolution or , in the alternative , fail to approve a budget or a continuing resolution in a timely manner , resulting in a government “ shut down. ” a continuing resolution could delay or reduce our revenue , profit , and cash flow , while a government “ shut down ” will more immediately and substantially reduce our revenue , profit , and cash flow . our results of operations and cash flow may vary significantly from quarter to quarter depending on a number of factors , including , but not limited to : progress of contract performance ; extraordinary economic events and natural disasters ; number of billable days in a quarter ; timing of client orders ; timing of award fee notices ; changes in the scope of contracts ; variations in purchasing patterns under our contracts ; federal and state government and other clients ' spending levels ; timing of billings to , and payments by , clients ; 32 timing of receipt of invoices from , and payments to , employees and vendors ; commencement , completion , and termination of contracts ; strategic decisions we make , such as acquisitions , consolidations , divestments , spin-offs , joint ventures , strategic investments , and changes in business strategy ; timing of significant costs and investments ( such as bid and proposal costs and the costs involved in planning or making acquisitions ) ; our contract mix and use of subcontractors ; additions to , and departures of , staff ; changes in staff utilization ; vacation and sick days taken by our employees ; level and cost of our debt ; changes in accounting principles and policies ; and or general market and economic conditions . because a significant portion of our expenses , such as personnel , facilities , and related costs , are fixed in the short term , contract performance and variation in the volume of activity , as well as in the number and volume of contracts commenced or completed during any quarter , may cause significant variations in operating results from quarter to quarter . we generally have been able to price our contracts in a manner to accommodate the rates of inflation experienced in recent years , although we can not ensure that we will be able to do so in the future . critical accounting policies the preparation of our financial statements in accordance with gaap requires that we make estimates and judgments that affect the reported amount of assets , liabilities , revenue , and expenses , as well as the disclosure of contingent assets and liabilities . if any of these estimates or judgments prove to be incorrect , our reported results could be materially affected . actual results may differ significantly from our estimates under different assumptions or conditions . we believe that the estimates , assumptions , and judgments involved in the accounting practices described below have the greatest potential impact on our financial statements and therefore consider them to be critical accounting policies . revenue recognition we recognize revenue when persuasive evidence of an arrangement exists , services have been rendered , the contract price is fixed or determinable , and collectability is reasonably assured . we enter into three types of contracts : time-and-materials , cost-based and fixed-price . time-and-materials contracts . revenue for time-and-materials contracts is recorded on the basis of allowable labor hours worked multiplied by the contract-defined billing rates , plus the costs of other items used in the performance of the contract . profits and losses on time-and-materials contracts result from the difference between the cost of services performed and the contract-defined billing rates for these services . cost-based contracts . revenue under cost-based contracts is recognized as costs are incurred . story_separator_special_tag applicable estimated profit , if any , is included in earnings in the proportion that incurred costs bear to total estimated costs . incentives , award fees , or penalties related to performance are also considered in estimating revenue and profit rates based on actual and anticipated awards . 33 fixed-price contracts . revenue for fixed-price contracts is recognized when earned , generally as work is performed . services performed vary from contract to contract and are not always uniformly performed over the term of the arrangement . we recognize revenue in a number of different ways on fixed-price contracts , including : proportional performance : revenue on certain fixed-price contracts is recorded each period based upon certain contract performance measures ( labor hours , labor costs , or total costs ) incurred expressed as a proportion of a total project estimate . thus , labor hours , labor costs , or total contract costs incurred to date are compared with the total estimate for these items at completion . performance is based on the ratio of the incurred hours or costs to the total estimate . progress on a contract is monitored regularly to ensure that revenue recognized reflects project status . when hours or costs incurred are used as the basis for revenue recognition , the hours or costs incurred represent a reasonable surrogate for output measures of contract performance , including the presentation of deliverables to the client . clients are obligated to pay as services are performed , and in the event that a client cancels the contract , payment for services performed through the date of cancellation is negotiated with the client . contractual outputs : revenue on certain fixed-price contracts is recognized based upon outputs completed to date expressed as a percentage of total outputs required in the contract or based upon units delivered to the customer multiplied by the contract-defined unit price . straight-line : when services are performed or are expected to be performed consistently throughout an arrangement , revenue on those fixed-price contracts is recognized ratably over the period benefited . completed contract : revenue and costs on certain fixed-price contracts are recognized at completion if the final act is so significant to the arrangement that value is deemed to be transferred only at completion . revenue recognition requires us to use judgment relative to assessing risks , estimating contract revenue and costs or other variables , and making assumptions for scheduling and technical issues . due to the size and nature of many of our contracts , the estimation of revenue and estimates at completion can be complicated and are subject to many variables . contract costs include labor , subcontracting costs , and other direct costs , as well as an allocation of allowable indirect costs . we must also make assumptions regarding the length of time to complete the contract because costs include expected increases in wages , prices for subcontractors , and other direct costs . from time to time , facts develop that require us to revise our estimated total costs or hours and thus the associated revenue on a contract . to the extent that a revised estimate affects contract profit or revenue previously recognized , we record the cumulative effect of the revision in the period in which the facts requiring the revision become known . provision for the full amount of an anticipated loss on any type of contract is recognized in the period in which it becomes probable and can be reasonably estimated . as a result , operating results could be affected by revisions to prior accounting estimates . we generate invoices to clients in accordance with the terms of the applicable contract , which may not be directly related to the performance of services . unbilled receivables are invoiced based upon the achievement of specific events as defined by each contract , including deliverables , timetables , and incurrence of certain costs . unbilled receivables are classified as a current asset . advanced billings to clients in excess of revenue earned are recorded as deferred revenue until the revenue recognition criteria are met . reimbursements of out-of-pocket expenses are included in revenue with corresponding costs incurred by us included in the cost of revenue . we may proceed with work based upon written client direction prior to the completion and signing of formal contract documents . we have a formal review process for approving any such work . revenue associated with such work is recognized only when it can reliably be estimated and realization is probable . we base our estimates on a variety of factors , including previous experiences with the client , communications with the client regarding funding status , and our knowledge of available funding for the contract . 34 goodwill and the amortization of intangible assets goodwill represents the excess of costs over the fair value of assets of businesses acquired . goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized , but instead reviewed annually for impairment , or more frequently if impairment indicators arise . intangible assets with estimable useful lives are amortized over such lives and reviewed for impairment . we perform our annual goodwill impairment review as of september 30 of each year . for the purposes of performing this review , we have concluded that the company is one reporting unit . for the annual impairment review as of september 30 , 2013 , we opted to perform a qualitative assessment of whether it is more likely than not that our reporting unit 's fair value is less than its carrying amount . if , after completing our qualitative assessment , we determine that it is not more likely than not that the carrying value exceeds the estimated fair value , we may conclude that no impairment exists . if we conclude otherwise , a two-step goodwill impairment test must be performed which includes a comparison of the fair value of the reporting unit to the carrying value .
| direct costs as a percent of revenue increased slightly to 62.3 % for the year ended december 31 , 2013 , compared to 62.2 % for the year ended december 31 , 2012. we generally expect the ratio of direct costs as a percentage of revenue to increase when our own labor decreases relative to subcontractor labor or outside consultants . changes in the mix of services and other direct costs provided under our contracts can result in variability in our direct costs as a percentage of revenue . for example , when we perform work in the area of implementation , we expect that more of our services will be performed in client-provided facilities and or with dedicated staff . such work generally has a higher proportion of direct costs than much of our current advisory work , and we anticipate that higher utilization of such staff will decrease indirect expenses . in addition , to the extent we are successful in winning larger contracts , our own labor services component could decrease because larger contracts typically are broader in scope and require more diverse capabilities , potentially resulting in more subcontracted labor , more other direct costs , and lower margins . although these factors could lead to a higher ratio of direct costs as a percentage of revenue , the economics of these larger jobs are nonetheless generally favorable because they increase income , broaden our revenue base , and have a favorable return on invested capital . 39 indirect and selling expenses . indirect and selling expenses for the year ended december 31 , 2013 , were $ 272.4 million , compared to $ 263.9 million for the year ended december 31 , 2012 , an increase of $ 8.5 million , or 3.2 % . indirect and selling expenses include our management , facilities , and infrastructure costs for all employees , as well as salaries and wages , including stock-based compensation provided to employees whose compensation and other benefit costs are included in indirect and selling expenses , plus associated fringe benefits , not directly related to client engagements . the increase in indirect and selling expenses is primarily attributable to an increase in indirect labor and benefits , partially offset by a decrease in non-labor expense . indirect costs as a percent of revenue increased to 28.7 %
| 15,016 |
for additional information regarding networks , including a comprehensive overview of our regulated businesses , please see the section entitled , “ business—networks ” in part i , item 1 in this report . revenues networks utilizes regulatory deferrals to evaluate its financial condition and operating performance by reconciling differences between actual revenue received or cost incurred with the rate allowances provided under the tariffs set by the state utilities commissions and ferc . regulatory deferrals create regulatory assets and liabilities under ferc , consistent with u.s. gaap financial accounting standards . regulatory deferrals in new york include electric and gas supply costs , ppas , net plant reconciliations ( downward only ) , revenue decoupling , system benefit charges , renewable portfolio standards , energy efficiency portfolio standards , economic development programs , low income programs , pension costs , other post-employment benefits costs , environmental remediation costs , major storm costs , distribution vegetation management costs ( downward only ) , research and development , incremental maintenance initiatives ( downward only ) , property taxes , rev initiatives , nuclear electric insurance limited , or neil , credits , credit and debit card fees , exogenous costs and certain legislative , accounting , regulatory and tax related actions . regulatory deferrals in maine include stranded costs , revenue decoupling , power tax regulatory asset , environmental remediation , storm reserve accounting , electric thermal storage pilot costs , standard offer retainage costs , ami opt-out program costs , ami deferral costs , ami legal / health proceeding costs , conservation program costs , demand side management costs , low income program costs , electric lifeline program costs , make-ready line extension costs , electric vehicle pilot program costs and transmission planning and related cost allocation . regulatory deferrals in connecticut include electric and gas supply costs , ppas , revenue decoupling , system benefit charges , certain hardship bad debt expense , transmission revenue requirements , gas distribution integrity management program costs , gas system expansion costs , certain public policy costs , certain environmental remediation costs , major storm costs , and certain legislative , accounting , regulatory and tax related actions . 52 regulatory deferrals in massachusetts include gas supply costs , gas supply-related bad debt costs , environmental remediation costs , arrearage management program costs , gas system enhancement program costs , energy efficiency program costs and certain other public policy costs . nyseg 's and rg & e 's electric and natural gas rate plans and cmp 's and ui 's electric rates and cng 's gas rates , each contain a rdm under which their actual energy delivery revenues are compared on a periodic basis with the authorized delivery revenues and the difference accrued , with interest , for refund to or recovery from customers , as applicable . effective january 1 , 2018 , scg has implemented a revenue decoupling mechanism pursuant to the pura approved amended settlement agreement dated june 30 , 2017. nyseg , rg & e and ui are energy delivery companies and also provide energy supply as providers of last resort . energy costs that are set on the wholesale markets are passed on to consumers . the difference between actual energy costs that are incurred and those that are initially billed are reconciled in a process that results in either immediate or deferred tariff adjustments . these procedures apply to other costs , which are in most cases exceptional , such as the effects of extreme weather conditions , environmental factors , regulatory and accounting changes , and treatment of vulnerable customers , that are offset in the tariff process . pursuant to agreements with , or decisions of the nypsc and the mpuc , networks ' maine and new york regulated utilities are each subject to a minimum equity ratio requirement that is tied to the capital structure assumed in establishing revenue requirements . pursuant to these requirements , each of nyseg , rg & e , cmp and mng must maintain a minimum equity ratio equal to the ratio in its currently effective rate plan or decision measured using a trailing 13-month average . on a monthly basis , each utility must maintain a minimum equity ratio of no less than 300 basis points below the equity ratio used to set rates . the minimum equity ratio requirement has the effect of limiting the amount of dividends that can be paid if the minimum equity ratio is not maintained and can , under certain circumstances , require that avangrid contribute equity capital . for cmp and mng , equity distributions that would result in equity falling below the minimum level are prohibited . for nyseg and rg & e , equity distributions that would result in a 13-month average common equity less than maximum equity ratio , utilized for the earnings sharing mechanism , are prohibited if the credit rating of nyseg , rg & e , avangrid or iberdrola are downgraded by a nationally recognized rating agency to the lowest investment grade with a negative watch or downgraded to noninvestment grade . ui , scg , cng and bgc may not pay dividends if paying such dividend would result in a common equity ratio lower than 300 basis points below the equity percentage used to set rates in the most recent distribution rate proceeding as measured using a trailing 13-month average calculated as of the most recent quarter end . story_separator_special_tag in addition , ui , scg , cng and bgc are prohibited from paying dividend to their parent if the utility 's credit rating as rated by any of the three major credit rating agencies , falls below investment grade , or if the utility 's credit rating , as determined by two of the three major credit rating agencies falls to the lowest investment grade and there is a negative watch or review downgrade notice . we believe that these minimum equity ratio requirements do not present any material risk with respect to our performance , cash flow or ability to pay quarterly dividends . in the ordinary course , networks utilities manage their capital structures to allow the maximum level of returns consistent with the levels of equity authorized to set rates , and accordingly , compliance with these requirements does not alter ordinary equity level management . additionally , the lower monthly minimum equity ratio requirement ( a cushion of 300 basis points ) provides flexibility to have short-term fluctuations that result in temporary shortfalls of the maximum equity ratio in any given month . the regulated utility subsidiaries are also prohibited by regulation from lending to unregulated affiliates . rates on june 30 , 2017 , scg filed an application with pura for new tariffs to become effective january 1 , 2018. scg requested a three-year rate plan for calendar years 2018 , 2019 and 2020 and a proposed roe of 9.95 % . scg also requested to implement a rdm and distribution integrity management program , or dimp , mechanism similar to the mechanisms authorized for cng . on october 16 , 2017 , scg , prosecutorial staff from pura , and the connecticut office of consumer counsel , or occ , filed an amended settlement agreement with pura for approval , which includes among other items the implementation of an rdm , esm and the dimp as proposed by scg , the amortization of certain regulatory liabilities ( most notably accumulated hardship deferral balances and certain accumulated deferred income taxes ) and tariff increases based on an roe of 9.25 % and approximately 52 % equity level . the parties also agreed on a three-year rate plan with rate increases of $ 1.5 million , $ 4.7 million and $ 5.0 million in 2018 , 2019 , and 2020 , respectively . pura approved the amended rate case settlement agreement on december 13 , 2017 , and new tariffs became effective on january 1 , 2018. in december 2016 , pura approved distribution rate schedules for ui for three years that became effective january 1 , 2017 , and which , among other things , provides for annual tariff increases and an roe of 9.10 % based on a 50 % equity ratio , continued ui 's existing esm pursuant to which ui and its customers share on a 50/50 basis all distribution earnings above the allowed roe in a calendar year , continued the existing decoupling mechanism , and approved the continuation of the requested storm reserve . any dollars due to customers from the esm continue to be first applied against any storm regulatory asset balance ( if one exists at that time ) or refunded to customers through a bill credit if such storm regulatory asset balance does not exist . 53 on may 20 , 2015 , nyseg and rg & e initiated a distribution rate case to ensure that the companies are able to continue to provide safe , adequate and reliable service , continue to make investments to modernize infrastructure , enhance low income programs and improve both gas and electric reliability , while maintaining their financial integrity . on february 19 , 2016 , the nyseg , rg & e and other signatory parties filed a joint proposal , with the nypsc for a three-year rate plan for electric and gas service at nyseg and rg & e commencing may 1 , 2016 , which was approved on june 15 , 2016 by the nypsc . the joint proposal balanced the varied interests of the signatory parties including but not limited to maintaining the companies ' credit quality and mitigating the rate impacts to customers . the proposal reflects many customer attributes including acceleration of the companies ' natural gas leak prone main replacement programs and increased electric vegetation management to provide continued safe and reliable service . the delivery rate increase in the proposal can be summarized as follows : replace_table_token_17_th the allowed rate of return on common equity for nyseg electric , nyseg gas , rg & e electric and rg & e gas is 9.00 % . the equity ratio for each company is 48 % ; however , the actual equity ratio of up to 50 % is used for earnings sharing calculation purposes . the customer share of any earnings above allowed levels increases as roe increases , with customers receiving 50 % , 75 % and 90 % of earnings over 9.5 % , 10.0 % and 10.5 % roe , respectively , in the first rate year covering the period may 1 , 2016 – april 30 , 2017. the earnings sharing levels increase in rate year two ( may 1 , 2017 – april 30 , 2018 ) to 9.65 % , 10.15 % and 10.65 % roe , respectively . the earnings sharing levels further increase in rate year three ( may 1 , 2018 – april 30 , 2019 ) to 9.75 % , 10.25 % and 10.75 % roe , respectively . the joint proposal reflects the recovery of deferred nyseg electric storm costs of approximately $ 262 million , of which $ 123 million will be amortized over ten years and the remaining $ 139 million will be amortized over five years . the joint proposal also continues reserve accounting for qualifying major storms ( $ 21.4 million annually for nyseg electric and $ 2.5
| 63 comparison of period to period results of operations our operating revenues decreased by 1 % , from $ 6,018 million for the year ended december 31 , 2016 , to $ 5,963 million for the year ended december 31 , 2017. our purchased power , natural gas and fuel used increased by 4 % , from $ 1,286 million for the year ended december 31 , 2016 , to $ 1,338 million for the year ended december 31 , 2017. our operations and maintenance increased by less than 1 % , from $ 2,206 million for the year ended december 31 , 2016 , to $ 2,211 million for the year ended december 31 , 2017. details of the period to period comparison are described below at the segment level . year ended december 31 , 2017 compared to the year ended december 31 , 2016 networks operating revenues for the year ended december 31 , 2017 decreased by $ 69 million , or 1 % , from $ 5,030 million for the year ended december 31 , 2016 , to $ 4,961 million . electricity and gas revenues increased by $ 113 million and $ 83 million , respectively , due to primarily the impact of higher average rates in the year ended december 31 , 2017 compared to the same period of 2016 , from rate case activities in new york and connecticut . electricity revenue for the same period decreased by $ 11 million due to lower volumes largely driven by decrease in cooling degree days , while gas revenues increased by $ 49 million in the same period due to a migration in customers moving from retail access to full service and colder weather . additionally , wholesale electricity revenue decreased by $ 33 million for the year ended december 31 , 2017 compared to the same period of 2016 due to a decrease in overall units sold caused by a decrease in cooling degree days . revenue related regulatory activities decreased by $ 269 million primarily due to an adjustment of $ 126 million in 2016 and an adjustment of $ 14 million in 2017 , to unfunded future income tax to reflect the change from a flow through to normalization method , which were recorded as an increase to revenue , with an offsetting and equal increase to income tax expense in both periods , decreases in the energy supply reconciliation of $ 35 million , amortization of regulatory deferrals from previous rate case of $ 23 million that ended in 2016 , decreases in recoveries on the ginna rssa of $ 75 million , property and power tax deferral of $ 17 million , stranded costs of
| 15,017 |
corporate overview since inception we have devoted substantially all of our efforts establishing a new business and while operations have commenced we have generated no revenue from our limited operations . we are a holding company for a diagnostic medical device company and a clinical trial company specializing in discovering , developing and commercializing diagnostic medical devices with initial applications in the area of diabetes . we are a holding corporation that owns one hundred percent ( 100 % ) of a diagnostic medical device company specializing in discovering , developing and commercializing specialty medical devices . we were organized on december 24 , 2013 under the laws of the state of nevada . we own one hundred percent ( 100 % ) of region green limited , a british virgin islands corporation formed on december 12 , 2013. region green limited owns one hundred percent ( 100 % ) of the stock in dermal diagnostic ( holdings ) limited , an england and wales corporation formed on december 11 , 2013. dermal diagnostics ( holdings ) limited owns one hundred percent ( 100 % ) of the stock in ddl , an england and wales corporation formed on january 20 , 2009 , and one hundred percent ( 100 % ) of the stock in trial clinic limited , an england and wales corporation formed on january 12 , 2011. in december 2013 , we restructured the company and re-domiciled as a domestic corporation in the united states . the corporate re-organization was accomplished to preserve the tax advantages under the laws of the england and wales tax laws for the benefit of the shareholders of both ddl and tcl . affiliated company relationships pharma was incorporated in november 2005. through october 2013 , all technology development and related transactions were incurred by pharma . as new technology platforms were invented and developed , additional companies were set up to contain these new technology platforms to aid in the process of raising further investments to progress the development of these subsequent technologies . however , due to the small size of the operations , low number of employees and laboratory and office space required , only one payroll was maintained initially . invoices were posted in pharma and recharges were made as required . prior to the year ended march 31 , 2016 , recharges included a proportion of the overhead allocated based on management 's assessment . management believes that the allocation methodologies are reasonable . dr. d. f chowdhury and mr. bashir timol are officers of pharma . however , pharma plans a management restructuring and a new management team is planned to be recruited in due course , aligned with commercial launch plans . the current management at ddl , including dr. d. f. chowdhury will allocate 15 % -20 % of their time to oversee the current operations at pharma and the implementation of the new management team and to provide ongoing support in an advisory role . pharma is a drug delivery company , which means that its activities are entirely related to the delivery of drugs to the body of a human or animal subject . ddl is a diagnostic company , which means it is entirely focused on extracting molecules from the human or animal subject and analyzing it to make a diagnosis or to monitor the level of a particular molecule such as glucose . these are two independent businesses engaged in different activities , therefore there is no conflict of interest between the two and management does not see any conflicts arising from the allocations of some of ddl management time to overseeing the operations of pharma . payments made solely for work that dr. chowdhury performed/performs for pharma in his capacity as manager are not recharged to nemaura medical inc. and are not included in our financial statements . 25 results of operations management 's plans and basis of presentation the company has experienced recurring losses and negative cash flows from operations . at march 31 , 2018 , the company had approximate cash and fixed rate cash account balances of $ 5,734,000 , working capital of $ 5,187,000 , total stockholders ' equity of $ 4,111,000 and an accumulated deficit of $ 8,973,000. to date , the company has in large part relied on equity financing to fund its operations . additional funding has come from related party contributions . the company expects to continue to incur losses from operations for the near-term and these losses could be significant as product development , regulatory activities , clinical trials and other commercial and product development related expenses are incurred . management 's strategic assessment includes the following potential options : ● obtaining regulatory approval for the sugarbeat device : ce mark review and approval in europe is anticipated in 2018 , and fda clinical program and pma submission timing is yet to be determined . ● pursuing additional capital raising opportunities ; ● exploring licensing opportunities ; and ● undertaking manufacturing development and scale-up of the sugarbeat device for commercialization . story_separator_special_tag 2019 , and for the achievement of certain of our product development milestones . our plan is to utilize the cash on hand to complete the following : - establish commercial manufacturing operations for commercial supply of the sugarbeat device and patches . - complete clinical studies for ce approval of the body worn miniaturised device with bluetooth connectivity . in november 2015 we received proceeds of $ 10,000,000 in connection with the private placement of 5 million shares and warrants for up to 10 million shares of our common stock . story_separator_special_tag operating activities net cash consumed by our operating activities for the year ended march 31 , 2018 was $ 2,136,977 which reflected our net loss of $ 1,820,449 , increased by an increase in accounts payable , an increase in prepayments , a decrease in liability due to related parties and an increase in accrued interest receivable of $ 452,535 , and offset by an increase in accruals of $ 106,751. net cash consumed by our operating activities for the year ended march 31 , 2017 was $ 1,192,828 which reflected our net loss of $ 1,551,266 , and offset by a net increase in accounts payable , liability due to related parties and accrued expenses of $ 252,638 , and by a decrease in prepayments and other receivables of $ 85,367. net cash consumed by our operating activities for the year ended march 31 , 2016 was $ 1,209,365 which reflected our net loss of $ 1,539,637 , a decrease in accounts payable and accrued expenses of $ 160,983 and offset by a decrease in prepayments and other receivables of $ 224,392 and decrease in prepayment to related party of $ 249,459. net cash generated by investing activities was $ 1,949,215 for the year ended march 31 , 2018 , which reflected the cash received from the maturity of a fixed rate savings account of $ 1,994,475 offset by expenditures made in developing intellectual property , primarily related to patent filings of $ 45,260. net cash used in investing activities was $ 6,306,089 for the year ended march 31 , 2017 , which reflected the expenditures made in developing intellectual property , primarily related to patent filings of $ 73,070 , property and equipment of $ 6,519 and $ 6,226,500 invested in fixed rate savings account . net cash used in investing activities was $ 87,564 for the year ended march 31 , 2016 , which reflected the expenditures made in developing intellectual property , primarily related to patent filings of $ 78,197 and property and equipment of $ 9,367. for the years ended march 31 , 2018 and 2017 , there were no financing activities . net cash provided by financing activities was $ 10,299,434 for the year ended march 31 , 2016. net cash provided by financing activities represents proceeds from the issuance of common stock for cash of $ 10,000,000 and costs paid for by a related party of $ 299,434 . 27 off-balance sheet arrangements we have no off-balance sheet arrangements , including unrecorded derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures or capital resources . contractual obligations none critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( gaap ) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes . future events and their effects can not be determined with absolute certainty . therefore , the determination of estimates requires the exercise of judgment . actual results inevitably will differ from those estimates , and such differences may be material to the financial statements . the most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with research and development , income taxes and intangible assets . the company 's financial position , results of operations and cash flows are impacted by the accounting policies the company has adopted . in order to get a full understanding of the company 's financial statements , one must have a clear understanding of the accounting policies employed . a summary of the company 's critical accounting policies follows : research and development expenses : the company charges research development expenses to operations as incurred . research and development expenses primarily consist of salaries and related expenses for personnel and outside contractor and consulting services . other research and development expenses include the costs of materials and supplies used in research and development , prototype manufacturing , clinical studies , related information technology and an allocation of facilities costs . income taxes : income taxes are accounted for under the asset and liability method . deferred income 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 , and operating loss carry forwards . deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled . the effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date . a valuation allowance is provided to reduce the carrying amount of deferred income tax assets if it is considered more likely than not that some portion , or all , of the deferred income tax assets will not be realized . the company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained . recognized income tax positions are measured at the largest amount that is greater than 50 % likely of being realized . changes in recognition or measurement are reflected in the period in which the change in judgment occurs . the company has elected to classify interest and penalties related to unrecognized tax benefits as part of income tax expense in the consolidated statements of comprehensive income ( loss ) . intangible assets : intangible assets primarily represent legal costs and filings associated with obtaining patents on the company 's new discoveries . the company amortizes these costs over the shorter of the legal life of the patent or
| general and administrative expenses will be expected to significantly increase as we commence product manufacture and commercialisation . other comprehensive income for the years ended march 31 , 2018 and 2017 other comprehensive income/ ( loss ) was $ 564,914 and ( $ 760,999 ) , respectively , arising from foreign currency translation adjustments . year ended march 31 , 2017 compared to the year ended march 31 , 2016 revenue there was no revenue recognized in the years ended march 31 , 2017 and march 31 , 2016. in 2014 , we received an upfront non-refundable cash payment of approximately $ 1.67 million in connection with an exclusive marketing rights agreement with an unrelated third party that provides the third party the exclusive right to market and promote the sugarbeat device and related patch under its own brand in the united kingdom and the republic of ireland . we have deferred this licensing revenue until we complete our continuing performance obligations , which include securing successful ce marking of the sugarbeat patch , and we expect to record the revenue in income over an approximately 10 year term from the date ce marking approval is obtained . although the revenue is deferred at march 31 , 2017 and 2016 , the cash payment became immediately available and was being used to fund our operations , including research and development costs associated with obtaining the ce marking approval 26 research and development expenses research and development expenses were $ 1,034,605 and $ 1,028,224 for the years ended march 31 , 2017 and 2016 , respectively . this amount consisted primarily of expenditure on sub-contractor activities , consultancy fees and wages and demonstrated continuing expenditure for improvements made to the sugarbeat device . we expect research and development expenses to continue to be a significant cost in future periods as we continue our clinical studies of our sugarbeat device and pursue strategic opportunities . general and administrative expenses general and administrative expenses were $
| 15,018 |
research and development expenses since our inception , we have focused our resources on our research and development activities . research and development expenses consist primarily of costs incurred for the development of twirla and other current and future product candidates , and include : expenses incurred under agreements with contract research organizations , or cros , and investigative sites that conduct our clinical trials and preclinical studies ; employee-related expenses , including salaries , benefits , travel and stock-based compensation expenses ; the cost of acquiring , developing and manufacturing clinical trial materials for our product candidates ; costs associated with research , development and regulatory activities ; and costs associated with equipment scale-up required for commercial production . research and development costs are expensed as incurred . costs for certain development activities , such as clinical trials , are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment , clinical site activations or information provided to us by our third party vendors . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis , as the majority of our past and planned expenses have been and will be in support of twirla . we expect to increase our research and development expenses for the foreseeable future as we initiate further clinical trials and continue equipment qualification and validation of our commercial manufacturing process . to date , our research and development expenses have related primarily to the development of twirla . for the years ended december 31 , 2014 , 2013 and 2012 our research and development expenses 99 were approximately $ 13.4 million , $ 9.2 million and $ 17.4 million , respectively . the following table summarizes our research and development expenses by functional area . replace_table_token_7_th it is difficult to determine with any certainty the duration and completion costs of our currently ongoing , planned or future clinical trials of twirla and any of our other current and future product candidates we may advance , or if , when or to what extent we will generate revenue from the commercialization and sale of our product candidates that obtain regulatory approval . we may never succeed in achieving regulatory approval for any of our product candidates . the duration , costs and timing of clinical trials and development of our product candidates will depend on a variety of factors , including the uncertainties of future clinical trials and preclinical studies , uncertainties in clinical trial enrollment rate and significant and changing government regulation . in addition , the probability of success for each product candidate will depend on numerous factors , including competition , manufacturing capability and commercial viability . a change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate . for example , if the fda or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate , or if we experience significant delays in enrollment in any of our clinical trials , or experience issues with our manufacturing capabilities we could be required to expend significant additional financial resources and time with respect to the development of that product candidate . we will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate , as well as an assessment of each product candidate 's commercial potential . general and administrative expenses general and administrative expenses consist principally of salaries and related costs for personnel in executive , finance and administrative functions including stock-based compensation and travel expenses . other general and administrative expenses include facility-related costs , insurance and professional fees for legal , patent review , consulting and accounting services . general and administrative expenses are expensed as incurred . for the years ended december 31 , 2014 , 2013 and 2012 , our general and administrative expenses totaled approximately $ 5.2 million , $ 3.6 million and $ 5.9 million , respectively . we anticipate that our general and administrative expenses will increase in the future with the continued research , development and potential commercialization of twirla and any of our other product candidates , and as we operate as a public company . these increases will likely include increased legal and accounting services , stock registration and printing fees , addition of new personnel to support compliance and communication needs , increased insurance premiums , outside consultants and investor relations . additionally , if in the future we believe regulatory approval of twirla or any of our other product candidates appears likely , we anticipate that we would begin preparations for commercial operations , 100 which would result in an increase in payroll and other expenses , particularly with respect to the sales and marketing of our product candidates . critical accounting policies and significant judgments and estimates our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets , liabilities and expenses and related disclosures . on an ongoing basis , our actual results may differ significantly from our estimates . story_separator_special_tag our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this annual report on form 10-k. we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses , particularly for product development costs . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of services performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with service providers and make adjustments as necessary . examples of estimated accrued research and development expenses include : fees paid to cros in connection with clinical studies ; fees paid to investigative sites in connection with clinical studies ; fees paid to vendors in connection with preclinical development activities ; and fees paid to vendors related to product manufacturing , development and distribution of clinical supplies . we base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple cros that conduct and manage clinical studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense . payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones . in accruing service fees , we estimate the time period over which services will be performed , enrollment of subjects , number of sites activated and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we adjust the accrued liability or prepaid expense accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low in any particular period . based on historical experience , actual results have not been materially different from our estimates . 101 warrant liability we account for detachable warrants with non-standard anti-dilution provisions ( referred to as down round protection ) to purchase convertible preferred stock ( prior to our ipo ) and common stock as liabilities , as they are freestanding derivative financial instruments . the warrants are recorded as liabilities at fair value , estimated using a black-scholes option pricing model , and are subject to re-adjustment at each balance sheet date , otherwise known as marked to market , with changes in the fair value of the warrants recorded in our statements of operations . beneficial conversion when we issue a debt security that is convertible into preferred stock at a discount from the fair value of the preferred stock at the date the debt or equity security counterparty is legally committed to purchase such a security , or the commitment date , a beneficial conversion charge is measured and recorded on the commitment date for the difference between the fair value of our common stock and the effective conversion price of the convertible debt or equity security . if the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the convertible debt or equity security , the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the convertible debt or equity security . the amount allocated to the beneficial conversion feature is presented as a discount or reduction to the related debt security or as an immediate charge to earnings available to common stockholders . stock-based compensation we account for stock-based compensation under asc , 718 `` accounting for stock based compensation . '' all stock-based awards granted to nonemployees are accounted for at their fair value in accordance with asc 718 , and asc 505 , `` accounting for equity instruments that are issued to other than employees for acquiring , or in conjunction with selling , goods or services , '' under which compensation expense is generally recognized over the vesting period of the award . determining the amount of stock-based compensation to be required requires us to develop estimates of fair values of stock options as of the grant date . we account for stock-based compensation by measuring and recognizing expense for all stock-based payments made to employees and directors based on estimated grant date fair values . we use the straight-line method to allocate compensation cost to reporting periods over each optionee 's requisite service period , which is generally the vesting period . we estimate the fair value of our stock-based awards to employees and directors using the black-scholes option valuation model , or black-scholes model . the black-scholes model requires the input of subjective assumptions , including the expected stock price volatility , the calculation of expected term and the fair value of the underlying common stock on the date of grant , among other inputs .
| the fair value of the convertible preferred stock warrants is determined using the black-scholes option pricing model which incorporates a number of assumptions and judgments to estimate the fair value of these warrants including the fair value per share of the 105 underlying stock , the remaining contractual term of the warrants , risk-free interest rate , expected dividend yield , credit spread and expected volatility of the price of the underlying stock . during the year ended december 31 , 2013 , the fair value of our derivative liabilities changed by $ 0.2 million as a result of the value of our preferred stock warrant derivative liabilities increasing primarily due to the change in fair value of the underlying stock . net operating losses and tax carryforwards as of december 31 , 2014 , we had approximately $ 123.3 million of federal and $ 82.1 million of state net operating loss carryforwards . we also potentially have federal and state research and development tax credits which would offset future taxable income . we have not completed a study to assess whether an ownership change has occurred , or whether there have been multiple ownership changes since our inception , due to the significant costs and complexities associated with such studies . accordingly , our ability to utilize the aforementioned carryforwards may be limited . additionally , u.s. tax laws limit the time during which these carryforwards may be utilized against future taxes . as a result , we may not be able to take full advantage of these carryforwards for federal and state tax purposes . as of december 31 , 2014 , all of our net operating losses were fully offset by a valuation allowance . liquidity and capital resources on may 29 , 2014 , we completed our initial public offering whereby we sold 9,166,667 shares of common stock , at a public offering price of $ 6.00 per share , before underwriting discounts and expenses . the aggregate net proceeds received by us from the offering were
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upon regulatory approval of myocell , we intend to generate revenue in the united states from the sale of myocell cell-culturing services for treatment of patients by qualified physicians . we received approval from the fda in july of 2009 to conduct a phase i safety study on 15 patients of a combined therapy ( myocell with sdf-1 ) , which we believe was the first approval of a study combining gene and cell therapies . we initially commenced work on this study , called the regen trial , during the first quarter of 2010. we suspended activity on the trial in 2010 while seeking additional funding necessary to conduct the trial . we are seeking to secure sufficient funds to reinitiate enrollment in the marvel and regen trials . if we successfully secure such funds , we intend to re-engage a contract research organization , or cro , investigators and certain suppliers to advance such trials . we have initiated and enrolled our first patient in the mirror trial in 2013. the trial is very similar to the marvel trial but focuses on sites outside the us . we will continue enrollment in the mirror trial once we have secured sufficient funds . we have completed the phase 1 angel trial for adipocell ( adipose derived stem cells ) . five patients were enrolled and treated in the second quarter of 2013. at the twelve ( 12 ) month time point , patients demonstrated a statistically significant average improvement in ejection fraction ( ef ) by echocardiogram . this trial was extended to 28 patients and the data has been published in a peer reviewed journal . we also initiated several institutional review board studies in 2013 using adipose derived stem cells for various indications including dry macular degeneration , degenerative disc disease , erectile dysfunction and chronic obstructive pulmonary disease . we have published results of the degenerative disc trial . all other trials are not enrolling patients . we provide these therapies to patients through the clinic . myocath product candidate the myocath is a deflecting tip needle injection catheter that has a larger ( 25 gauge ) needle to allow for better flow rates and less leakage than systems that are 27 gauge . this larger needle allows for thicker compositions to be injected , which helps with cell retention in the heart . also , the myocath needle has more fluoroscopic brightness than the normally used nitinol needle , enabling superior visualization during the procedure . seeing the needle well during injections enables the physician who is operating the catheter to pinpoint targeted areas more precisely . the myocath is used to inject cells into cardiac tissue in therapeutic procedures to treat chronic heart ischemia and congestive heart failure . investigators in our marvel trial may use either our myocath catheters or biosense webster 's ( a johnson & johnson company ) noga® cardiac navigation system along with the myostar injection catheter for the delivery of myocell to patients enrolled in the trial . we are currently producing myocath catheters with a contract manufacturer on an as needed basis . we conduct operations in one business segment . we may organize our business into more discrete business units when and if we generate significant revenue from the sale of our product candidates . our revenue since inception has been generated inside and outside the united states , and the majority of our long-lived assets are located in the united states . general american capital partners on march 3 , 2017 , we entered into an asset sale and lease agreement ( sale/leaseback transaction ; “ asset sale and lease agreement ” ) , with gacp ( general american capital partners ) stem cell bank llc , a florida limited liability company ( “ gacp ) whereby we sold certain lab , medical and other equipment relating to the cell banking business for $ 400,000 and leased back the sold equipment over a three year term . the lease includes a base monthly rental payment of $ 20,000 , due the first day of each calendar month . in addition , we are required to pay 2.3 % , 22.5 % and 31.6 % of revenues collected on deposits arising from cell banking business for years 1 , 2 and 3 , respectively . at the expiration of the lease , we are required to return all leased equipment and along with any maintenance records , logs , etc . in our possession to the lessor with no right of repurchase . 34 index american stem cell centers of excellence are clinics derived from the investment group behind the asset purchase and leaseback agreement . american stem cell centers of excellence provide comprehensive stem cell treatments using innovative technologies and the latest research with the intent that after treatment , the body 's own healing potential naturally repairs and regenerates damaged tissue . with a new clinic in miami , florida and , as we intend , additional clinics opening soon around the country , management contends that american stem cell centers of excellence provides comprehensive stem cell treatments using the u.s. stem cell inc. innovative technologies and the latest regenerative medicine research . u.s. stem cell 's team of scientists have pioneered these in-clinic regenerative medicine protocols and , in our estimation , have helped thousands of patients through their partly-owned subsidiary u.s. stem cell clinic . american stem cell centers of excellence would like to replicate this success and have partnered and , with the board of directors ' approval and continued oversight that this will not diminish their responsibilities to our company , has retained the professional services of mike tomas as ceo to assist with scientific and successful operational deployment of their clinics . the board of directors contends that the successful deployment of american stem cell centers of excellence will lead to the financial value and revenue growth of us stem cell , inc. through sales of our products and services at american stem cell center of excellence clinics . story_separator_special_tag subsequent events in january and february 2019 , the company issued an aggregate of 8,598,928 shares of common stock for services rendered . on january 29 , 2019 , through a reorganization of member interests of u.s. stem cell clinic , llc and regenerative wellness clinic , llc respectively , we increased our holdings , without additional consideration , to a 49.9 percent member interest ownership of u.s. stem cell clinic , llc and regenerative wellness clinic , llc respectively . story_separator_special_tag style= '' font-family : 'times new roman ' , times , serif ; font-size:10pt ; margin:0pt ; text-align : left ; '' > warrants a summary of common stock purchase warrants at december 31 , 2018 and activity during the year ended december 31 , 2018 is presented below : replace_table_token_4_th the following information applies to common stock purchase warrants outstanding and exercisable at december 31 , 2018 : replace_table_token_5_th on august 27 , 2018 , we issued 1,000,000 warrants to purchase our company 's common stock at $ 0.02713 per share for services rendered , vesting 6 months from issuance and exercisable over 10 years . the aggregate fair value of $ 24,986 , determined using the black scholes option pricing model with the following assumptions : dividend yield : 0 % ; volatility : 217.01 % and risk free rate : 2.85 % . interest expense interest expense during the year ended december 31 , 2018 was $ 1,444,807 compared to $ 642,102 for the year ended december 31 , 2017. interest expense primarily consists of interest incurred on the principal amount of the northstar loan , the seaside national bank loan , the capital lease with gacp , accrued fees and interest payable to the guarantors , imputed interest on non-interest bearing debt , the amortization of debt discounts and non-cash interest incurred relating to our issued convertible notes payable . the debt discounts amortization and non-cash interest incurred during the year ended december 31 , 2018 and 2017 was $ 195,967 and $ 126,457 , respectively . our increase in interest expense in 2018 as compared to 2017 was primarily due to our capital lease with gacp with contractually escalating payments . on january 3 , 2018 , we renewed the loan with seaside national bank and trust extend the maturity date to may 18 , 2020 all other terms and conditions remain unchanged . 38 index critical accounting policies our discussion and analysis of our financial condition and results of operations is 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 assumptions that affect the reported amounts of assets , liabilities , revenues and expenses . 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 . while our critical accounting policies are described in note 1 to our financial statements appearing elsewhere in this report , we believe the following policies are important to understanding and evaluating our reported financial results : revenue recognition effective january 1 , 2018 , we recognize revenue in accordance with accounting standards codification 2014-09 , revenue from contracts with customers ( topic 606 ) , which supersedes the revenue recognition requirements in topic 605 , revenue recognition , and most industry-specific revenue recognition guidance throughout the industry topics of the accounting standards codification . the updated guidance states that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . the guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers . at the time of each transaction , management assesses whether the fee associated with the transaction is fixed or determinable and whether or not collection is reasonably assured . the assessment of whether the fee is fixed or determinable is based upon the payment terms of the transaction . collectability is assessed based on a number of factors , including past transaction history with the client and the creditworthiness of the client . our primary sources of revenue are from the sale of test kits and equipment , training services , patient treatments , laboratory services and cell banking . revenues for kits and equipment sold are not recorded until kits and equipment are received by the customer . revenues from in-person trainings are recognized when the training occurs and revenues from on demand online trainings are recognized when the customer purchases the rights to the training course . any cash received as a deposit for trainings are recorded by the company as a liability . patient treatments and laboratory services revenue are recognized when those services have been completed or satisfied . revenues for cell banking sales are accounted for as multiple performance obligations as described in 606 and addresses accounting for arrangements that may involve the delivery or performance of multiple products , services and or rights to use assets . because the company sells its services separately , on more than a limited basis and at a price within a narrow range , our company was able to allocate revenue based on stand-alone pricing . the multiple performance obligations include stem cell banking , dose retrieval and yearly storage fees . revenues for stem cell banking and dose retrieval is recognized at the point of service and revenues for the yearly storage fees is recognized over the term of the banking contract , which is typically one year with annual renewals .
| we expense research and development costs as incurred . marketing , general and administrative our marketing , general and administrative expenses primarily consist of the costs associated with our general management and clinical marketing and trade programs , including , but not limited to , salaries and related expenses for executive , administrative and marketing personnel , rent , insurance , legal and accounting fees , consulting fees , travel and entertainment expenses , conference costs and other clinical marketing and trade program expenses . 35 index stock-based compensation stock-based compensation which is included in the marketing , general and administrative above , reflects our recognition as an expense of the value of stock options and other equity instruments issued to our employees and non-employees over the vesting period of the options and other equity instruments . we have granted to our employees options to purchase shares of common stock at exercise prices as determined by our board of directors , with input from management . in valuing our common stock , our board of directors considered a number of factors , including , but not limited to : ● our financial position and historical financial performance ; ● the illiquidity of our capital stock ; ● arm 's length sales of our common stock ; ● the development status of our product candidates ; ● the business risks we face ; ● vesting restrictions imposed upon the equity awards ; ● an evaluation and benchmark of our competitors ; and ● the prospects of a liquidity event . on april 1 , 2013 , our board of directors approved , subject to subsequently received shareholder approval , the establishment of the bioheart 2013 omnibus equity compensation plan , or the “ 2013 omnibus plan ” ( replacing the 1999 officers and employees stock option plan , or the employee plan , and the 1999 directors and consultants stock option plan ) . the 2013 omnibus plan initially reserved up to fifty thousand ( 50,000 ) shares of common stock for issuance . on august
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operating cash flows were $ 522.7 million during fiscal 2012 compared to $ 501.1 million during fiscal 2011 ; repurchase of $ 185.5 million ( or 2.8 million shares ) of the company 's class a common stock ; and payment of $ 252.3 million in dividends during fiscal 2012 ( including a special dividend of $ 5.00 per share ) compared to dividends of $ 10.0 million paid during fiscal 2011. as of february 2 , 2013 , we had working capital of $ 724.9 million ( including cash and cash equivalents of $ 124.1 million ) and $ 814.8 million of total debt outstanding , with no scheduled maturities until late fiscal 2017. we operated 302 total stores as of february 2 , 2013 , a decrease of two stores from the same period last year . 20 key performance indicators we use a number of key indicators of financial condition and operating performance to evaluate the performance of our business , including the following : replace_table_token_9_th * * based upon the 52 weeks ended february 2 , 2013 and 52 weeks ended february 4 , 2012 trends and uncertainties fluctuations in the following key trends and uncertainties may have a material effect on our operating results . cash flowcash from operating activities is a primary source of liquidity that is adversely affected when the industry faces economic challenges . furthermore , operating cash flow can be negatively affected when new and existing competitors seek areas of growth to expand their businesses . pricingif our customers do not purchase our merchandise offerings in sufficient quantities , we respond by taking markdowns . if we have to reduce our retail selling prices , the cost of sales on our consolidated statement of income will correspondingly rise , thus reducing our income and cash flow . success of brandthe success of our exclusive brand merchandise as well as merchandise we source from national vendors is dependent upon customer fashion preferences and how well we can predict and anticipate trends . sourcingour store merchandise selection is dependent upon our ability to acquire appealing products from a number of sources . our ability to attract and retain compelling vendors as well as in-house design talent , the adequacy and stable availability of materials and production facilities from which we source our merchandise and the speed at which we can respond to customer trends and preferences all have a significant impact on our merchandise mix and , thus , our ability to sell merchandise at profitable prices . store growthour ability to open new stores is dependent upon a number of factors , such as the identification of suitable markets and locations and the availability of shopping developments , especially in a weak economic environment . store growth can be further hindered by mall attrition and subsequent closure of underperforming properties . 21 seasonality and inflation our business , like many other retailers , is subject to seasonal influences , with a significant portion of sales and income typically realized during the last quarter of our fiscal year due to the holiday season . because of the seasonality of our business , results from any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year . we do not believe that inflation has had a material effect on our results during the periods presented ; however , our business could be affected by such in the future . 2013 guidance a summary of estimates on key financial measures for fiscal 2013 is shown below . replace_table_token_10_th general net sales . net sales include merchandise sales of comparable and non-comparable stores and revenue recognized on contracts of cdi , the company 's general contracting construction company . comparable store sales include sales for those stores which were in operation for a full period in both the current month and the corresponding month for the prior year . comparable store sales exclude the change in the allowance for sales returns . non-comparable store sales include : sales in the current fiscal year from stores opened during the previous fiscal year before they are considered comparable stores ; sales from new stores opened during the current fiscal year ; sales in the previous fiscal year for stores closed during the current or previous fiscal year that are no longer considered comparable stores ; sales in clearance centers ; and changes in the allowance for sales returns . service charges and other income . service charges and other income include income generated through the alliance with ge . other income includes rental income , shipping and handling fees , gift card breakage and lease income on leased departments . cost of sales . cost of sales includes the cost of merchandise sold ( net of purchase discounts and non-specific margin maintenance allowances ) , bankcard fees , freight to the distribution centers , employee and promotional discounts , and direct payroll for salon personnel . cost of sales also includes cdi contract costs , which comprise all direct material and labor costs , subcontract costs and those indirect costs related to contract performance , such as indirect labor , employee benefits and insurance program costs . selling , general and administrative expenses . selling , general and administrative expenses include buying , occupancy , selling , distribution , warehousing , store and corporate expenses ( including payroll and employee benefits ) , insurance , employment taxes , advertising , management information systems , legal and other corporate level expenses . buying expenses consist of payroll , employee benefits and travel for design , buying and merchandising personnel . depreciation and amortization . depreciation and amortization expenses include depreciation and amortization on property and equipment . rentals . rentals include expenses for store leases , including contingent rent , and data processing and other equipment rentals . 22 interest and debt expense , net . story_separator_special_tag interest and debt expense includes interest , net of interest income , relating to the company 's unsecured notes , mortgage note , term note , subordinated debentures and borrowings under the company 's credit facility . interest and debt expense also includes gains and losses on note repurchases , if any , amortization of financing costs and interest on capital lease obligations . gain on litigation settlement . gain on litigation settlement includes the proceeds received , net of related expenses , from the settlement of a lawsuit with jda software group . gain on disposal of assets . gain on disposal of assets includes the net gain or loss on the sale or disposal of property and equipment and the gain on the sale of an interest in a mall joint venture , if any . asset impairment and store closing charges . asset impairment and store closing charges consist of write-downs to fair value of under-performing or held for sale properties and exit costs associated with the closure of certain stores . exit costs include future rent , taxes and common area maintenance expenses from the time the stores are closed . income on ( equity in losses of ) joint ventures . income on ( equity in losses of ) joint ventures includes the company 's portion of the income or loss of the company 's unconsolidated joint ventures as well as a distribution of excess cash from one of the company 's mall joint ventures . critical accounting policies and estimates the company 's significant accounting policies are also described in note 1 of notes to consolidated financial statements . as disclosed in that note , the preparation of financial statements in conformity with accounting principles generally accepted in the united states of america ( `` gaap '' ) requires management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes . the company evaluates its estimates and judgments on an ongoing basis and predicates those estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . since future events and their effects can not be determined with absolute certainty , actual results could differ from those estimates . management of the company believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in preparation of the consolidated financial statements . merchandise inventory . approximately 96 % of the company 's inventories are valued at the lower of cost or market using the last-in , first-out retail inventory method ( `` lifo rim '' ) . under lifo rim , the valuation of inventories at cost and the resulting gross margins are calculated by applying a calculated cost to retail ratio to the retail value of inventories . lifo rim is an averaging method that is widely used in the retail industry due to its practicality . inherent in the lifo rim calculation are certain significant management judgments including , among others , merchandise markon , markups , and markdowns , which significantly impact the ending inventory valuation at cost as well as the resulting gross margins . during periods of deflation , inventory values on the first-in , first-out retail inventory method ( `` fifo rim '' ) may be lower than the lifo rim method . additionally , inventory values at lifo rim cost may be in excess of net realizable value . at february 2 , 2013 and january 28 , 2012 , the company reduced the value of inventories on lifo rim to the fifo rim value , which approximates market value . cost of sales during fiscal 2012 , 2011 and 2010 under both the fifo rim and lifo rim methods was the same . the remaining 4 % of the inventories are valued at the lower of cost or market using the average cost or specific identified cost methods . a 1 % change in the dollar amount of markdowns would have impacted net income by approximately $ 10 million for fiscal 2012 . 23 the company regularly records a provision for estimated shrinkage , thereby reducing the carrying value of merchandise inventory . complete physical inventories of all of the company 's stores and warehouses are performed no less frequently than annually , with the recorded amount of merchandise inventory being adjusted to coincide with these physical counts . the differences between the estimated amounts of shrinkage and the actual amounts realized during the past three years have not been material . revenue recognition . the company 's retail operations segment recognizes revenue upon the sale of merchandise to its customers , net of anticipated returns of merchandise . the provision for sales returns is based on historical evidence of our return rate . we recorded an allowance for sales returns of $ 6.5 million and $ 9.0 million as of february 2 , 2013 and january 28 , 2012 , respectively . adjustments to earnings resulting from revisions to estimates on our sales return provision were not material for the years ended february 2 , 2013 , january 28 , 2012 and january 29 , 2011. the company 's share of income earned under the alliance with ge involving the dillard 's branded proprietary credit cards is included as a component of service charges and other income . the company received income of approximately $ 107 million , $ 96 million and $ 85 million from ge in fiscal 2012 , 2011 and 2010 , respectively . pursuant to this alliance , the company has no continuing involvement other than to honor the proprietary cards in its stores . although not obligated to a specific level of marketing commitment , the company participates in the marketing of the proprietary credit cards and accepts payments on the proprietary credit cards in its stores as a convenience to customers who prefer to pay in person rather than by paying online or mailing their payments to ge .
| the backlog of awarded construction contracts at february 2 , 2013 totaled $ 159.3 million . 2011 compared to 2010 net sales from the retail operations segment increased $ 173.9 million or 3 % during fiscal 2011 as compared to fiscal 2010 while sales in comparable stores improved 4 % . sales of shoes , cosmetics and ladies ' accessories and lingerie were up significantly while sales of juniors ' and children 's apparel and 27 men 's apparel and accessories increased moderately . sales of ladies ' apparel were essentially flat , and sales in the home and furniture category were down moderately . the number of sales transactions decreased 2 % over the prior year while the average dollars per sales transaction increased significantly . net sales from the construction segment decreased $ 31.2 million or 31 % during fiscal 2011 as compared to fiscal 2010. this decrease was primarily attributable to the negative impact that the weak united states economy had in previous periods on our construction project backlog . exclusive brand merchandise sales penetration of exclusive brand merchandise for fiscal years 2012 , 2011 and 2010 was 21.6 % , 21.8 % and 22.7 % of total net sales , respectively . service charges and other income replace_table_token_14_th 2012 compared to 2011 service charges and other income is composed primarily of income from the alliance with ge . income from the alliance increased $ 11.3 million in fiscal 2012 compared to fiscal 2011 primarily due to increases in finance charge and late charge fee income and decreased credit losses . 2011 compared to 2010 income from the alliance increased $ 11.1 million in fiscal 2011 compared to fiscal 2010 due to decreased credit losses partially offset by reduced finance charge and late charge fee income . also included in service charges and other income during fiscal 2010 were proceeds of $ 7.5 million received as final payment related to hurricane losses . 28 gross profit replace_table_token_15_th 2012 compared to 2011 gross profit improved 20 basis points of sales during fiscal 2012 compared to
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26 we believe the addition of a direct sales force to complement our existing independent sales representatives allowed us to increase our market presence and increase orders during 2012. orders for our products lead to ( 1 ) rental income , which we anticipate receiving on a recurring basis over the time patients use our products , ( 2 ) direct sales of our products , and ( 3 ) corresponding recurring sales of electrodes and other supplies for our products , all of which are subject to our ability to collect payment due to contractual adjustments by insurers . our products are subject to reimbursement policies of third-party payors , which we may not be able to determine with any certainty . these third-party payor policies typically dictate whether our products will be purchased or rented . therefore , our revenue mix of net rental and net sales revenue may fluctuate from time to time and may not be an indicator of the overall demand for our products . we are unable to determine if the reimbursement policy trend towards purchasing rather than renting our products will continue or change in the future , as it is based on many market and third-party payor factors . however , we believe that based on the current demand for our products , a change in reimbursement policy will not have a significant impact on our total revenue , as we believe it will only shift our revenue mix . shifts in our revenue mix may also have a material impact on our overall gross margin , as product sales result in a lower gross profit because their cost of sales is higher than that from rentals ( cost of sales associated with rentals is primarily depreciation ) . net rental revenue net rental revenue decreased $ 975 or 10 % to $ 8,917 for the year ended december 31 , 2012 , from $ 9,892 for the year ended december 31 , 2011. net rental revenue for the year ended december 31 , 2012 represented 22 % of total net revenue compared to 29 % for the year ended december 31 , 2011. the decrease in net rental revenue for the year ended december 31 , 2012 is primarily due to the continued shift in our revenue mix ( from rentals to direct purchase ) because of our change in third-party payor reimbursement trends , in favor of purchasing products rather than renting them . net sales revenue net sales revenue increased $ 6,493 or 27 % to $ 30,749 for the year ended december 31 , 2012 from $ 24,256 for the year ended december 31 , 2011. net sales revenue for the year ended december 31 , 2012 represented 78 % of total net revenue compared to 71 % for the year ended december 31 , 2011. net sales revenue is comprised of two primary components ; sale of electrotherapy devices and private labeled distributed products , representing 36 % of total net revenue for 2012 , and sale of recurring device consumables ( batteries and electrodes ) , representing 42 % of total net revenue for 2012. this compares to the sale of electrotherapy devices and private labeled distributed products representing 33 % of total net revenue for 2011 and sale of device consumables representing 38 % of total net revenue for 2011. the increase in net sales revenue for the year ended december 31 , 2012 was primarily due to the 27 % increase in orders , the current change in third-party payor reimbursement trends , in favor of purchasing products rather than renting them , and the increased number of units in the market ( previously sold or actively being rented ) . these additional units in the market resulted in a 27 % increase of sales of our recurring consumable supplies over 2011. the increase in net sales revenue was partially offset by adjustments made to account for reimbursement trends and specific provisions for the version 5010 industry transition . gross profit gross profit for the year ended december 31 , 2012 was $ 30,896 or 78 % of total net revenue compared to $ 26,777 or 78 % of total net revenue in the year ended december 31 , 2011. our total gross profit percentage was impacted by two primary items in 2012 ; the increase in total net revenue and revenue mix ( that resulted in a net gross profit of 78 % ) . during 2012 we experienced a 16 % increase in total net revenue over 2011 , which positively impacted our gross profit percentage , as we had incremental net revenue that exceeded fixed costs in manufacturing . the positive effect on gross profit percentage from our increase in total net revenue was offset by the change in revenue mix from more products being sold than rented . product sales incur higher costs than those from rentals , as the major cost associated with rentals is depreciation . net product rentals for 2012 represented 22 % of total net revenue as compared to 29 % for 2011. selling , general and administrative ( sg & a ) total selling , general and administrative expenses increased $ 4,483 or 19 % to $ 28,159 for the year ended december 31 , 2012 from $ 23,676 for the year ended december 31 , 2011 . 27 a summary of selling , general and administrative expenses by department for the years ended december 31 , 2012 and 2011 is provided below : sg & a expense by department replace_table_token_4_th sales and marketing our sales and marketing expenses increased by $ 4,000 for 2012 over 2011 due to incremental commissions incurred in the current period ( 2012 total orders increased 27 % over 2011 ) and the addition of direct field sales employees , which carry fixed salary costs . prior to 2012 , a large portion of our sales channel consisted of independent sales contractors , which carry variable costs based on the number of orders obtained . story_separator_special_tag we are continuously evaluating our sales channel model , which may result in direct sales employees , indirect sales contractors , or a mix of both . reimbursement billing we incurred additional expenses in our reimbursement billing department of $ 975 for 2012 over 2011 , primarily because of additional personnel added to support the increase in total net revenue for 2012 and to further increase our cash collections from third party payors . our reimbursement and billing department relies on personnel , processes and systems to negotiate and collect from third-party payors . therefore , we continue to evaluate and monitor the infrastructure and systems in this department , as it is our primary function for cash collections , and this may result in increased expenses in future periods . improvements in our reimbursement and billing function may lead to higher revenues , as better negotiations and collection efforts with third-party payors could result in an increase in our aggregate accounts receivable collection percentage . story_separator_special_tag november 2009. in addition , during 2012 , our cash flows were negatively impacted by industry conversion to hhs mandated version 5010 for all electronic health care claims . as our business and sales grow , some of these liquidity strains will increase . limited liquidity may restrict our ability to carry out our current business plans and curtail our revenue growth . for the years ended december 31 , 2012 and 2011 , the company reported negative cash flows from operations of $ 879 and $ 362 , respectively . in addition , the company 's line of credit has increased from $ 3,289 at december 31 , 2011 to $ 5,906 at december 31 , 2012 , primarily driven by working capital requirements related to an increase in sales orders during the year . maximum borrowings under the line of credit are $ 7,000. management developed the company 's operating plans for 2013 to emphasize cash flow , under which the company is making operational billing changes to increase cash collections as well as implementing various cost modifications to reduce expenses . management believes that its cash flow projections for 2013 are achievable and that sufficient cash will be generated to meet the company 's operating and financial obligations for the remainder of 2013. our long-term business plan contemplates organic growth in revenues and potential acquisitions . therefore , in order to support a growth in revenue , we require , among other things , funds for the purchases of equipment ( primarily for rental inventory ) , funds for the purchases of inventory , the payment of commissions to an increasing number of sales representatives , and the increase in office lease payments ( for our new , larger building ) to support the higher level of operations . on march 9 , 2012 , in an effort to diversify our product line and penetrate markets that our znd subsidiary serves , we acquired substantially all neurodyne medical corp 's assets ( refer to note 5 of our consolidated financial statements ) . matters relating to the acquisition ( including integration , operation and sales ) have and will continue to require commitments of time and resources , which may detract and impede growth in other areas of our business . the neurodyne asset purchase agreement provides for a seven year contingent consideration , based on a declining percentage of net revenue generated by neurodyne products . the potential amount of all future payments that we could be required to make under the contingent consideration arrangement is between $ 0 and $ 190 based on a percentage of net revenue over the next six years ( refer to note 5 of our consolidated financial statements ) . the availability of the line of credit depends upon our ongoing compliance with covenants , representations and warranties in the doral agreement and borrowing base limitations . although the maximum amount of the line of credit is $ 7,000 , the amount available for borrowing under the line of credit is subject to a ceiling based upon eligible receivables and other limitations , which may limit our ability to borrow the maximum amount . as of december 31 , 2012 , $ 5,906 was outstanding under the doral agreement and $ 1,094 was available for borrowing . we believe that our cash flows from operating activities and borrowing available under the doral agreement will fund our cash requirements through december 31 , 2013. there is no assurance that our operations and available borrowings will provide enough cash for operating requirements or for increases in our inventory of products , as needed , for growth . we may need to seek external financing through the sale of debt or equity , and we are not certain whether any such financing would be available to us on acceptable terms or at all . any additional debt would require the approval of doral healthcare finance . our dependence on operating cash flow means that risks involved in our business can significantly affect our liquidity . contingencies such as unanticipated shortfalls in revenues or increases in expenses could affect our projected revenue , cash flows from operations and liquidity which may force us to curtail our operating plan or impede our growth . we frequently receive , and expect to continue to receive , refund requests from insurance providers relating to specific patients and dates of service . billing and reimbursement disputes are very common in our industry . these requests are sometimes related to a few patients and other times include a significant number of refund claims in a single request . we review and evaluate these requests and determine if any refund is appropriate . we also review claims where we are rebilling or pursuing additional reimbursement from that insurance provider . we frequently have significant offsets against such refund requests which may result in amounts that are due to us in excess of the amounts of refunds requested by the insurance providers .
| 28 other expense for the year ended december 31 , 2012 was $ 31 compared to $ 2 for the same period in 2011. income tax expense we reported income tax expense of $ 788 ( 34 % effective tax rate ) for the year ended december 31 , 2012 compared to $ 1,080 ( 41 % effective tax rate ) for the same period in 2011. the decrease in income tax expense for 2012 is primarily due to permanent and other differences which create taxable income at a different rate than the income before taxes in the statement of operations . the taxes on this taxable income for 2012 cause the income tax expense to be at a lower effective tax rate than the statutory tax rate . income tax expense also includes penalties and interest related to income taxes . net income we reported a 2012 net income of $ 1,553 as compared to a net income of $ 1,564 for 2011. liquidity and capital resources ( dollars in thousands ) line of credit on december 19 , 2011 , we entered into a loan and security agreement ( the doral agreement ) with doral healthcare finance , a division of doral money , inc. the doral agreement provides for an asset-backed revolving credit facility of up to $ 7,000 , subject to reserves and reductions to the extent of changes in the our asset borrowing base . borrowings under the doral agreement bear interest at a variable rate equal to the greater of ( i ) the british bankers ' association libor rate as published in the wall street journal for dollar deposits in the amount of $ 1,000 with a maturity of one month or ( ii ) 3 % per annum , plus , in each case , a margin of 3.75 % . the doral agreement requires monthly interest payments in arrears on the first day of each month . the doral agreement will mature on december 19 , 2014. as of december 31 ,
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it has received a go-ahead by the u.s. fda as well as twenty-three other countries . on september 26 , 2016 , cel-sci received verbal notice from the fda that the phase 3 clinical trial in advanced primary head and neck cancer has been placed on clinical hold . pursuant to this communication from fda , patients currently receiving study treatments could continue to receive treatment , and patients already enrolled in the study continued to be followed . on august 10 , 2017 , cel-sci received a letter from the fda stating that the clinical hold that had been imposed on the phase 3 cancer study with multikine has been removed and that all clinical trial activities under this ind may resume . cel-sci also owns and is developing a pre-clinical technology called leaps . all of cel-sci 's projects are under development . as a result , cel-sci can not predict when it will be able to generate any revenue from the sale of any of its products . since inception , cel-sci has financed its operations through the issuance of equity securities , convertible notes , loans and certain research grants . cel-sci 's expenses will likely exceed its revenues as it continues the development of multikine and brings other drug candidates into clinical trials . until such time as cel-sci becomes profitable , any or all of these financing vehicles or others may be utilized to assist cel-sci 's capital requirements . story_separator_special_tag future proceeds that may be received from the exercise of the warrants . as of september 30 , 2017 , none of the series cc , dd and ee warrants had been exercised . 49 on february 23 , 2017 , cel-sci sold 400,000 registered shares of common stock and 400,000 series gg warrants to purchase 400,000 unregistered shares of common stock at a combined price of $ 2.50 per share . the series gg warrants have an exercise price of $ 3.00 per share are exercisable on or before august 23 , 2022. in addition , cel-sci issued 20,000 series hh warrants to purchase 20,000 shares of unregistered common stock to the placement agent . the series hh warrants have an exercise price $ 3.13 and are exercisable on or before february 16 , 2022. the net proceeds from this offering were approximately $ 0.8 million . as of september 30 , 2017 , none of the series gg and hh warrants had been exercised . on march 14 , 2017 , cel-sci sold 600,000 registered shares of common stock and 600,000 series ii warrants to purchase 600,000 unregistered shares of common stock at combined offering price of $ 2.50 per share . the series ii warrants have an exercise price of $ 3.00 per share and are exercisable on or before september 14 , 2022. in addition , cel-sci issued 30,000 series jj warrants to purchase 30,000 shares of unregistered common stock to the placement agent . the series jj warrants have an exercise price $ 3.13 and are exercisable on or before march 8 , 2022. the net proceeds from this offering were approximately $ 1.3 million . as of september 30 , 2017 , none of the series ii and jj warrants had been exercised . on april 30 , 2017 , cel-sci sold 527,960 registered shares of common stock and 395,970 series kk warrants to purchase 395,970 unregistered shares of common stock at combined offering price of $ 2.88 per share . the series kk warrants have an exercise price of $ 3.04 per share , are exercisable on november 3 , 2017 and expire on november 3 , 2022. in addition , cel-sci issued 26,398 series ll warrants to purchase 26,398 shares of unregistered common stock to the placement agent . the series ll warrants have an exercise price $ 3.59 , are exercisable on october 30 , 2017 and expire on april 30 , 2022. the net proceeds from this offering were approximately $ 1.4 million . as of september 30 , 2017 , none of the series kk and ll warrants had been exercised . on june 22 , 2017 , cel-sci issued series mm warrants in connection with the issuance of convertible notes in the aggregate principal amount of $ 1.5 million to six individual investors . geert kersten , cel-sci 's chief executive officer , participated in the offering and purchased notes in the principal amount of $ 250,000. the notes bear interest at 4 % per year and are due and payable on december 22 , 2017. at the option of the note holders , the notes can be converted into shares of the company 's common stock at a fixed conversion rate of $ 1.69. the series mm warrants entitle the purchasers to acquire 893,491 shares of cel-sci 's common stock . the series mm warrants are exercisable at $ 1.86 per share and expire on june 22 , 2022. shares issuable upon the exercise of the notes and warrants were registered subsequently . as of september 30 , 2017 , $ 450,700 of the notes had been converted into 266,686 shares of cel-sci 's common stock and none of the series mm warrants had been exercised . on july 17 , 2017 , cel-sci extended the expiration date of the series n warrants to august 18 , 2018 , reduced the exercise price from $ 13.18 to $ 3.00 and reduced the number of warrants outstanding from 113,785 to 85,339. as of september 30 , 2017 , the remaining 85,339 series n warrants entitle the holders to purchase one share of cel-sci 's common stock at a price of $ 3.00 per share at any time prior to august 18, 2018 . story_separator_special_tag 50 on july 24 , 2017 , cel-sci issued series nn warrants in connection with the issuance of convertible notes in the aggregate principal amount of $ 1.2 million to twelve individual investors . a trust in which geert kersten , cel-sci 's chief executive officer , holds a beneficial interest participated in the offering and purchased notes in the principal amount of $ 250,000. patricia b. prichep , cel-sci 's senior vice president of operations , purchased a note in the principal amount of $ 25,000. the notes bear interest at 4 % per year and are due and payable on december 22 , 2017. at the option of the note holders , the notes can be converted into shares of the company 's common stock at a fixed conversion rate of $ 2.29. the series nn warrants entitle the purchasers to acquire 539,300 shares of cel-sci 's common stock . the series nn warrants are exercisable at $ 2.52 per share and expire on july 24 , 2022. shares issuable upon the exercise of the notes and warrants were registered subsequently . as of september 30 , 2017 , none of the notes had been converted and none of the series nn warrants had been exercised . on november 2 , 2017 holders of convertible notes in the principal amount of $ 1,059,300 sold in june 2017 and holders of convertible notes in the principal amount of $ 1,235,000 sold in july 2017 agreed to extend the maturity date of these notes to september 21 , 2018. in consideration for the extension of the maturity date of the convertible notes , the company issued a total of 716,400 series rr warrants to the convertible note holders that agreed to the extension . each series rr warrant entitles the holder to purchase one share of the company 's common stock . the series rr warrants may be exercised at any time on or before october 30 , 2022 at an exercise price of $ 1.65 per share . on july 26 , 2017 , cel-sci sold 100,000 registered shares of common stock and 60,000 series oo warrants to purchase 60,000 unregistered shares of common stock at a combined price of $ 2.29 per share . the series oo warrants have an exercise price of $ 2.52 per share are exercisable on january 31 , 2018 and expire on july 31 , 2022. the net proceeds from this offering were approximately $ 222,000. as of september 30 , 2017 , none of the series oo warrants had been exercised . on august 22 , 2017 , cel-sci sold 1,750,000 registered shares of common stock and 1,750,000 series pp warrants to purchase 1,750,000 unregistered shares of common stock at combined offering price of $ 2.00 per share . the series pp warrants have an exercise price of $ 2.30 per share , are exercisable on february 28 , 2018 and expire on february 28 , 2023. in addition , cel-sci issued 87,500 series qq warrants to purchase 87,500 shares of unregistered common stock to the placement agent . the series qq warrants have an exercise price $ 2.50 , are exercisable on february 22 , 2018 and expire on august 22 , 2022. the net proceeds from this offering were approximately $ 3.2 million . as of september 30 , 2017 , none of the series pp and qq warrants had been exercised . inventory decreased by approximately $ 336,000 at september 30 , 2017 as compared to september 30 , 2016 , due to the timing of supplies purchased and used in the manufacturing of multikine for the phase 3 clinical trial . in addition , receivables decreased by approximately $ 176,000 , primarily due to the timing of payments reimbursed under the litigation funding arrangement noted above and the timing of shipments of multikine . 51 during the year ended september 30 , 2017 , the company 's cash decreased by approximately $ 549,000. significant components of this decrease include : net cash used in operating activities of approximately $ 13.8 million and expenditures for equipment and patents , as well as payments on capital leases , of approximately $ 21,000 , offset by proceeds from the sale of common stock and warrants of approximately $ 10.5 million and proceeds from the issuance of notes payable of approximately $ 2.7 million . future capital requirements the company 's material capital commitments include funding operating losses , funding its research and development program , making required lease payments and repaying convertible notes . as of september 30 , 2017 , material contractual obligations are as follows : replace_table_token_3_th ( 1 ) the amounts include future minimum lease payments under the company 's lease of its manufacturing facility ( the san tomas lease ) ( 2 ) the amounts include future interest payments at a fixed rate of 4 % and payment of the notes in full upon maturity in 2018 for information on employment contracts , see item 11 of this report . further , cel-sci has contingent obligations with vendors for work that will be completed in relation to the phase 3 trial . the timing of these obligations can not be determined at this time . cel-sci estimates it will incur additional expenses of approximately $ 13.0 million for the remainder of the phase 3 clinical trial . it should be noted that this estimate is based only on the information currently available in cel-sci 's contracts with the clinical research organizations responsible for managing the phase 3 clinical trial and does not include other related costs , e.g . the manufacturing of the drug .
| this variation was the result of the change in fair value of the derivative liabilities during the period which was caused by fluctuations in the share price of cel-sci 's common stock . net interest expense increased approximately $ 2.2 million during the year ended september 30 , 2017 compared to the year ended september 30 , 2016 , primarily due to an approximate $ 1.34 million in interest expense recorded on a stock financing transaction with ergomed and $ 0.9 million interest expense relating to the amortization of debt discounts and accrued interest on convertible notes payable issued during fiscal 2017. research and development expenses during the five years ended september 30 , 2017 , cel-sci 's research and development efforts involved multikine and leaps . the table below shows the research and development expenses associated with each project during this five-year period . replace_table_token_2_th in january 2007 , cel-sci received a “ no objection ” letter from the fda indicating that it could proceed with phase 3 trials with multikine in head and neck cancer patients . cel-sci had previously received a “ no objection ” letter from the canadian biologics and genetic therapies directorate which enabled cel-sci to begin its phase 3 clinical trial in canada . subsequently , cel-sci received similar authorizations from twenty-three other regulators . cel-sci 's phase 3 clinical trial began in december 2010 after the completion and validation of cel-sci 's dedicated manufacturing facility . 47 as explained in item 1 of this report , as of november 30 , 2017 , cel-sci was involved in pre-clinical studies with respect to its leaps technology . as with multikine , cel-sci does not know what obstacles it will encounter in future pre-clinical and clinical studies involving its leaps technology . consequently , cel-sci can not predict with any certainty the funds required for future research and clinical trials and the timing of future research and development projects . liquidity and capital resources cel-sci has had only limited revenues from operations since its inception in march 1983. cel-sci
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the decrease in sg & a expense was partially offset by higher restructuring costs in 2018 due to executive transition costs of $ 5.1 million and higher depreciation expense related to a significant software system upgrade implemented in the second half of 2017. interest expense : increased $ 9.6 million to $ 62.5 million the increase was primarily due to higher u.s. interest rates and an increase in borrowings under our revolving credit facility . net earnings in equity investee : increased from $ 0.8 million to $ 1 million net earnings in our equity investee increased by $ 0.2 million to $ 1 million . replace_table_token_38_th compass minerals international , inc. other ( income ) expense , net : improved $ 13.2 million from expense of $ 4.4 million to income of $ 8.8 million the increase was primarily due to foreign exchange gains of $ 5.8 million in 2018 , compared to losses of $ 7.1 million in 2017 . income tax expense : decreased $ 51.2 million to $ 8.8 million income tax expense and our income tax rate decreased in 2018 due to $ 60.6 million recorded in 2017 related to u.s. tax reform and a tax settlement agreement related to transfer pricing ( see settlements - note 8 to our consolidated financial statements for more details ) , partially offset by the release of valuation allowances related to plant nutrition south america . our effective tax rate decreased from 58 % in 2017 to 11 % in 2018. our effective tax rates were impacted by u.s. tax reform and a tax settlement agreement in 2017 related to transfer pricing and the release of valuation allowances in 2018 related to plant nutrition south america . our income tax provision in both periods differs from the u.s. statutory rate primarily due to u.s. statutory depletion , state income taxes , foreign income , mining and withholding taxes and interest expense recognition differences for tax and financial reporting purposes . operating segment performance the following financial results represent consolidated financial information with respect to sales from our salt , plant nutrition north america and plant nutrition south america segments for the years ended december 31 , 2019 , 2018 and 2017 . sales primarily include revenue from the sales of our products , or “ product sales , ” and the impact of shipping and handling costs incurred to deliver our salt and plant nutrition products to our customers . the results of operations of the consolidated records management business and other incidental revenues include sales of $ 9.7 million , $ 10.5 million and $ 10.2 million for 2019 , 2018 and 2017 , respectively . these revenues are not material to our consolidated financial results and are not included in the following operating segment financial data . salt segment results replace_table_token_39_th salt segment results commentary : 2018 – 2019 salt sales increased 4 % , or $ 31.4 million , due to higher highway deicing average sales prices and higher consumer and industrial sales volumes , which was partially offset by lower highway deicing sales volumes . salt sales volumes decreased 6 % , or 704,000 tons , which offset the increase in salt segment sales by approximately $ 24 million . highway deicing sales volumes decreased 9 % as a result of mild weather in the u.k. when compared to the significantly above average u.k. winter weather in the first quarter of 2018 and lower north american contract volumes in the 2018-2019 bid season due primarily to lower production volumes at our goderich mine in 2018. consumer and industrial sales volumes increased 7 % due to higher sales volumes of deicing and non-deicing products . salt average sales price increased 10 % and contributed approximately $ 55 million to the increase in salt segment sales due to higher highway deicing prices and product sales mix , as consumer and industrial products , which have a higher average sales price than highway deicing products , were a higher proportion of total sales in the current period . highway deicing average sales prices increased 12 % , primarily as a result of the realization of higher north american highway deicing bid prices for the 2019-2020 winter season . consumer and industrial average sales prices decreased 2 % due to sales mix . replace_table_token_40_th compass minerals international , inc. salt operating earnings increased 45 % , or $ 52.3 million , due to higher highway deicing prices in 2019. per-unit product costs were higher in 2019 due to a higher mix of consumer and industrial sales which have a higher per-unit cost . per-unit production costs and volumes at our north american mines have improved from 2018 which was unfavorably impacted by the labor strike at the goderich mine . salt segment results commentary : 2017 – 2018 salt sales increased 12 % , or $ 88.9 million , due to sales increases in both businesses . salt sales volumes increased 10 % , or 1,027,000 tons , and contributed approximately $ 54 million to the increase in salt segment sales . highway deicing sales volumes increased 12 % as a result of significantly above average winter weather in the u.k. and more winter weather events in north america in the first quarter of 2018 compared to the same period in 2017. consumer and industrial sales volumes were essentially flat with the prior year . salt average sales price increased 2 % and contributed approximately $ 35 million to the increase in salt segment sales as average sales prices were higher in both businesses . story_separator_special_tag salt average sales price was negatively impacted by product mix as highway deicing products , which have a lower average sales price than consumer and industrial products , were a higher proportion of total sales in 2018. highway deicing average sales prices increased 4 % , primarily as a result of the realization of higher north american highway deicing bid prices for the 2018-2019 winter season in the fourth quarter of 2018 reflecting tighter salt supply following a more typical winter season as compared to the prior weak winter season . consumer and industrial average sales prices increased 4 % due to price increases introduced over the last year and an improvement in product sales mix . salt operating earnings decreased 16 % , or $ 22.3 million , due to higher per-unit product and logistics costs in north america as well as higher-cost inventory produced in 2017 and sold in 2018 compared to a lower-cost 2017 beginning inventory . the higher per-unit product and logistics costs resulted primarily from lower goderich mine production levels and higher carryover inventory costs due the goderich mine ceiling fall in the second half of 2017 and lower production levels at the goderich mine related to the strike at the mine that began in april 2018 and ended in july 2018. the reduced inventory levels led to higher costs as a result of purchased salt and higher logistics costs to move salt into markets typically served by our goderich mine . this decrease in operating earnings was partially offset by a restructuring charge of approximately $ 2 million that occurred in 2017. plant nutrition north america results replace_table_token_41_th plant nutrition north america results commentary : 2018 – 2019 plant nutrition north america sales decreased 12 % , or $ 27.0 million , primarily due to lower sales volumes . plant nutrition north america sales volumes decreased 12 % , or 45,000 tons , and reduced sales by approximately $ 29 million . the volume decrease was primarily the result of lower demand due to the wet weather conditions in key north american markets in the first half of 2019. plant nutrition north america average sales prices increased 1 % which partially offset the decrease in sales by approximately $ 2 million . plant nutrition north america operating earnings decreased 11 % , or $ 2.8 million , due to lower sales volumes , higher per-unit shipping and handling costs , a less favorable geographic sales mix and higher cost carryover inventory from 2018 into 2019 , as compared to 2018 beginning inventory . this decrease was partially offset by lower production costs resulting from improved production yield from our pond-based feedstock . plant nutrition north america results commentary : 2017 – 2018 plant nutrition north america sales increased 11 % , or $ 23.2 million , due primarily to higher sales volumes . plant nutrition north america sales volumes increased 11 % , or 35,000 tons , and contributed approximately $ 22 million to the increase in sales . the sales volumes increase resulted from increases in both sop and micronutrient volumes . plant nutrition north america average sales prices were essentially flat and contributed approximately $ 1 million to the increase in sales . plant nutrition north america operating earnings decreased 9 % , or $ 2.4 million , primarily due to an increase in replace_table_token_42_th compass minerals international , inc. depreciation expense associated with commissioning new production assets at our utah facility and additional potassium chloride feedstock used to boost sop production during the first half of 2018. the decrease was partially offset by lower logistics costs and a restructuring charge of approximately $ 1 million that occurred in 2017. plant nutrition south america results replace_table_token_43_th plant nutrition south america results commentary : 2018 – 2019 plant nutrition south america sales decreased 2 % or $ 6.7 million as lower average sales prices were partially offset by higher sales volumes . plant nutrition south america sales volumes increased 4 % , or 29,000 tons , and added approximately $ 6 million to plant nutrition south america sales . chemical solutions sales volumes increased 13 % due to new water treatment business in são paulo . agricultural productivity sales volumes decreased 2 % primarily due to lower sales through our distribution sales channel which more than offset strong growth in our direct to grower sales channel . a 5 % decrease in plant nutrition south america average sales price resulted in a decrease of approximately $ 13 million in plant nutrition south america sales . the decrease in average sales price was primarily due to a 16 % decrease in chemical solutions average sales prices due to shifts in product sales mix , a weaker brazilian real and competitive pressure for industrial and water treatment products . this decrease was partially offset by a 2 % increase in agriculture product sales prices despite the weaker real . plant nutrition south america operating earnings decreased 18 % , or $ 8.7 million , primarily due to lower chemical solutions prices , higher raw materials input costs and continued investment in our direct to grower sales force . plant nutrition south america results commentary : 2017 – 2018 plant nutrition south america sales increased 4 % or $ 16.8 million . plant nutrition south america sales volumes increased 6 % , or 40,000 tons , and contributed approximately $ 22 million to the increase in plant nutrition south america sales . agricultural productivity sales volumes increased 7 % primarily as a result of improved crop economics in brazil versus the prior year . chemical solutions sales volumes increased 4 % due to higher demand for chlor-alkali products . a 1 % decrease in plant nutrition south america average sales price partially offset the sales increase by approximately $ 5 million . the decrease in average sales price was primarily due to a 10 % decrease in chemical solutions average prices , partially offset by a 2 % increase in agricultural productivity product prices .
| million ; gross margin increased 3 percentage points to 23 % from 20 % salt segment gross profit increased $ 54.0 million primarily due to higher average sales prices , which were partially offset by lower sales volumes , increased per-unit shipping and handling costs and higher product costs ( see “ —operating segment performance—salt ” for additional information ) . the plant nutrition business , on a combined basis , decreased $ 10.7 million . plant nutrition north america segment gross profit decreased $ 1.8 million primarily due to lower sales volumes and higher per-unit shipping and handling costs due to an unfavorable geographic sales mix , partially offset by improved per-unit product costs . plant nutrition south america replace_table_token_37_th compass minerals international , inc. segment gross profit decreased $ 8.9 million primarily due to higher raw material costs , lower chemical solutions product prices and a weaker brazilian real compared to the u.s. dollar . gross profit & gross margin commentary : 2017 – 2018 gross profit : decreased 10 % , or $ 32.7 million ; gross margin decreased 4 percentage points to 20 % from 24 % salt segment gross profit decreased $ 24.7 million primarily due to higher per-unit costs at our goderich mine resulting from the strike at the mine that began in april 2018 and ended in july 2018 and higher per-unit shipping and handling costs partially offset by higher sales . the plant nutrition business , on a combined basis , was responsible for $ 7.8 million of the decrease in gross profit . gross profit for plant nutrition north america decreased $ 2.0 million due primarily to higher depreciation expense during 2018 , which was partially offset by higher sales volumes . gross profit for plant nutrition south america decreased $ 5.8 million due primarily to a weaker brazilian real compared to the u.s. dollar , which was partially offset by higher sales prices and volumes . other expenses and income commentary : 2018
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we will require substantial additional funding to complete development and seek regulatory approval for these products . additionally , we currently have no sales , marketing or distribution capabilities and thus our ability to market our products in the future will depend in part on our ability to develop such commercial capabilities , either alone or with collaboration partners . 56 index to financial statements critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations is based on our audited financial statements , which have been prepared in accordance with united states generally accepted accounting principles ( `` u.s. gaap '' ) . the preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements , as well as the reported results of operations during the reporting periods . our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results could differ from these estimates under different assumptions or conditions . while our significant accounting policies are described in more detail in the notes to our financial statements included elsewhere in this annual report on form 10-k , we believe that the accounting policies discussed below are those that are most critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . we are an “ emerging growth company ” as defined in the jobs act . emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies . we have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards , and , therefore , will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies . leases at the inception of an arrangement , we determine whether the arrangement is or contains a lease based on the unique facts and circumstances present . operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected lease term . if the interest rate implicit in our lease contracts is not readily determinable , we utilize our incremental borrowing rate , which is the rate incurred to borrow on a collateralized basis over a similar term , an amount equal to the lease payments in a similar economic environment . certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received . finance leases are reflected as a liability at the inception of the lease based on the present value of the minimum lease payments or , if lower , the fair value of the property . assets under finance leases are recorded in property and equipment , net on the balance sheets and depreciated in a manner similar to other property and equipment . research and development expenses we record research and development expenses as incurred . these expenses consist of costs related to seeking regulatory approval of our primary product candidate , qtrypta ( m207 ) , pre-commercialization efforts for qtrypta ( m207 ) , clinical trial costs and furthering our research and development efforts . research and development costs include salaries and related employee benefits , fees paid to contract manufacturing organizations that conduct manufacturing activities on our behalf , costs associated with clinical trials , nonclinical research and development activities , regulatory activities , costs of active pharmaceutical ingredients , raw materials and research and development related overhead expenses . clinical trial costs clinical trial costs are a component of research and development expenses . we expense clinical trial activities performed by third-parties based upon actual work completed in accordance with agreements established with clinical research organizations and clinical sites . we determine the actual costs at each reporting period through discussions with internal personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services . stock-based compensation we account for stock-based compensation , based on the fair value of the stock-based awards on the date that the grants are ultimately expected to vest . the fair value of employee stock option grants is estimated on the date of grant using the black-scholes option pricing model and is recognized as expense on a straight-line basis over the employee 's requisite service period . as we do not have sufficient historical stock price information to meet the expected life of the stock option grants , we use a blended volatility that includes our common stock trading history and supplements the remaining historical information with the trading history from the common stock of a set of comparable publicly-traded biopharmaceutical companies . we will continue to apply this process until a sufficient amount of historical information regarding the volatility of our stock price becomes available . due to the lack of historical exercise data to provide a reasonable basis upon which to estimate an expected term , we have opted to use the simplified method , which is the use of the midpoint of the vesting term and the contractual term of the award to estimate the expected term . 57 index to financial statements as of april 1 , 2019 , we made an accounting policy election to recognize the impact of stock option forfeitures on stock-based compensation expense in the period an award is forfeited as permitted under accounting standards update ( `` asu '' ) 2016-09 , compensation-stock compensation ( topic 718 ) . story_separator_special_tag prior to april 1 , 2019 , we estimated the forfeiture rate at the initial grant date based on historical experience and our expectations regarding future pre-vesting termination of employees , and reduced stock-based compensation expense for the estimated effect of forfeitures over the requisite service period . there was no significant impact to the financial statements as a result of the change in policy . warrants we record freestanding warrants at fair value using the black-scholes option pricing model . impairment of long-lived assets we identify and record impairment losses on long-lived assets used in operations when events or changes in circumstances indicate that the carrying amount of an asset is likely not recoverable . recoverability is measured by comparing the fair value to the related asset 's carrying value . if an asset is considered impaired , the asset is written down to fair value . income taxes we use the liability method to account for income taxes . under this method , deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts of existing assets and liabilities and their tax basis . deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled . a valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized . financial statement effects of uncertain tax positions are recognized when it is more-likely-than-not , based on the technical merits of the position , that they will be sustained upon examination . financial operations overview general as of december 31 , 2019 , we had an accumulated deficit of approximately $ 298.8 million . we have incurred significant losses and expect to incur significant and increasing losses in the foreseeable future as we advance our qtrypta ( m207 ) product candidate into later stages of development and , if approved , commercialization . we can not assure you that we will receive additional capital or collaboration revenue in the future , as a result of any partnership that we might pursue . we expect our pre-commercialization expenses related to our qtrypta ( m207 ) product candidate to increase as we continue to advance this program towards regulatory approval and , if approved , commercialization . because of the numerous risks and uncertainties associated with our technology and drug development , we can not forecast with any degree of certainty the timing or amount of expenses incurred or when , or if , we will be able to achieve profitability . we will require additional capital to undertake our planned pre-commercialization activities , research and development activities and to meet our operating requirements beyond 2020 . we intend to raise such capital through the issuance of additional equity through public or private offerings , debt financing , strategic alliances with pharmaceutical partners , or any combination of the above . however , if such financing is not available at adequate levels or on acceptable terms , we could be required to further reduce our operating expenses and suspend , delay or reduce the scope of our qtrypta ( m207 ) development program , out-license intellectual property rights to our intracutaneous delivery technology , or a combination of the above , which may have a material adverse effect on our business , results of operations , financial condition and or our ability to fund our scheduled obligations on a timely basis or at all . research and development expenses research and development expenses represent costs incurred to seek regulatory approval , for pre-commercialization efforts for our primary product candidate , qtrypta tm ( m207 ) , and to conduct clinical trials and pre-clincial studies to further our research and development efforts . we recognize all research and development expenses as they are incurred . research and development expenses consist of : production costs which include , but are not limited to , employee-related expenses , including salaries , benefits and stock-based compensation expense , drug formulation and clinical trials ; expenses related to the purchase of active pharmaceutical ingredients and raw materials for the production of our system , including fees paid to contract manufacturing organizations ; 58 index to financial statements fees paid to cros , clinical consultants , clinical trial sites and vendors , including irbs , in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data , including all related fees , such as for investigator grants , patient screening fees , laboratory work and statistical compilation and analysis ; fees paid to conduct clinical studies , drug formulation and cost of consumables used in nonclinical and clinical trials ; other consulting fees paid to third-parties ; and allocation of certain shared costs , such as facilities-related costs . in 2019 , our research and development efforts and resources focused primarily on advancing the development of qtrypta ( m207 ) . we expect our manufacturing related research and development expenses to continue to increase as a result of our qtrypta ( m207 ) pre-commercialization efforts . while we currently intend to continue clinical development of qtrypta ( m207 ) through commercialization in the united states ourselves , we remain open to opportunities with potential strategic partners to ensure qtrypta ( m207 ) will receive the best chance of commercial success . we are actively seeking opportunities to evaluate collaborations with strategic partners to further the clinical and commercial development of our other product candidates . we can not forecast with any degree of certainty if qtrypta ( m207 ) or any of our other product candidates , if any , will be subject to future collaborations or how such arrangements would affect our development plans or capital requirements .
| the increase in interest expense resulted from a higher outstanding balance on our build-to-suit obligation with trinity . we paid all of our outstanding obligations under the hercules term loan in september 2018. for the year ended december 31 , 2019 , other income ( expense ) , net was primarily attributed to the write-off of deferred offering costs related to the cancellation of an equity line of credit with lincoln park capital . income taxes as of december 31 , 2019 , we had net deferred tax assets of $ 29.1 million and deferred tax liabilities of $ 1.6 million . the deferred tax assets primarily consisted of federal and state tax net operating losses and research and development tax credit carryforwards . due to uncertainties surrounding our ability to generate future taxable income to realize these tax assets , a full valuation allowance has been established to offset our deferred tax assets . as of december 31 , 2019 , we had federal net operating loss carryforwards of approximately $ 76.0 million and state net operating loss carryforwards of approximately $ 68.2 million . as of december 31 , 2018 , we had federal net operating loss carryforwards of approximately $ 41.1 million and state net operating loss carryforwards of approximately $ 33.2 million . if not utilized , certain federal net operating loss carryforwards incurred before 60 index to financial statements january 1 , 2018 , will expire beginning in 2026 , and state net operating loss carryforwards will expire beginning in 2028 . the federal net operating losses incurred in 2018 and beyond do not expire . as of december 31 , 2019 , we had federal and state research and development credit carryforwards of approximately $ 1.6 million and $ 5.6 million , respectively . as of december 31 , 2018 , we had federal and state research and development credit carryforwards of approximately $ 0.6 million and $ 5.1 million , respectively .
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we estimate the aggregate amount of the expenses based upon the projected amounts that are set forth in the agreements , and we accrue the expenses for which we have not yet been invoiced or prepay the expenses that have been invoiced but the services have not yet been performed . in estimating the expenses , we consider , among other things , the following factors : · the existence of any prior relationship between us and the third party provider ; · the past results of prior research and development services performed by the third party provider ; and · the scope and timing of the research and development services set forth in the agreement with the third party provider . after the research services are performed and we are invoiced , we make any adjustments that are necessary to accurately report research and development expense for the period . income taxes we account for income taxes in accordance with an asset and liability approach requiring the recognition of deferred tax assets and liabilities for the expected tax consequences of events that have been recognized in the financial statements or tax returns . deferred tax assets and liabilities are recorded without consideration as to their ability to be realized . the deferred tax asset includes net operating loss and credit carryforwards , and the cumulative temporary differences related to stock-based compensation . the portion of any deferred tax asset , for which it is more likely than not that a tax benefit will not be realized , must then be offset by recording a valuation allowance against the asset . 37 in assessing the realizability of deferred tax assets , management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized . the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible . management considers the scheduled reversal of deferred tax liabilities , projected future taxable income and tax planning strategies in making this assessment . management believes it is more likely than not that we will not realize the deferred tax assets in excess of deferred tax liabilities , and as such , a full valuation allowance is maintained against the net deferred tax assets . while we believe that our tax positions are fully supportable , there is a risk that certain positions could be challenged successfully . in these instances , we look to establish reserves . if we determine that a tax position is more likely than not of being sustained upon audit , based solely on the technical merits of the position , we recognize the benefit . we measure the benefit by determining the amount that has likelihood greater than 50 % of being realized upon settlement . we presume that all tax positions will be examined by a taxing authority with full knowledge of all relevant information . we regularly monitor our tax positions , tax assets and tax liabilities . we reevaluate the technical merits of our tax positions and recognize an uncertain tax benefit or derecognize a previously recorded tax benefit when ( i ) there is a completion of a tax audit , ( ii ) there is a change in applicable tax law including a tax case or legislative guidance , or ( iii ) there is an expiration of the statute of limitations . significant judgment is required in accounting for tax reserves . stock-based compensation we measure all employee stock-based compensation awards using a fair value method and record such expense in our consolidated financial statements . such expense is amortized on a straight line basis over the requisite service period of the award . we estimate the grant date fair value of stock options using the black-scholes option-pricing model which requires the input of highly subjective assumptions . these assumptions include estimating the expected term of the award , the estimated volatility of our stock price over the expected term and the probability of achievement of any performance goals that may be required to be achieved in order for the stock options to vest . changes in these assumptions and in the estimated forfeitures of stock option awards may materially affect the amount of stock-based compensation recognized in our consolidated statements of operations . in connection with any performance goals that may be required to be achieved in order for the stock options to vest , our management reviews the specific goals of such plans to determine if such goals have been achieved or are probable that they will be achieved . if the goals have been achieved or are probable of being achieved , then the amount of compensation expense determined on the date of grant related to those specific goals is charged to compensation expense at such time . 38 patent costs we test patent costs for recoverability whenever events or changes in circumstances indicate that we may not be able to recover an asset 's carrying amount . we evaluate the recoverability of an asset by comparing its carrying amount to the undiscounted cash flows expected to result from the use and eventual disposition of that asset . if the undiscounted cash flows are not sufficient to recover the carrying amount , we measure any impairment loss as the excess of the carrying amount of the asset over its fair value . events which could trigger asset impairment include significant underperformance relative to historical or projected future operating results , significant changes in the manner or use of an asset or in our overall business strategy , significant negative industry or economic trends , shortening of product life-cycles , negative changes in third party reimbursement , or changes in technology . as of june 30 , 2014 , we determined that market value of our agricultural patent costs was less than its carrying value . therefore , we recorded an impairment for the full carrying value of the agricultural patent costs at june 30 , 2014. story_separator_special_tag goodwill and intangible assets goodwill represents the excess of purchase price over the fair value of net assets acquired by the company . goodwill is not amortized , but assessed for impairment on an annual basis or more frequently if impairment indicators exist . the impairment model prescribes a two-step method for determining impairment . the first step compares a reporting unit 's fair value to its carrying amount to identify potential goodwill impairment . if the carrying amount of a reporting unit exceeds the reporting unit 's fair value , the second step of the impairment test must be completed to measure the amount of the reporting unit 's goodwill impairment loss , if any . step two requires an assignment of the reporting unit 's fair value to the reporting unit 's assets and liabilities to determine the implied fair value of the reporting unit 's goodwill . the implied fair value of the reporting unit 's goodwill is then compared with the carrying amount of the reporting unit 's goodwill to determine the goodwill impairment loss to be recognized , if any . for the year ended june 30 , 2014 , the company determined that there was no impairment to goodwill . intangible assets include in-process research and development ( ipr & d ) of pharmaceutical product candidates . ipr & d are considered indefinite-lived intangible assets and are assessed for impairment annually or more frequently if impairment indicators exist . if the associated research and development effort is abandoned , the related assets will be written-off and the company will record a non-cash impairment loss on its consolidated statement of operations . for those compounds that reach commercialization , the ipr & d assets will be amortized over their estimated useful lives . for the year ended june 30 , 2014 , the company determined that there was no impairment to ipr & d . warrant liability we compute valuations each quarter using the black-scholes model , which requires the input of subjective assumptions for volatility , for warrants that have an exercise price reset feature to account for the various possibilities that could occur due to changes in the inputs to the black-scholes model as a result of contractually-obligated changes . we effectively weight each calculation based on the likelihood of occurrence to determine the value of the derivative at the reporting date . the fair value of the warrants that have cash settlement features is estimated using the black-scholes model . changes in these assumptions may materially affect the amount of the warrant liability recorded on our consolidated balance sheet . impairment of intangible assets we assess the impairment in value of intangible assets at least annually or sooner if circumstances indicate that their carrying value may not be recoverable . factors we consider important which could trigger an impairment review include the following : significant negative industry trends ; significant underutilization of the assets ; significant changes in how we use the assets or its plans for their use ; and changes in technology and the appearance of competing technology . if a triggering event occurs and if our review determines that the future undiscounted cash flows related to the groups , including these assets , will not be sufficient to recover their carrying value , we will reduce the carrying values of these assets down to its estimate of fair value . 39 liquidity and capital resources overview for the fiscal year ended june 30 , 2014 , net cash of $ 4,868,133 was used in operating activities primarily due to a net loss of $ 9,225,234 which was reduced by non-cash expenses of $ 3,327,661 and by changes in operating assets and liabilities in the amount of $ 1,029,440. the $ 1,029,440 change in operating assets and liabilities was the result of a decrease in prepaid research supplies and expenses in the amount of $ 868,837 and an increase in accounts payable and accrued expenses in the amount of $ 160,603 due to the timing of expenses and payments . during the fiscal year ended june 30 , 2014 , cash provided by investing activities amounted to $ 646,937. the company received $ 1,274,662 in cash from the acquisition of fabrus , inc. , which was partially reduced by $ 627,725 of patent costs incurred and fixed assets purchased . cash provided by financing activities during the fiscal year ended june 30 , 2014 amounted to $ 8,730,243 , which comprises $ 10,917,325 as a result of the issuance of common stock and warrants and the exercise of certain warrants , offset by the repayment and cancellation of the line of credit in the amount of $ 2,187,082. as of june 30 , 2014 , our cash balance totaled $ 6,111,340 , and we had working capital of $ 5,399,227. capital resources during the fiscal year ended june 30 , 2014 , we received $ 100,000 under our license and development agreements . we have not been profitable since inception , we will continue to incur additional operating losses in the future , and we will require additional financing to continue the development and subsequent commercialization of our technology . while we do not expect to generate significant revenues from the licensing of our technology for several years , we may enter into additional licensing or other agreements with marketing and distribution partners that may result in additional license fees , receive revenues from contract research , or other related revenue . financing in october 2013 , we issued an aggregate of 690,000 shares of common stock for gross proceeds in the amount of $ 1,725,000 and net proceeds in the amount of $ 1,560,770. in december 2013 , we issued an aggregate of 1,800,000 shares of common stock and 5,400,000 warrants in a public offering for gross proceeds in the amount of $ 5,400,000 and net proceeds in the amount of $ 5,278,236. in february 2014 , we amended certain warrants issued in december 2013 to reduce the exercise price from $ 4.00 to $ 2.00 per share .
| · payroll and benefits for the fiscal year ended june 30 , 2014 was higher than for the fiscal year ended june 30 , 2013 , primarily due to separating the position of ceo and president effective may 16 , 2014 . · investor relations fees for the fiscal year ended june 30 , 2014 was higher than for the fiscal year ended june 30 , 2013 primarily as a result of a new investor relations program started in october 2013 , the termination of an investor relations consulting agreement in september 2013 and a special meeting of stockholders held in august 2013 . · professional fees for the fiscal year ended june 30 , 2014 was lower than for the fiscal year ended june 30 , 2013 primarily as a result of a decrease in legal fees as , during the fiscal year ended june 30 , 2014 it was not necessary to address certain items that were being addressed during the fiscal year ended june 30 , 2013 . · depreciation and amortization for the fiscal year ended june 30 , 2014 was higher than for the fiscal year ended june 30 , 2013 primarily as a result of an increase in amortization of patent costs . · consulting fees for the fiscal year ended june 30 , 2014 were higher than for the fiscal year ended june 30 , 2013 primarily due to certain financial advisory agreements entered into during the fiscal year ended june 30 , 2014 . · other general and administrative expenses for the fiscal year ended june 30 , 2014 were lower than for the fiscal year ended june 30 , 2013 primarily due to a decrease in cash director fees , which was partially offset by an increase in insurance and conferences . we expect cash-based general and administrative expenses to increase over the next twelve months . research and development expenses replace_table_token_7_th 45 · stock-based compensation for the fiscal year ended june 30 , 2014 was higher than the fiscal year ended june 30 , 2013 primarily due to the number of options granted during the fiscal year ended june 30 , 2014 being higher than the fiscal year ended
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data from the compound 's phase 1 trial showed that it can potently modulate the effects of the steroid prednisone , a commonly-used gr agonist , on serum osteocalcin , white blood cell counts , glucose metabolism and expression of the protein fkbp5 – a genetic marker of gr activation . modulating the effect of prednisone is important because it is a strong surrogate for korlym 's modulation of cortisol – the essential quality of an effective treatment for patients with cushing syndrome . we are developing a clia-validated assay to measure expression of fkbp5 . we believe this assay will allow physicians to measure the degree to which their patients suffer from excess cortisol activity , which would help them more easily identify patients with cushing syndrome and better treat those already in their care . oncology background . a range of tumor-types express gr and are potential targets for cortisol modulation therapy , among them triple-negative breast , ovarian , prostate , cervical , and pancreatic cancers , as well as sarcoma and melanoma . korlym to treat patients with solid-tumor cancers . in december 2016 , we announced the results of our phase 1/2 trial of korlym in combination with eribulin ( eisai 's inc. 's drug , halaven ® ) to treat patients with metastatic triple-negative breast cancer . the trial studied 21 patients with gr positive tumors , one with gr negative tumors and one with tumors whose gr status was not known . as determined using the response evaluation criteria in solid tumors ( recist ) , efficacy results were as follows : four patients exhibited a partial response , defined as a 30 percent or greater reduction in tumor size ; eight had stable disease ; and 11 had progressive disease . six patients achieved progression-free survival ( pfs ) longer than the upper bound of the 95 % confidence interval for pfs ( 15 weeks ) in patients receiving halaven ® monotherapy in a comparable population ( aogi et al. , annals of oncology 23 : 1441-1448 , 2012 ) . median pfs in the trial was 11.1 weeks – compared to 7.2 weeks in the halaven monotherapy study reported by aogi . we believe that the addition of korlym to chemotherapy warrants further study , such as the double-blind , placebo-controlled , multicenter , university of chicago-led trial described above that celgene is funding . cort125134 to treat patients with solid-tumor cancers . we are conducting a phase 1/2 trial of abraxane ( nab-paclitaxel ) in combination with cort125134 to treat any solid-tumor cancer suitable for treatment with abraxane . once we identify a recommended dose of this combination , we will open 20-patient cohorts to test the combination 's efficacy in one or more solid-tumor cancers . our likely initial targets will be triple-negative breast cancer and ovarian cancer . other possible indications include pancreatic cancer , cervical cancer and sarcoma . story_separator_special_tag future development plans . many factors affect the cost and timing of our trials , including inconclusive results requiring more clinical trials , slow patient enrollment , adverse side effects in study patients , insufficient supplies of medicine for our clinical trials and real or perceived lack of effectiveness or safety of the product candidate . the cost and timing of development of our selective cortisol modulators will depend on the success of our efforts and any difficulties we encounter . in addition , the development of our product candidates is subject to extensive governmental regulation . these factors make it difficult for us to predict the timing and costs of developing and securing approval of our product candidates . selling , general and administrative expenses – selling , general and administrative expenses include ( 1 ) the cost of personnel , consultancy and contractors engaged in administrative and commercial activities , including stock-based compensation , ( 2 ) expenses of third-party vendors used in our commercial activities related to korlym , including sales , marketing and promotion , pharmacy costs , market research , reimbursement support services , pharmacovigilance , distribution of marketing materials , and logistical requirements and ( 3 ) legal , accounting and other professional fees . selling , general and administrative expenses for the year ended december 31 , 2016 increased 22.4 percent to $ 45.2 million , from $ 36.9 million for the comparable period in 2015 . the increases were driven primarily by increased compensation expense due to additional hiring , bonus expense , and commissions related to increased sales . selling , general and administrative expenses for the year ended december 31 , 2015 increased 5.8 percent to $ 36.9 million , from $ 34.9 million for the comparable period in 2014 . the increases were primarily due to the growth of our sales organization . we expect that selling , general and administrative expenses will be higher in 2017 than in 2016 due to increased sales of korlym . the level of selling , general and administrative activities and related expenses in 2017 and future years will be dependent on our assessment of the staff and other services necessary to support our commercial efforts and our continued clinical development activities . see also , “ liquidity and capital resources. ” interest and other expense – interest and other expense for the year ended december 31 , 2016 was $ 2.0 million , as compared to $ 3.0 million for the year ended december 31 , 2015 and $ 3.8 million for the year ended december 31 , 2014. these amounts consisted primarily of interest expense related to our financing agreement with 38 biopharma , which w e entered into in august 2012. interest expense for 2017 will decrease as our quarterly payments redu ce the outstanding obligation . story_separator_special_tag we expect to make our final payment under t he financing agreement in 2017. non-gaap financial measures our financial statements and footnotes thereto are prepared in accordance with u.s. generally accepted accounting principles ( gaap ) and are included in part iv , item 15 of this annual report on form 10-k. to supplement our financial results presented on a gaap basis , we use non-gaap measures of net income ( loss ) and net income ( loss ) per share that exclude non-cash expenses related to stock-based compensation expense and the accretion of interest expense under our capped royalty financing transaction . we use these non-gaap measures to manage our business and believe that they may help investors better evaluate our past financial performance and potential future results . non-gaap measures should not be considered in isolation or as a substitute for comparable gaap accounting and investors should read them in conjunction with our financial statements and notes thereto prepared in accordance with gaap . the non-gaap measures of net income ( loss ) and net income ( loss ) per share we use may be different from , and not directly comparable to , similarly titled measures used by other companies . the following table reflects the reconciliation of gaap net income ( loss ) and net income ( loss ) per share to non-gaap net income ( loss ) and net income ( loss ) per share for the periods presented . replace_table_token_5_th liquidity and capital resources until the year ended december , 31 , 2016 , we had incurred operating losses since inception . at december 31 , 2016 , we had an accumulated deficit of $ 322.3 million . since 2012 , we have relied primarily on revenues from the sale of korlym , and proceeds from the sale of our common stock and our financing agreement with biopharma to fund our operations . based on our current plans , which include funding our cushing syndrome commercial operations , conducting phase 2 trials of cort125134 in both cushing syndrome and solid tumor cancers and advancing to the clinic cort125281 and cort118335 , we expect to fund our operations without needing to raise additional funds . we may choose to raise additional funds to finance our strategic priorities , however , if we are able to do so on acceptable terms . any additional equity financing may be dilutive to stockholders . any debt financing , if available , 39 may involve restrictive covenants . if we obtain funds throug h collaborations with others , these arrangements may be on unfavorable terms or may require us to relinquish certain rights to our technologies or product candidates that we would otherwise seek to develop on our own . at december 31 , 2016 , we had cash and cash equivalents of $ 51.5 million , compared to $ 40.4 million at december 31 , 2015. net cash provided by operating activities for the year ended december 31 , 2016 and december 31 , 2015 was $ 18.4 million and $ 3.1 million , respectively , primarily due to greater sales volumes . net cash used in operating activities for the year ended december 31 , 2014 was $ 27.4 million , primarily to fund the commercialization of korlym and for research and development . net cash provided by stock option exercises was $ 7.7 million , $ 5.2 million , and $ 1.8 million during the years ended december 31 , 2016 , 2015 , and 2014 , respectively . in addition , we made payments under the biopharma financing agreement of $ 14.8 million , $ 9.2 million , and $ 4.9 million during the years ended december 31 , 2016 , 2015 and 2014 , respectively . we are required to make aggregate payments under the biopharma financing agreement of $ 45.0 million , with $ 29.9 million paid through december 31 , 2016 and an additional payment of $ 4.8 million made in february 2017. we will make additional quarterly repayments in 2017 based on the level of our korlym sales , and expect to fully repay the obligation in 2017. while we monitor the cash balance in our checking account and transfer the funds into it only as needed , these cash balances and our money market fund could be affected if the underlying financial institution were to fail or were subject to other adverse conditions in the financial markets . we have never experienced a loss or lack of access to cash in our checking account or money market fund . contractual obligations and commercial commitments the following table presents our estimates of obligations under contractual agreements as of december 31 , 2016. replace_table_token_6_th ( 1 ) as discussed above , in august 2012 , we entered into a financing agreement with biopharma under which we received $ 30.0 million from biopharma . in consideration of the $ 30.0 million payment , we are obligated to make payments to biopharma totaling $ 45.0 million , of which $ 29.9 million has been paid through december 31 , 2016. the remaining payment obligations will be calculated as follows : 20 percent of our net product sales of covered products . payments are due within 30 days of quarter-end for the first , second and third calendar quarters and within 45 days of year-end . 20 percent of payments received for upfront , milestone or other contingent fees under co-promotion and out-license agreements for covered products .
| for the year ended december 31 , 2016 , cost of sales was 2.5 percent of our net product revenue , as compared to 2.7 percent in the corresponding period in 2015. cost of sales was $ 1.4 million for the year ended december 31 , 2015 , as compared to $ 0.9 million in the corresponding period in 2014. for the year ended december 31 , 2015 , cost of sales was 2.7 percent of our net product revenue , as compared to 3.3 percent in the corresponding period in 2014. cost of sales declined as a percentage of net product revenue for the years ended december 31 , 2016 and 2015 due to a decline in the cost of manufacturing korlym tablets as well as sales price increases . research and development expenses – research and development expenses include the cost of ( 1 ) personnel engaged in development activities , including stock-based compensation , ( 2 ) clinical trials , including trial preparation , enrollment , site monitoring and data management and analysis expenses , ( 3 ) discovery research and pre-clinical studies , ( 4 ) acquisition of clinical trial materials and material used in registration and validation batches included in regulatory submissions prior to product approval , ( 5 ) manufacturing development , and ( 6 ) regulatory activities , including the preparation and prosecution of the regulatory submissions related to korlym and our other product candidates . research and development expenses increased to $ 23.8 million for the year ended december 31 , 2016 from $ 15.4 million in 2015 , an increase of 54.6 percent , primarily due to increased spending on the advancement of cort125134 , which entered clinical trials in patients in the second quarter of 2016 , as well as increased compensation expense due to the hiring of additional clinical development employees . research and development expenses decreased to $ 15.4 million for the year ended december 31 , 2015 from $ 18.4 million in 2014 , a decline of 16.1 percent , due to the discontinuation of our phase 3 clinical trial of korlym to treat psychotic depression in may 2014 , which reduced our research and development expenses in the year ended december 31 , 2015 by $ 3.9 million , partially offset by $ 0.9 million in spending on our phase 1/2 study in triple-negative breast cancer , an fda-required drug-drug interaction study and the development of new selective cortisol modulators . 37 below is a summary of our research and development expenses by major project : replace_table_token_4_th we expect research and development expenditures in 2017 to be higher than
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in the long-term , we see positive trends in demands for our services in our end markets , including : general demand to repair and improve degrading u. s. marine infrastructure ; improving economic conditions and increased activity in the petrochemical industry and energy-related companies will necessitate capital expenditures , including larger projects , as well as maintenance call-out work ; expected increases in cargo volume and future demands from larger ships transiting the panama canal will require ports along the gulf coast and atlantic seaboard to expand port infrastructure as well as perform additional dredging services ; the wrrda act authorizing expenditures for the conservation and development of the nation 's waterways as well as addressing funding deficiencies within the harbor maintenance trust fund ; renewed focus on coastal rehabilitation along the gulf coast , particularly through the use of restore act funds based on fines collected related to the 2010 gulf of mexico oil spill ; and funding for highways and transportation under the fast act , which provides authority through 2020. concrete segment our concrete segment 's demand remains strong . the texas building sector is in solid shape as its three major metropolitan areas , and expanding suburbs , continuously retain their positions as leading destinations for families and businesses to reside . population growth throughout our markets continues to drive new distribution centers , office expansion , retail and grocery establishments and new multi-family housing units . in houston , warehouse construction and new education facilities continue to comprise a large portion of project mix . the dallas-fort worth office continues its efforts to expand the services it offers beyond light commercial and will be targeting structural construction opportunities going forward . as anticipated , our central texas operations are performing well , as we are seeing solid project execution and expanding market share along the i-35 corridor . sustained demand for concrete services in houston and dallas/fort worth markets , coupled with the early progress being made in central texas , indicate the concrete segment should continue providing meaningful contribution to ebitda throughout 2018. consolidated results of operations backlog information our contract backlog represents our estimate of the revenues we expect to realize under the portion of contracts remaining to be performed . given the typical duration of our contracts , which is generally less than a year , our backlog at any point in time usually represents only a portion of the revenue that we expect to realize during a twelve month period . many projects that make up our backlog may be canceled at any time without penalty ; however , we can generally recover actual committed costs and profit on work performed up to the date of cancellation . although we have not been adversely affected by contract cancellations or modifications in the past , we may be in the future , especially in economically uncertain periods . consequently , backlog is not necessarily indicative of future results . in addition to our backlog under contract , we also have a substantial number of projects in negotiation or pending award at any time . backlog for our marine segment at december 31 , 2017 was $ 177.0 million , as compared with $ 280.7 million at december 31 , 2016 , a decrease of 36.9 % from the prior year period . backlog for our concrete segment at december 31 , 2017 was $ 183.6 million , as compared with $ 153.3 million at december 31 , 2016 , an increase of 19.8 % from the prior year period . 27 income statement comparisons replace_table_token_6_th year ended december 31 , 2017 compared with year ended december 31 , 2016 contract revenues . contract revenues in 2017 of $ 578.6 million increased approximately 0.1 % as compared to $ 578.2 million in 2016 . the increase was attributable to the expansion of the concrete construction business in central texas through the acquisition of tbc in april 2017 and increased demand for marine construction services in the fourth quarter of 2017 following the impact of hurricanes on the gulf coast , florida and caribbean basin . this increase was offset by project disruptions caused by weather events during the third quarter of 2017 , which affected both the marine and concrete construction operations , as well as delays in customers obtaining necessary permits , which caused interruptions in the anticipated commencement of certain projects in the marine segment during the first half of 2017. contract revenues generated from private sector customers for the marine segment represented 47.7 % , or $ 136.4 million , of total contract revenues in 2017 compared to 53.3 % , or $ 151.8 million , in 2016 . contract revenues generated from private sector customers for the concrete segment represented 83.4 % , or $ 244.1 million , in 2017 compared to 86.5 % , or $ 254.0 million , in 2016 . these decreases were primarily due to a shift of project mix with an increase in public sector projects for the marine and concrete segments of approximately 5.6 % and 3.1 % , respectively . contract revenues generated from public sector customers for the marine segment represented 52.3 % , or $ 149.3 million , of total contract revenues in 2017 compared to 46.7 % , or $ 132.9 million , in 2016 . contract revenues generated from public sector customers for the concrete segment represented 16.6 % , or $ 48.7 million , in 2017 compared to 13.5 % , or $ 39.7 million , in 2016 . these increases were driven by a shift in timing and mix of projects as well as the addition of projects in the marine segment . gross profit . gross profit was $ 66.9 million for the year ended december 31 , 2017 , compared to $ 67.5 million in the prior year period , a decrease of $ 0.6 million , or 0.9 % . gross margin in 2017 was 11.6 % of total contract revenues as compared to 11.7 % in the prior year period . story_separator_special_tag this decrease was driven by project disruptions caused by weather events during the third quarter of 2017 , which affected both the marine and concrete construction operations , as well as delays in customers obtaining necessary permits , which caused interruptions in the anticipated commencement of certain projects in the marine segment during the first half of 2017. this was offset by increased demand for marine construction services in the fourth quarter of 2017 following the impact of hurricanes on the gulf coast , florida and caribbean basin . selling , general and administrative expense . selling , general and administrative ( `` sg & a '' ) expenses were $ 66.0 million for the year ended december 31 , 2017 compared to $ 65.0 million in the prior year period , an increase of $ 1.0 million , or 1.6 % . as a percentage of total contract revenues , sg & a expenses increased slightly as compared with the prior year , from 11.2 % to 11.4 % . this increase was driven by the acquisition of tbc in the concrete segment as well as higher legal costs , partially offset by reductions in corporate overhead and consulting fees . 28 other expense , net . other expense primarily reflects interest on our borrowings . income tax ( benefit ) expense . we recorded tax benefit of $ 4.5 million in 2017 , compared to tax expense of $ 1.6 million in 2016 . our effective tax rate in 2017 was 109.7 % , which differs from the statutory rate of 35 % and was driven by the impact of the act enacted on december 22 , 2017. we recorded a net tax benefit of $ 5.9 million , or $ 0.21 per share , primarily resulting from the re-measurement of the company 's net deferred tax liabilities to reflect the new , lower u.s. corporate income tax rate of 21 % , partially offset by the addition of a valuation allowance recorded against prior years ' foreign tax credit carryovers not expected to be utilized in future tax years . this net tax benefit was partially offset by the establishment of an uncertain tax position reserve as well as tax expenses for permanent differences associated with incentive stock options and meals and entertainment . while we have substantially completed our provisional analysis of the income tax effects of the act and recorded a reasonable estimate of such effects , the net tax benefit related to the act may differ , possibly materially , due to among other things , further refinement of our calculations , changes in interpretations and assumptions that we have made , additional guidance that may be issued by the u.s. government , and actions and related accounting policy decisions we may take as a result of the act . we will complete our analysis over the one-year measurement period , ending december 22 , 2018 , and any adjustments during this measurement period will be recorded in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined . year ended december 31 , 2016 compared with year ended december 31 , 2015 contract revenues . contract revenues in 2016 increased approximately 24.0 % as compared with 2015. the increase is attributable to a full year of operations for the concrete segment , which accounted for $ 293.6 million in contract revenues . contract revenues generated from private sector customers for the marine segment increased to 53.3 % of total contract revenues in 2016 from 40.1 % in 2015. this totaled approximately $ 151.8 million generated from private customers , or an increase of $ 12.6 million from the comparable prior period . this is primarily due to a shift of project mix , with a decrease in public sector projects of approximately 13.2 % . contract revenues generated from private sector customers for the concrete segment represented 86.5 % , or $ 254.0 million in 2016. contract revenues generated from public sector customers for the marine segment represented 46.7 % of total revenue in the year , or approximately $ 132.9 million , as compared with 59.9 % during 2015. this is primarily due to a shift in timing of projects as well as completion of certain projects during 2015. contract revenues generated from public sector customers for the concrete segment represented 13.5 % , or $ 39.7 million in 2016. gross profit . gross profit was $ 67.5 million for the year ended december 31 , 2016 , an increase of $ 27.3 million compared with the prior period . gross margin in 2016 was 11.7 % of total revenue as compared to 8.6 % in the prior year period . the concrete segment contributed $ 38.6 million to gross profit in the current year compared to $ 17.1 million in the prior period , due to a full year of operations for this segment . the marine segment had an increase in gross profit for the period of approximately $ 5.8 million from the comparable prior period , despite a decrease in revenues over this period , due to the completion of the troubled tampa jobs . selling , general and administrative expense . selling , general and administrative ( `` sg & a '' ) expenses were $ 65.0 million , an increase of $ 17.3 million , or 36.2 % , as compared with the prior year period , and as a percentage of revenues , sg & a expenses increased as compared with the prior year , to 11.2 % from 10.2 % . the concrete segment added $ 22.4 million in sg & a expense in the current year compared to $ 10.9 million for the year ended december 31 , 2015 , due to a full year of operations . the increase in sg & a expense for the marine segment was $ 5.8 million compared with the prior period .
| concrete segment revenues for our concrete segment for the year ended december 31 , 2017 were $ 292.8 million compared to $ 293.6 million for the year ended december 31 , 2016 , a decrease of $ 0.8 million , or 0.3 % . this decrease was attributable to project disruptions caused by weather events , including hurricane harvey in the third quarter of 2017 and abnormal winter delays in the fourth quarter of 2017 , offset by the impact of acquiring tbc in april 2017. operating income for our concrete segment for the year ended december 31 , 2017 was $ 19.9 million , compared to $ 16.5 million from the year ended december 31 , 2016 , an increase of $ 3.5 million , or 21.0 % . this increase was primarily due to solid execution of operations in the segment during 2017 . as a percentage of revenues , operating income for our concrete segment was 6.8 % for the year ended december 31 , 2017 , compared to 5.6 % for the year ended december 31 , 2016 . 30 year ended december 31 , 2016 compared with year ended december 31 , 2015 marine segment revenues for our marine segment for the year ended december 31 , 2016 were $ 284.6 million compared to $ 347.1 million for the year ended december 31 , 2015 , a decrease of $ 62.5 million , or 18.0 % . this decrease is primarily attributable to project delays caused by severe weather impacting in the florida market as well as to delays in customers obtaining necessary permits in both our tacoma and gulf coast offices in addition to one-time charges related to the accounting treatment of a specific contract with significant differing site conditions . operating loss for our marine segment for the year ended december 31 , 2016 was $ 12.4 million , compared to a $ 14.2 million loss , an improvement of $ 1.8 million from the year ended december 31 , 2015. the margin improvement was primarily
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the phase 1 inclusion criteria allowed for participation by patients who are amenable to exon 51 skipping , ages 5-18 , ambulatory and non-ambulatory , as well as those previously treated with eteplirsen or ataluren following an appropriate washout period . on december 6 , 2018 , we announced that the safety and tolerability data from the phase 1 trial support initiation of a phase 2/3 clinical trial of suvodirsen and that we selected a dose for the phase 2/3 trial . we plan to present the results from the phase 1 trial , as well as details of the phase 2/3 trial design , at upcoming scientific meetings . as patients complete the phase 1 trial , they have the option to enroll in an ongoing open label extension study ( “ ole ” ) in which they continue to receive suvodirsen . the ole is expected to enroll up to 40 patients who previously participated in the phase 1 trial . patients in the ole are undergoing quarterly clinical assessments using validated clinical outcome measures and are having muscle biopsies taken so that an interim analysis may be conducted by measuring dystrophin expression using a standardized western blot . data from this interim analysis are intended to be an important component of a submission to the u.s. food and drug administration ( “ fda ” ) for accelerated approval of suvodirsen in the united states , and we remain on track to deliver these data in the second half of 2019. we anticipate initiating the global , placebo-controlled phase 2/3 efficacy and safety clinical trial of suvodirsen in 2019. the phase 2/3 trial is designed to measure clinical efficacy and dystrophin expression , and we intend to use the results of this trial to seek regulatory approvals globally . on january 3 , 2019 , we announced that the phase 2/3 trial of suvodirsen had been selected for the fda pilot program for complex innovative trial designs ( “ cid pilot program ” ) . in evaluating submissions for the cid pilot program , the fda considered two key criteria : the innovative features of the phase 2/3 trial design and the therapeutic need ( i.e. , therapeutics being developed for use in disease areas where there are limited or no treatment options ) . through the cid pilot program , we intend to reduce the number of patients required to deliver conclusive clinical efficacy results , thereby minimizing the number of patients required in the placebo treatment arm and potentially accelerating completion of the trial . this marks the first time that the fda has selected clinical protocols for its cid pilot program that was announced in august 2018. our second development program in dmd , wve-n531 , targets exon 53. subject to our submission of clinical trial applications and approval to proceed , we would expect to deliver topline clinical data for wve-n531 in the second half of 2020. also in dmd , we are exploring programs targeting dmd exons 44 , 45 , 52 , 54 and 55 and investigating alternative forms of delivery , including subcutaneous administration , for our existing and future dmd programs . in addition to dmd , we are conducting research to identify potential targets for other neuromuscular diseases where prism , our proprietary discovery and drug development platform may be most effective . neurology : central nervous system ( “ cns ” ) in hd , we are advancing two programs , wve-120101 and wve-120102 , each targeting a disease-associated single nucleotide polymorphism ( “ snp ” ) within the huntingtin gene ( “ htt ” ) : rs362307 ( “ htt snp1 ” ) and rs362331 ( “ htt snp2 ” ) , respectively . targeting mrna transcript with these snps allows us to lower the mutant allele transcript , while leaving the healthy transcript relatively intact . we commonly refer to this method ( or approach ) as “ allele specific targeting. ” snps are naturally occurring variations within a given genetic sequence and in certain instances can be used to distinguish between two related copies of a gene where only one is associated with the expression of a disease-causing protein . we have shown that by targeting htt snp1 and htt snp2 in preclinical in vitro studies , the production of disease-causing proteins associated with hd can be reduced . as part of ongoing , required and routine toxicology support of our clinical programs , we continue to conduct in vivo nonclinical toxicology studies for wve-120101 and wve-120102 . a recent in vivo micronucleus assay yielded results that require additional nonclinical studies that we are planning to conduct . in july 2017 , we initiated precision-hd , a global clinical program consisting of the precision-hd1 and precision-hd2 clinical trials . precision-hd1 and precision-hd2 are two parallel , multicenter , double-blind , randomized , placebo-controlled phase 1b/2a clinical trials evaluating wve-120101 and wve-120102 , respectively , administered intrathecally , consisting of single-ascending dose and multiple-ascending dose portions . the primary objective of these two trials is to assess the safety and tolerability of intrathecal doses of wve-120101 and wve-120102 , respectively , in early manifest hd patients . additional objectives include measurement of total htt protein and 85 mutant htt protein , and exploratory pharmacokinetic , pharmacodynamic , clinical and mri endpoints . each trial is expected to enroll approximately 50 stage i or stage ii hd patients , ages 25-65 , who have screened positively for the presence of snp1 or snp2 . outside of the united states , we are enrolling patients in both the single-ascending dose and multiple-ascending dose portions of the precision-hd1 and precision-hd2 trials . in the united states , we received approvals to proceed with the single-dose portions of both trials . however , the fda indicated to us that we can not progress to the multiple-ascending dose portions of these trials in the united states unless we conduct an additional preclinical study and present the resulting data to the fda for its review . story_separator_special_tag for the single-dose portion of the precision-hd1 trial in the united states , escalation to our highest proposed doses is subject to the fda 's review and approval of additional monitoring plans . we expect to deliver topline clinical data from the precision-hd trials in the first half of 2019 . in amyotrophic lateral sclerosis ( “ als ” ) and frontotemporal dementia ( “ ftd ” ) , we are advancing wve-3972-01 , which preferentially targets the transcript containing the ggggcc ( “ g4c2 ” ) expansion in the c9orf72 gene . wve-3972-01 is designed to minimize the impact on normal c9orf72 protein in patients , thereby reducing potential on-target risk . the g4c2 expansion in the c9orf72 gene is the most common cause of familial als and ftd and is a strong genetic risk factor for non-inherited ( sporadic ) forms of als and ftd . subject to our submission of clinical trial applications and approval to proceed , we would expect to deliver topline clinical data for wve-3972-01 in the second half of 2020. in spinocerebellar ataxia 3 ( “ sca3 ” ) , we are advancing a lead candidate targeting atxn3 . sca3 is a rare , hereditary ( autosomal dominant ) , progressive , neurodegenerative disorder that is caused by a cag-repeat expansion in the atxn3 gene . we are collaborating with takeda pharmaceutical company limited ( “ takeda ” ) to advance genetically defined targets for the treatment of other cns disorders , including alzheimer 's disease and parkinson 's disease . under the terms of the agreement , we may collaborate with takeda on up to six preclinical programs at any one time , during a four-year term . takeda is entitled to exclusively license multiple preclinical programs from us during the term . ophthalmology we are designing and advancing stereopure oligonucleotides for the potential treatment of rare , inherited eye diseases . our research is assessing four inherited retinal diseases , which typically begin in childhood or adolescence and commonly lead to progressive vision loss : retinitis pigmentosa due to a p23h mutation in the rho gene , stargardt disease , usher syndrome type 2a and leber congenital amaurosis 10. our preclinical data demonstrate that a single intravitreal injection of stereopure oligonucleotide in the eye of non-human primates resulted in greater than 95 % knockdown of a target rna in the retina for at least four months . based on these data , we are working to design candidates that could achieve a therapeutic effect with only two doses per year . we expect to announce our first ophthalmology candidate in the second half of 2019 . hepatic we are collaborating with pfizer to advance genetically defined targets for the treatment of metabolic diseases , bringing together our proprietary drug development platform across antisense and single-stranded rnai modalities , along with galnac and pfizer 's hepatic targeting technology for delivery to the liver . pfizer has selected five targets , including apolipoprotein c-iii ( apoc3 ) , which is the maximum number of targets that pfizer may select under the terms of the agreement . we will advance five targets from discovery through the selection of clinical candidates , at which point pfizer may elect to exclusively license the programs and undertake further development and potential commercialization . recent developments on january 28 , 2019 , we closed a follow-on underwritten public offering of 3,950,000 ordinary shares for gross proceeds of $ 150.1 million , and on february 26 , 2019 , we closed on the sale of an additional 592,500 ordinary shares pursuant to the underwriters ' option ( on the same terms and conditions as the initial closing ) for gross proceeds of an additional $ 22.5 million ( collectively , the “ january 2019 offering ” ) . net proceeds to us from the january 2019 offering are expected to be approximately $ 161.6 million , after deducting underwriting discounts and commissions and estimated offering expenses . we intend to use the net proceeds from the january 2019 offering for clinical trial costs and other research and development expenses ; continued growth of our manufacturing capabilities ; initial investments in commercial and medical affairs infrastructure to support our transition to a fully integrated , commercial-stage genetic medicines company ; continued investment in our proprietary discovery and drug development platform prism ; and working capital , capital expenditures and general and administrative expenses . 86 financial operations overview we have never been profitable , and since our inception , we have incurred significant operating losses . our net losses were $ 146.7 million in 2018 , $ 102.0 million in 2017 , and $ 55.7 million in 2016. as of december 31 , 2018 and 2017 , we had an accumulated deficit of $ 339.7 million and $ 192.7 million , respectively . we expect to incur significant expenses and increasing operating losses for the foreseeable future . revenue we have not generated any product revenue since our inception and do not expect to generate any revenue from the sale of products for the foreseeable future . our revenue during the year ended december 31 , 2018 represented revenue earned under our revenue-generating two collaboration agreements : the pfizer collaboration agreement ( as defined in note 5 in the notes to the consolidated financial statements appearing elsewhere in this annual report on form 10-k ( “ note 5 ” ) ) , which was entered into in may 2016 , and the takeda collaboration agreement ( as defined in note 5 ) , which became effective in april 2018. our revenue during the years ended december 31 , 2017 and 2016 represents revenue earned under the pfizer collaboration agreement only . the only revenue-generating license or collaboration agreements to which we are currently a party are the pfizer collaboration agreement and the takeda collaboration agreement . operating expenses our operating expenses since inception have consisted primarily of research and development costs and general and administrative costs .
| in may 2016 , we established a wholly-owned subsidiary in ireland , however no income tax expense or benefit has been recorded during the years ended december 31 , 2017 and 2016. in april 2017 , we established a wholly-owned subsidiary in the united kingdom and during the year ended december 31 , 2017 , we did not record any income tax benefit for the net operating losses incurred in the united kingdom due to uncertainty regarding future taxable income in that jurisdiction . liquidity and capital resources since our inception , we have not generated any product revenue and have incurred recurring net losses . to date , we have primarily funded our operations through private placements of debt and equity securities , public offerings of our ordinary shares and collaborations with third parties . through december 31 , 2018 , we have received an aggregate of approximately $ 493.2 million in net proceeds from these transactions . we received $ 89.3 million in net proceeds from private placements of our debt and equity securities , $ 100.4 million in net proceeds from our initial public offering , $ 40.0 million under the pfizer agreements ( as defined in note 5 ) , including $ 10.0 million as an upfront payment under the pfizer collaboration agreement and $ 30.0 million in the form of an equity investment , $ 93.5 million in net proceeds from our april 2017 follow-on underwritten public offering , and $ 170.0 million in upfront payments under the takeda agreements ( as defined in note 5 ) , including $ 110.0 million as an upfront payment under the takeda collaboration agreement ( as defined in note 5 ) and $ 60.0 million in the form of an equity investment . as of december 31 , 2018 , we had cash and cash equivalents of $ 174.8 million , restricted cash of $ 3.6 million and an accumulated deficit of $ 339.7 million . on january 28 , 2019 , we closed a follow-on public offering of 3,950,000 ordinary shares
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these efforts primarily relate to the rationalization of resources , investments , real estate and overhead across various geographies , as well as the liquidation of certain components of the ameco business that are being excluded from sale . our planned restructuring activities were substantially completed by the end of 2020. restructuring costs totaled $ 8 million and $ 240 million during 2020 and 2019 , respectively . information about our restructuring , which we believe is complete as of december 31 , 2020 , follows : replace_table_token_5_th 36 impairment expense is summarized as follows : replace_table_token_6_th in the first quarter of 2021 , we announced a plan to sell stork . beginning in the first quarter of 2021 , we expect stork will be reported as a discontinued operation and the assets and liabilities of stork will be classified as held for sale . once classified as available for sale , stork 's assets will be subjected to a quarterly recoverability analysis . segment operations we provide professional services in the fields of engineering , procurement , construction , fabrication and modularization , operations , maintenance and asset integrity , as well as project management services , on a global basis and serve a diverse set of industries worldwide . we consider charges to include effects that negatively impact a project 's gross margin , including negative adjustments to revenue and recognition of project losses . energy & chemicals revenue in 2020 decreased compared to 2019 due to significant declines in the volume of execution activities for numerous upstream , downstream and chemicals projects nearing completion , partially offset by increased execution activity for an lng project in canada . revenue in 2019 decreased compared to 2018 due to a significant decline in the volume of customer-furnished materials and project execution activities , combined with the impact of a lower volume of broad based new awards . the revenue decline in 2019 was also partially offset by increased execution activity for the lng project . segment profit significantly increased during 2020 despite the adverse impacts of the recognition of reserves totaling $ 60 million for expected credit losses associated with certain joint venture clients , as well as margin diminution on a percentage-of-completion basis resulting from project positions taken with respect to covid-19 related schedule delays and associated cost growth . the increase in segment profit during 2020 is primarily the result of charges taken during 2019 , discussed below . excluding these items , segment profit declined in 2020 due to the reduced execution activity of the upstream , downstream and chemicals projects discussed above , partially offset by the increase in activity for the lng project and a decrease in overhead . segment profit in 2019 significantly decreased compared to 2018 as a result of charges taken during 2019 including $ 260 million for cost growth on an offshore project , $ 87 million for cost growth on two downstream projects and scope reductions on a large upstream project , $ 26 million for the write-off of pre-contract costs , $ 26 million on embedded foreign currency derivatives and $ 31 million from the resolution of close-out matters . segment profit in 2018 was adversely impacted by charges of $ 133 million for cost growth on a completed , downstream project and $ 40 million for cost growth on the aforementioned offshore project . the changes in segment profit margin in 2020 and 2019 were primarily attributable to the same factors that affected revenue and segment profit . segment profit margin in 2020 was also adversely impacted by a shift from higher margin work in 2019 to lower margin work in 2020 in certain geographies . no significant awards were booked in 2020 due to the impact of covid-19 and declining oil prices on our customers ' capital spend . new awards in 2019 included a downstream project in the united kingdom as well as chemicals projects in china , india and on the u.s. gulf coast . new awards in 2018 included an lng export facility in canada as well as an engineering and procurement contract for a refinery in texas . the decline in backlog during 2020 resulted from the decline in new award activity and the de-recognition of a suspended downstream project . the decrease in backlog during 2019 resulted primarily from new award activity being outpaced by work performed as well as the removal of certain contracts associated with our joint venture in mexico that were suspended during 2019. we expect our energy & chemicals segment to benefit from opportunities in the chemicals and non-traditional oil and gas markets . 37 mining & industrial revenue decreased in 2020 compared to 2019 primarily due to a six month suspension during 2020 of a large mining project in south america due to covid-19 and a decline in the volume of execution activities for a large life sciences project and two mining projects completed or nearing completion . these revenue declines were partially offset by increased execution activities on two advanced technologies projects as well as a mining project and a metals project , both in north america . revenue increased in 2019 compared to 2018 primarily due to increased execution activities for several large mining projects as well as ramping up construction activity on the two advanced technologies projects . segment profit declined in 2020 compared to 2019 primarily due to a gain of $ 31 million recognized in 2019 resulting from a favorable resolution of a longstanding customer dispute on a mining project . segment profit in 2020 was also adversely impacted by the decline in activity for the life sciences project and mining projects nearing completion as well as the mining project in south america that was impacted by covid-19 . the decrease in segment profit in 2020 was partially offset by a reduction in overhead expenses . story_separator_special_tag segment profit in 2019 increased compared to 2018 due to the increased volume of execution activities for the large mining projects and the two advanced technologies projects that drove the increase in revenue as well as the favorable resolution of the customer dispute . the decline in segment profit margin in 2020 and the increase in segment profit margin in 2019 was primarily the result of the favorable resolution of the customer dispute in 2019. new awards in 2020 included a significant north american steel project as well as several front-end studies that we believe positions the segment well for follow-on epc awards . new awards in 2019 included an advanced manufacturing project in the netherlands . new awards in 2018 included a copper project in peru , an iron ore replacement mine in australia and a mine expansion project in peru . the decrease in backlog during 2020 and 2019 primarily resulted from work performed outpacing new award activity . we expect our mining business line to benefit from the growing global demand for copper and our advanced technologies and life sciences business line to benefit from the increasing demand for data storage facilities and biological facilities . infrastructure & power revenue in 2020 increased compared to 2019 primarily driven by an increase in execution activities for several infrastructure projects , including a year-over-year increase on a rail project which was canceled in the third quarter of 2020. the increase in revenue during 2020 was partially offset by a decrease in execution activities for several infrastructure projects nearing completion . revenue in 2019 decreased compared to 2018 primarily due to the substantial completion of the three large power projects during 2019. this decline was partially offset by increased project execution activities on several infrastructure projects . revenue also reflects the adverse impact of various forecast revisions discussed below . segment profit in 2020 significantly improved compared to 2019 primarily due to forecast revisions on several power and infrastructure projects recognized in 2019 ( discussed below ) . a positive settlement on a canceled rail project in 2020 was offset by charges for cost growth in the infrastructure legacy portfolio . segment profit in 2019 significantly decreased compared to 2018 due to charges of $ 135 million for the settlement of client disputes and cost growth on certain close-out matters for the three power projects discussed above and $ 133 million resulting from late engineering changes , schedule-driven cost growth and negotiations with clients and subcontractors on pending change orders for several infrastructure projects . segment profit in 2018 included $ 188 million in charges on one of the aforementioned power projects as a result of cost growth and a $ 125 million gain associated with the sale of a joint venture interest in the united kingdom . the changes in segment profit margin in 2020 and 2019 were primarily attributable to the same factors impacting segment profit in those years . lower margin contributions from certain infrastructure projects for which charges were recognized during 2020 and 2019 may continue to adversely impact near term segment profit margin . we expect approximately 35 % of the segment 's revenue in 2021 will be generated from zero margin projects as of december 31 , 2020. new awards in 2020 included a highway project in texas . new awards in 2019 included a road project in texas and a rail project in chicago . new awards in 2018 included an international bridge project and the lax automated people mover project . the decrease in backlog during 2020 was primarily due to a decline in new award activity in part driven by more selectivity in pursuing projects as well as delayed procurements . the decrease in backlog during 2019 was primarily due to work performed and project cancellations outpacing new award activity . backlog included $ 1.5 billion for projects in a loss position as of december 31 , 2020. we believe our infrastructure business is well positioned for select opportunities in the u.s. due to urbanization and an aging infrastructure system . these opportunities may be enhanced with the introduction of a federal infrastructure spending bill . 38 government revenue in 2020 decreased compared to 2019 primarily due to the completion of a nuclear decommissioning project in 2019 as well a decline in work performed for fema . the decrease in 2020 revenue was further driven by the recognition of service fee revenue in 2019 upon the favorable settlement of project claims on two cancelled nuclear power projects in the u.s. the decline in revenue in 2020 was partially offset by increased project execution activities at the strategic petroleum reserve as well as our doe sites . revenue in 2019 decreased compared to 2018 substantially driven by the completion of a power restoration project in puerto rico in 2018 as well as a decrease in project execution activities for a logistics assistance program in afghanistan , partially offset by an increase in execution activities at the savannah river doe site and the favorable settlement of the two nuclear power plant projects in 2019. the decrease in segment profit in 2020 was substantially driven by the favorable settlement of the two nuclear power plant projects in 2019 as well as the completion of the nuclear decommissioning project in 2019 and the decline in fema work in 2020. segment profit in 2020 was also adversely impacted by covid-19 , particularly as it relates to estimated fee recoveries on certain projects . the increase in segment profit in 2019 was due to the favorable settlement of the two nuclear power plant projects . the changes in segment profit margin in 2020 and 2019 were primarily attributable to the same factors that affected revenue and segment profit . new awards in 2020 , 2019 and 2018 included one-year extensions of the logistics assistance contract in afghanistan and the savannah river environmental management contract . new awards in 2018 also included a five-year extension of the strategic petroleum reserve contract and a thirty-month extension at the portsmouth gaseous diffusion plant site .
| the negotiations and agreements resulting from these meetings , as well as project developments during the second quarter , resulted in the recognition of significant charges across three segments , which are reflected in the results for 2019. replace_table_token_3_th ( 1 ) total segment profit ( loss ) is a non-gaap financial measure . we believe that total segment profit ( loss ) provides a meaningful perspective on our results as it is the aggregation of individual segment profit ( loss ) measures that we use to evaluate and manage our performance . 34 replace_table_token_4_th our business has been adversely affected by the economic impacts of the outbreak of covid-19 and the steep decline in oil prices that occurred in the early part of 2020. these events have created significant uncertainty and economic volatility and disruption , which have impacted and may continue to impact our business . we have experienced , and may continue to experience , reductions in demand for certain of our services and the delay or abandonment of ongoing or anticipated projects due to our clients ' , suppliers ' and other third parties ' diminished financial condition or financial distress , as well as governmental budget constraints . although we initially assessed our project estimates for covid-19 during the first quarter of 2020 , continued isolation of estimated covid-19 effects became increasingly difficult to measure as 2020 progressed . our estimates reflect our best assessment of project results inclusive of covid-19 effects , which have been dynamic as our projects have seen changes in prevailing regulations as covid cases crested and fell . these impacts may continue or worsen under prolonged stay-at-home , social distancing , travel restrictions and other similar orders or restrictions . significant uncertainty still exists concerning the magnitude of the impact and duration of these events . because of the foregoing matters , we performed interim impairment testing of our goodwill , intangible assets and investments . we also evaluated the impact of these events on
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our costs consist primarily of the compensation we pay to our employees , including salaries , fringe benefits , the costs of hiring subcontractors , other project-related expenses and sales , general and administrative costs . we define revenue provided by acquired companies as revenue included in the current period up to twelve months subsequent to their acquisition date . throughout this section , we refer to companies we acquired in the last twelve months as `` acquired companies . '' commodity price volatility has negatively impacted our oil and gas business especially in north american and other petro-dollar funded markets and we expect that existing and future projects will be deferred , suspended or terminated . in december 2015 , the federal legislation referred to as the fixing america 's surface transportation act ( the fast act ) was authorized . the fast act is a five-year federal program expected to provide infrastructure spending on roads , bridges , and public transit and rail systems . while client spending patterns are likely to remain uneven , we expect that the passage of the fast act will positively impact our transportation services business in the next several years . our ms segment fiscal 2016 results benefited from favorable project , pension and legal resolutions , which we do not expect to repeat in fiscal 2017. also , the ms segment wound down several government projects in fiscal 2016 , such as our contract to manage the sellafield nuclear site in the united kingdom , which could impact near-term performance . we expect to benefit from the return on a portion of our aecom capital investments in the next twelve months . we can not determine if future climate change and greenhouse gas laws and policies , such as the united nation 's cop-21 paris agreement , will have a material impact on our business or our clients ' business ; however , we expect future environmental laws and policies could negatively impact demand for 38 our services related to fossil fuel projects and positively impact demand for our services related to environmental , infrastructure , nuclear and alternative energy projects . acquisitions the aggregate value of all consideration for our acquisitions consummated during the year ended september 30 , 2016 , 2015 and 2014 was $ 5.5 million , $ 5,147.9 million , and $ 88.5 million , respectively . all of our acquisitions have been accounted for as business combinations and the results of operations of the acquired companies have been included in our consolidated results since the dates of the acquisitions . components of income and expense replace_table_token_10_th revenue we generate revenue primarily by providing planning , consulting , architectural and engineering design services to commercial and government clients around the world . our revenue consists of both services provided by our employees and pass-through fees from subcontractors and other direct costs . we generally utilize a cost-to-cost approach in applying the percentage-of-completion method of revenue recognition . under this approach , revenue is earned in proportion to total costs incurred , divided by total costs expected to be incurred . cost of revenue cost of revenue reflects the cost of our own personnel ( including fringe benefits and overhead expense ) associated with revenue . amortization expense of acquired intangible assets included in our cost of revenue is amortization of acquired intangible assets . we have ascribed value to identifiable intangible assets other than goodwill in our purchase price allocations for companies we have acquired . these assets include , but are not limited to , backlog and customer relationships . to the extent we ascribe value to identifiable intangible assets that have finite lives , we amortize those values over the estimated useful lives of the assets . such amortization expense , although non-cash in the period expensed , directly impacts our results of operations . it is difficult to predict with any precision the amount of expense we may record relating to acquired intangible assets . 39 equity in earnings of joint ventures equity in earnings of joint ventures includes our portion of fees charged by our unconsolidated joint ventures to clients for services performed by us and other joint venture partners along with earnings we receive from investments in unconsolidated joint ventures . general and administrative expenses general and administrative expenses include corporate overhead expenses , including personnel , occupancy , and administrative expenses . acquisition and integration expenses acquisition and integration expenses are comprised of transaction costs , professional fees , and personnel costs , including due diligence and integration activities , primarily related to the acquisition of urs corporation . goodwill impairment see critical accounting policies and consolidated results below . income tax ( benefit ) expense as a global enterprise , income tax ( benefit ) /expense and our effective tax rates can be affected by many factors , including changes in our worldwide mix of pre-tax losses/earnings , the effect of non-controlling interest in income of consolidated subsidiaries , the extent to which the earnings are indefinitely reinvested outside of the united states , our acquisition strategy , tax incentives and credits available to us , changes in judgment regarding the realizability of our deferred tax assets , changes in existing tax laws and our assessment of uncertain tax positions . our tax returns are routinely audited by the taxing authorities and settlements of issues raised in these audits can also sometimes affect our effective tax rate . critical accounting policies our financial statements are presented in accordance with accounting principles generally accepted in the united states ( gaap ) . highlighted below are the accounting policies that management considers significant to understanding the operations of our business . revenue recognition we generally utilize a cost-to-cost approach in applying the percentage-of-completion method of revenue recognition , under which revenue is earned in proportion to total costs incurred , divided by total costs expected to be incurred . story_separator_special_tag recognition of revenue and profit under this method is dependent upon a number of factors , including the accuracy of a variety of estimates , including engineering progress , material quantities , the achievement of milestones , penalty provisions , labor productivity and cost estimates . due to uncertainties inherent in the estimation process , it is possible that actual completion costs may vary from estimates . if estimated total costs on contracts indicate a loss , we recognize that estimated loss in the period the estimated loss first becomes known . claims recognition claims are amounts in excess of the agreed contract price ( or amounts not included in the original contract price ) that we seek to collect from customers or others for delays , errors in specifications and designs , contract terminations , change orders in dispute or unapproved contracts as to both scope and price or other causes of unanticipated additional costs . we record contract revenue related to claims only if 40 it is probable that the claim will result in additional contract revenue and if the amount can be reliably estimated . in such cases , we record revenue only to the extent that contract costs relating to the claim have been incurred . the amounts recorded , if material , are disclosed in the notes to the financial statements . costs attributable to claims are treated as costs of contract performance as incurred . government contract matters our federal government and certain state and local agency contracts are subject to , among other regulations , regulations issued under the federal acquisition regulations ( far ) . these regulations can limit the recovery of certain specified indirect costs on contracts and subject us to ongoing multiple audits by government agencies such as the defense contract audit agency ( dcaa ) . in addition , most of our federal and state and local contracts are subject to termination at the discretion of the client . audits by the dcaa and other agencies consist of reviews of our overhead rates , operating systems and cost proposals to ensure that we account for such costs in accordance with the cost accounting standards of the far ( cas ) . if the dcaa determines we have not accounted for such costs consistent with cas , the dcaa may disallow these costs . there can be no assurance that audits by the dcaa or other governmental agencies will not result in material cost disallowances in the future . allowance for doubtful accounts we record accounts receivable net of an allowance for doubtful accounts . this allowance for doubtful accounts is estimated based on management 's evaluation of the contracts involved and the financial condition of our clients . the factors we consider in our contract evaluations include , but are not limited to : client typefederal or state and local government or commercial client ; historical contract performance ; historical collection and delinquency trends ; client credit worthiness ; and general economic conditions . unbilled accounts receivable and billings in excess of costs on uncompleted contracts unbilled accounts receivable represents the contract revenue recognized but not yet billed pursuant to contract terms or accounts billed after the period end . billings in excess of costs on uncompleted contracts represent the billings to date , as allowed under the terms of a contract , but not yet recognized as contract revenue using the percentage-of-completion accounting method . investments in unconsolidated joint ventures we have noncontrolling interests in joint ventures accounted for under the equity method . fees received for and the associated costs of services performed by us and billed to joint ventures with respect to work done by us for third-party customers are recorded as our revenues and costs in the period in which such services are rendered . in certain joint ventures , a fee is added to the respective billings from both ourselves and the other joint venture partners on the amounts billed to the third-party customers . these fees result in earnings to the joint venture and are split with each of the joint venture partners and paid to the joint venture partners upon collection from the third-party customer . we record our allocated share of these fees as equity in earnings of joint ventures . 41 income taxes we provide for income taxes in accordance with principles contained in asc topic 740 , income taxes . under these principles , we recognize the amount of income tax 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 financial statements or tax returns . deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period when the new rate is enacted . deferred tax assets are evaluated for future realization and reduced by a valuation allowance if it is more likely than not that a portion will not be realized . we measure and recognize the amount of tax benefit that should be recorded for financial statement purposes for uncertain tax positions taken or expected to be taken in a tax return . with respect to uncertain tax positions , we evaluate the recognized tax benefits for recognition , measurement , derecognition , classification , interest and penalties , interim period accounting and disclosure requirements . judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns . valuation allowance . deferred income taxes are provided on the liability method whereby deferred tax assets and liabilities are established for the difference between the financial reporting and income tax basis of assets and liabilities , as well as for tax attributes such as operating loss and tax credit carryforwards .
| subcontractor and other direct costs for the years ended september 30 , 2015 and 2014 were $ 8.3 billion and $ 3.5 billion , respectively . subcontractor costs and other direct costs as a percentage of revenue , increased from 42 % during the year ended september 30 , 2014 to 46 % during the year ended september 30 , 2015 because urs has proportionately more construction oriented projects , and these projects utilize more subcontractors . gross profit our gross profit for the year ended september 30 , 2015 increased $ 132.0 million , or 32.7 % , to $ 535.2 million as compared to $ 403.2 million for the year ended september 30 , 2014. gross profit provided by acquired companies was $ 206.3 million . for the year ended september 30 , 2015 , gross profit , as a percentage of revenue , decreased to 3.0 % from 4.8 % in the year ended september 30 , 2014. excluding gross profit provided by acquired companies , gross profit decreased $ 74.3 million , or 18.4 % , from the year ended september 30 , 2014. the decreases in gross profit , excluding acquired companies , and gross profit , as a percentage of revenue , for the year ended september 30 , 2015 were primarily due to factors impacting our segments as described below , including a decrease in revenue in the americas region in our dcs segment . equity in earnings of joint ventures our equity in earnings of joint ventures for the year ended september 30 , 2015 was $ 106.2 million as compared to $ 57.9 million for the year ended september 30 , 2014. equity in earnings of joint ventures provided by acquired companies was $ 80.1 million . excluding earnings provided by acquired companies , earnings decreased $ 31.8 million , or 54.8 % , from the year ended september 30 , 2014. the decrease in earnings of joint ventures for the year ended september 30 , 2015 , excluding acquisitions , was primarily due to the prior year $ 37.4
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for the year ending december 31 , 2015 , we expect to add approximately 500 total beds to facilities we owned as of december 31 , 2014. we are the leading publicly traded pure-play provider of behavioral healthcare services , with operations in the united states and the united kingdom . management believes that the company 's recent acquisitions position the company as a leading platform in a highly fragmented industry under the direction of an experienced management team that has significant industry expertise . management expects to take advantage of several strategies that are more accessible as a result of our increased size and geographic scale , including continuing a national marketing strategy to attract new patients and referral sources , increasing our volume of out-of-state referrals , providing a broader range of services to new and existing patients and clients and selectively pursuing opportunities to expand our facility and bed count . acquisitions on february 11 , 2015 , we completed the acquisition of crc for total consideration of approximately $ 1.3 billion . as consideration for the acquisition , we issued 5,975,326 shares of our common stock to certain holders of crc common stock and repaid crc 's outstanding indebtedness . crc is a leading provider of treatment services related to substance abuse and other addiction and behavioral disorders . crc operated 35 inpatient facilities with over 2,400 beds and 81 comprehensive treatment centers located in 30 states at the acquisition date . on december 31 , 2014 , we completed the acquisition of skyway , a substance abuse facility with 28 beds located in chico , california , for $ 0.3 million . on december 1 , 2014 , we completed the acquisition of the assets of croxton , an inpatient psychiatric facility with 24 beds located in melton mowbray , leicestershire , england , for cash consideration of $ 15.6 million . on september 3 , 2014 , we acquired for $ 37.4 million the assets of mccallum , an eating disorder treatment facility with 85 beds offering residential , partial hospitalization and intensive outpatient treatment programs located in st. louis , missouri , and austin , texas . the company may make a cash payment under an earn-out agreement of up to $ 6.0 million , contingent upon achievement by mccallum of certain operating performance targets for the one-year period ending october 31 , 2015. on july 1 , 2014 , we completed the acquisition of partnerships in care for cash consideration of $ 661.7 million , which is net of cash acquired of $ 12.0 million and the gain on settlement of the foreign currency derivatives of $ 15.3 million . partnerships in care is the second largest independent provider of inpatient behavioral healthcare services in the united kingdom , operating 23 inpatient behavioral healthcare facilities with over 1,200 beds at the acquisition date . on january 1 , 2014 , we completed the acquisition of pacific grove , an inpatient psychiatric facility with 68 beds located in riverside , california , for cash consideration of $ 10.5 million . on december 1 , 2013 , we completed the acquisition of the assets of cascade , an inpatient psychiatric facility with 63 beds located in tukwila , washington , for cash consideration of $ 19.6 million . on october 1 , 2013 , we completed the acquisition of the assets of longleaf , an inpatient psychiatric facility with 68 beds located in alexandria , louisiana , for cash consideration of $ 8.3 million . on august 1 , 2013 , we completed the acquisition of the refuge , an inpatient psychiatric facility near ocala , florida , with 87 beds , for cash consideration of $ 14.1 million . on may 1 , 2013 , we completed the acquisition of the umc facilities , including san juan capestrano hospital in san juan , puerto rico , which is licensed for 108 beds and has a certificate of need for 100 additional beds , and a 75-bed inpatient behavioral healthcare hospital in tampa , florida , which opened on october 1 , 2013 , for cash consideration of $ 99.4 million . 43 on january 31 , 2013 , we completed the acquisition of delta , a facility with 243 beds located in memphis , tennessee with the majority of operating beds dedicated to inpatient psychiatric patients , for cash consideration of $ 23.0 million . on january 1 , 2013 , we completed the acquisition of the assets of greenleaf , an inpatient psychiatric facility with 50 beds located in valdosta , georgia , for cash consideration of $ 6.3 million . revenue our revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care , outpatient psychiatric care and adolescent residential treatment . we receive payments from the following sources for services rendered in our facilities : ( i ) state governments under their respective medicaid and other programs ; ( ii ) commercial insurers ; ( iii ) the federal government under the medicare program administered by cms ; ( iv ) nhs in the united kingdom ; and ( v ) individual patients and clients . revenue is recorded in the period in which services are provided at established billing rates less contractual adjustments based on amounts reimbursable by medicare or medicaid under provisions of cost or prospective reimbursement formulas or amounts due from other third-party payors at contractually determined rates . story_separator_special_tag > replace_table_token_7_th provision for income taxes . for the year ended december 31 , 2014 , the provision for income taxes was $ 42.9 million , reflecting an effective tax rate of 34.0 % , compared to $ 26.0 million , reflecting an effective tax rate of 37.5 % , for 2013. the decrease in the tax rate for the year ended december 31 , 2014 was primarily attributable to the acquisition of partnerships in care , which is located in a lower taxing jurisdiction and for which earnings are permanently reinvested . story_separator_special_tag year ended december 31 , 2013 compared to the year ended december 31 , 2012 revenue before provision for doubtful accounts . revenue before provision for doubtful accounts increased $ 321.3 million , or 77.6 % , to $ 735.1 million for the year ended december 31 , 2013 from $ 413.9 million for the year ended december 31 , 2012. the increase related primarily to revenue generated during the year ended december 31 , 2013 from the 2012 and 2013 acquisitions . same-facility revenue before provision for doubtful accounts increased by $ 42.2 million , or 10.5 % , for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 , resulting from same-facility growth in patient days of 8.8 % and same-facility revenue per day of 1.1 % . consistent with the same-facility patient day growth in 2012 , the growth in same-facility patient days for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 resulted from the addition of beds to our existing facilities and ongoing demand for our services . provision for doubtful accounts . the provision for doubtful accounts was $ 21.7 million for the year ended december 31 , 2013 , or 3.0 % of revenue before provision for doubtful accounts , compared to $ 6.4 million for the year ended december 31 , 2012 , or 1.5 % of revenue before provision for doubtful accounts . the increase as a percentage of revenue related primarily to the changes in our payor mix from the 2012 and 2013 acquisitions . the same-facility provision for doubtful accounts was $ 8.9 million for the year ended december 31 , 2013 , or 2.0 % of revenue before provision for doubtful accounts , compared to $ 6.3 million for the year ended december 31 , 2012 , or 1.6 % of revenue before provision for doubtful accounts . salaries , wages and benefits . swb expense was $ 408.0 million for the year ended december 31 , 2013 compared to $ 239.6 million for the year ended december 31 , 2012 , an increase of $ 168.4 million . swb expense included $ 5.2 million and $ 2.3 million of equity-based compensation expense for the year ended december 31 , 2013 and 2012 , respectively . excluding equity-based compensation expense , swb expense was $ 402.8 million , or 56.4 % of revenue , for the year ended december 31 , 2013 , compared to $ 237.4 million , or 58.3 % of revenue , for the year ended december 31 , 2012. the $ 165.3 million increase in swb expense , excluding equity-based compensation expense , was primarily attributable to the hiring of additional employees in connection with the 2012 and 2013 acquisitions . same-facility swb expense was $ 235.4 million for the year ended december 31 , 2013 , or 53.9 % of revenue , compared to $ 216.2 million for the year ended december 31 , 2012 , or 54.4 % of revenue . professional fees . professional fees were $ 37.2 million for the year ended december 31 , 2013 , or 5.2 % of revenue , compared to $ 19.0 million for the year ended december 31 , 2012 , or 4.7 % of revenue . the increase in professional fees as a percentage of revenue was primarily attributable to higher professional fees incurred by the facilities acquired in our 2012 and 2013 acquisitions , which had higher professional fees as a percentage of revenue than our facilities acquired prior to 2012. same-facility professional fees were $ 13.7 million for the year ended december 31 , 2013 , or 3.1 % of revenue , compared to $ 13.3 million , for the year ended december 31 , 2012 , or 3.3 % of revenue . supplies . supplies expense was $ 37.6 million for the year ended december 31 , 2013 , or 5.3 % of revenue , compared to $ 19.5 million for the year ended december 31 , 2012 , or 4.8 % of revenue . the $ 18.1 million increase in supplies expense was primarily attributable to the 2012 and 2013 acquisitions , which had higher supplies expense as a percentage of revenue than our facilities acquired prior to 2012. same-facility supplies expense was $ 20.2 million for the year ended december 31 , 2013 , or 4.6 % of revenue , compared to $ 18.9 million for the year ended december 31 , 2012 , or 4.8 % of revenue . rents and leases . rents and leases were $ 10.0 million for the year ended december 31 , 2013 , or 1.4 % of revenue , compared to $ 7.8 million for the year ended december 31 , 2012 , or 1.9 % of revenue . the decrease in rents and leases as a percentage of revenue was primarily attributable to the purchase of six facilities during 2012 that were previously leased . same-facility rents and leases were $ 6.0 million for the year ended december 31 , 2013 , or 1.4 % of revenue , compared to $ 7.4 million for the year ended december 31 , 2012 , or 1.9 % of revenue . 46 other operating expenses . other operating expenses consisted primarily of purchased services , utilities , insurance , travel and repairs and maintenance expenses . other operating expenses were $ 80.6 million for the year ended december 31 , 2013 , or 11.3 % of revenue , compared to $ 42.8 million for the year ended december 31 , 2012 , or 10.5 % of revenue . the increase in other operating expenses as a percentage of revenue was primarily attributable to higher other operating expenses incurred by the facilities acquired in our 2012 and 2013 acquisitions , which had higher other operating expenses as a percentage of revenue than our facilities acquired prior to 2012. same-facility other operating expenses were $ 45.1 million for the year ended december 31 , 2013 , or 10.3 % of revenue , compared to $ 40.9
| salaries , wages and benefits ( swb ) expense was $ 575.4 million for the year ended december 31 , 2014 compared to $ 408.0 million for the year ended december 31 , 2013 , an increase of $ 167.4 million . swb expense included $ 10.1 million and $ 5.2 million of equity-based compensation expense for the year ended december 31 , 2014 and 2013 , respectively . excluding equity-based compensation expense , swb expense was $ 565.3 million , or 56.3 % of revenue , for the year ended december 31 , 2014 , compared to $ 402.8 million , or 56.4 % of revenue , for the year ended december 31 , 2013. the $ 162.5 million increase in swb expense , excluding equity-based compensation expense , was primarily attributable to swb expense incurred by the facilities acquired in our 2013 and 2014 acquisitions , particularly the acquisition of partnerships in care . same-facility swb expense was $ 412.8 million for the year ended december 31 , 2014 , or 52.4 % of revenue , compared to $ 381.5 million for the year ended december 31 , 2013 , or 53.7 % of revenue . professional fees . professional fees were $ 52.5 million for the year ended december 31 , 2014 , or 5.2 % of revenue , compared to $ 37.2 million for the year ended december 31 , 2013 , or 5.2 % of revenue . the $ 15.3 million increase was primarily attributable to professional fees incurred by the facilities acquired in our 2013 and 2014 acquisitions , particularly the acquisition of partnerships in care . same-facility professional fees were $ 34.2 million for the year ended december 31 , 2014 , or 4.3 % of revenue , compared to $ 31.2 million , for the year ended december 31 , 2013 , or 4.4 % of revenue . supplies . supplies expense was $ 48.4 million for the year ended december 31 , 2014 , or 4.8 % of revenue , compared to $ 37.6 million for the year ended december 31 , 2013 , or 5.3 % of revenue . the
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in prior periods , we utilized interest rate swaps and caps to reduce our exposure to fluctuations in interest rates on our outstanding debt . this amount represents ( i ) the recognition of gains and losses associated with interest rate derivatives as interest rates change and interest rate derivatives expire or new ones are entered into , and ( ii ) our gains and losses on the settlement of these interest rate contracts . we classify these gains and losses as operating activities in our audited consolidated statements of cash flows . during each of the years ended december 31 , 2013 and 2012 , we had one interest rate swap and one interest rate cap outstanding for a total notional amount of $ 100.0 million with fixed pay rates ranging from 1.11 % to 3.00 % until their expiration in september 2013. we had no interest rate derivatives in place in 2014. income ( loss ) from equity method investee . we have invested in a company where we own 49 % of the ownership units . as such , we account for this investment under the equity method of accounting with our proportionate share of net income ( loss ) reflected in the audited consolidated statements of operations as `` loss from equity method investee '' and the carrying amount reflected in the audited consolidated balance sheet as `` investment in equity method investee . '' see note 14 to our audited consolidated financial statements included elsewhere in this annual report for additional information regarding this investment . interest expense . we finance a portion of our working capital requirements , capital expenditures and acquisitions with borrowings under our senior secured credit facility and our senior unsecured notes . as a result , we incur interest 55 expense that is affected by both fluctuations in interest rates and our financing decisions . in prior periods , we entered into various interest rate derivatives to mitigate the effects of interest rate changes . we do not designate these derivatives as hedges and therefore hedge accounting treatment is not applicable . gains or losses on these interest rate contracts are included in non-operating income ( expense ) as discussed above . we reflect interest paid to the lenders and bondholders in interest expense . in addition , we include the amortization of debt issuance costs ( including origination and amendment fees ) , commitment fees and annual agency fees in interest expense . interest and other income . this represents the interest received on our cash and cash equivalents as well as other miscellaneous income . write-off of deferred loan costs . debt issuance fees , which are stated at cost , net of amortization , are amortized over the life of the respective debt agreements utilizing the effective interest and straight-line methods . write-offs of such costs can occur when borrowing terms change and or debt has been extinguished . loss on disposal of assets , net . this represents losses recorded from selling or disposing of property and equipment . sale proceeds are compared with the recorded net book value of the asset and the appropriate gain ( loss ) is recorded . income tax expense . income taxes in our financial statements are generally presented on a consolidated basis . we are subject to federal and state corporate income taxes and texas franchise tax . these taxes are accounted for under the asset and liability 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 basis and operating losses and tax credit carry-forwards . under this method , deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax laws or tax rates is recognized in income in the period that includes the enactment date . on a quarterly basis , management evaluates the need for and adequacy of valuation allowances based on the expected realization of the deferred tax assets and adjusts the amount of such allowances , if necessary . we considered all available evidence , both positive and negative , in determining whether , based on the weight of that evidence , a valuation allowance was needed on either the federal or oklahoma net operating loss carry-forwards . such consideration included estimated future projected earnings based on existing reserves and projected future cash flows from our oil and natural gas reserves ( including the timing of those cash flows ) , the reversal of deferred tax liabilities recorded as of december 31 , 2014 , our ability to capitalize intangible drilling costs rather than expensing these costs in order to prevent an operating loss carry-forward from expiring unused and future projections of oklahoma sourced income . 56 story_separator_special_tag $ 0.1 million during the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. these increases were due to the sale of natural gas , 58 natural gas liquids and condensate off our pipelines and facilities during each respective period as well as an increase in third-party volumes transported through our oil and natural gas gathering and transportation systems and related facilities . sales of purchased oil . our revenues from sales of purchased oil for the year ended ended december 31 , 2014 were $ 54.4 million . during the year ended december 31 , 2014 , we began purchasing oil from a producer in west texas , transporting the product on the bridgetex pipeline and selling the product to a third party in the houston market . costs and expenses the following table sets forth information regarding costs and expenses from continuing operations and average costs per boe sold story_separator_special_tag in prior periods , we utilized interest rate swaps and caps to reduce our exposure to fluctuations in interest rates on our outstanding debt . this amount represents ( i ) the recognition of gains and losses associated with interest rate derivatives as interest rates change and interest rate derivatives expire or new ones are entered into , and ( ii ) our gains and losses on the settlement of these interest rate contracts . we classify these gains and losses as operating activities in our audited consolidated statements of cash flows . during each of the years ended december 31 , 2013 and 2012 , we had one interest rate swap and one interest rate cap outstanding for a total notional amount of $ 100.0 million with fixed pay rates ranging from 1.11 % to 3.00 % until their expiration in september 2013. we had no interest rate derivatives in place in 2014. income ( loss ) from equity method investee . we have invested in a company where we own 49 % of the ownership units . as such , we account for this investment under the equity method of accounting with our proportionate share of net income ( loss ) reflected in the audited consolidated statements of operations as `` loss from equity method investee '' and the carrying amount reflected in the audited consolidated balance sheet as `` investment in equity method investee . '' see note 14 to our audited consolidated financial statements included elsewhere in this annual report for additional information regarding this investment . interest expense . we finance a portion of our working capital requirements , capital expenditures and acquisitions with borrowings under our senior secured credit facility and our senior unsecured notes . as a result , we incur interest 55 expense that is affected by both fluctuations in interest rates and our financing decisions . in prior periods , we entered into various interest rate derivatives to mitigate the effects of interest rate changes . we do not designate these derivatives as hedges and therefore hedge accounting treatment is not applicable . gains or losses on these interest rate contracts are included in non-operating income ( expense ) as discussed above . we reflect interest paid to the lenders and bondholders in interest expense . in addition , we include the amortization of debt issuance costs ( including origination and amendment fees ) , commitment fees and annual agency fees in interest expense . interest and other income . this represents the interest received on our cash and cash equivalents as well as other miscellaneous income . write-off of deferred loan costs . debt issuance fees , which are stated at cost , net of amortization , are amortized over the life of the respective debt agreements utilizing the effective interest and straight-line methods . write-offs of such costs can occur when borrowing terms change and or debt has been extinguished . loss on disposal of assets , net . this represents losses recorded from selling or disposing of property and equipment . sale proceeds are compared with the recorded net book value of the asset and the appropriate gain ( loss ) is recorded . income tax expense . income taxes in our financial statements are generally presented on a consolidated basis . we are subject to federal and state corporate income taxes and texas franchise tax . these taxes are accounted for under the asset and liability 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 basis and operating losses and tax credit carry-forwards . under this method , deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . the effect on deferred tax assets and liabilities of a change in tax laws or tax rates is recognized in income in the period that includes the enactment date . on a quarterly basis , management evaluates the need for and adequacy of valuation allowances based on the expected realization of the deferred tax assets and adjusts the amount of such allowances , if necessary . we considered all available evidence , both positive and negative , in determining whether , based on the weight of that evidence , a valuation allowance was needed on either the federal or oklahoma net operating loss carry-forwards . such consideration included estimated future projected earnings based on existing reserves and projected future cash flows from our oil and natural gas reserves ( including the timing of those cash flows ) , the reversal of deferred tax liabilities recorded as of december 31 , 2014 , our ability to capitalize intangible drilling costs rather than expensing these costs in order to prevent an operating loss carry-forward from expiring unused and future projections of oklahoma sourced income . 56 story_separator_special_tag $ 0.1 million during the year ended december 31 , 2013 as compared to the year ended december 31 , 2012. these increases were due to the sale of natural gas , 58 natural gas liquids and condensate off our pipelines and facilities during each respective period as well as an increase in third-party volumes transported through our oil and natural gas gathering and transportation systems and related facilities . sales of purchased oil . our revenues from sales of purchased oil for the year ended ended december 31 , 2014 were $ 54.4 million . during the year ended december 31 , 2014 , we began purchasing oil from a producer in west texas , transporting the product on the bridgetex pipeline and selling the product to a third party in the houston market . costs and expenses the following table sets forth information regarding costs and expenses from continuing operations and average costs per boe sold
| 57 the following table presents cash settlements received ( paid ) for matured commodity derivatives and premiums incurred previously or upon settlement attributable to instruments that settled during the periods utilized in our calculation of the hedged prices presented above : replace_table_token_17_th the changes in prices and volumes shown in the oil and natural gas sales volumes , revenue and pricing table above caused the following changes to our oil and natural gas revenue between the years ended december 31 , 2012 , 2013 and 2014 : replace_table_token_18_th oil and natural gas revenues . our revenues are a function of oil and natural gas production volumes sold and average sales prices received for those volumes . the total increase in oil and natural gas revenues of $ 72.4 million , or 11 % , for the year ended december 31 , 2014 as compared to the year ended december 31 , 2013 is largely related to a 26 % rise in the production volume of oil due to an increased number of rigs in place during the year , along with a 16 % increase in natural gas prices realized , which were partially offset by a 16 % decrease in natural gas production volumes attributable to the divestiture of our anadarko basin assets . the total increase in oil and natural gas revenues of $ 81.3 million , or 14 % , for the year ended december 31 , 2013 as compared to the year ended december 31 , 2012 is largely due to a 15 % increase in oil production in our permian area and an increase in both oil and natural gas prices realized for the year , which were offset by a decrease in natural gas production volumes attributable to the divestiture of our anadarko basin assets and by severe winter weather in the permian region during the fourth quarter of 2013. the following table sets forth information regarding midstream and sales of purchased oil revenues for the periods presented : replace_table_token_19_th midstream service revenue . our midstream service revenue from operations increased
| 15,033 |
these increases were partially offset by lower performance-based compensation linked to operating results as well as improvements in productivity . platform pounds and platform shipments per hour improved 4.0 % and 3.8 % , respectively , in 2016 as compared to 2015. both p & d stops and p & d shipments per hour remained consistent between the periods compared , while our linehaul laden load average declined 1.7 % as compared to 2015. our aggregate productive labor costs increased to 28.9 % of revenue in 2016 as compared to 27.9 % in 2015 , while our other indirect salaries and wages increased to 12.2 % of revenue in 2016 as compared to 11.9 % in 2015. employee benefit costs increased $ 35.2 million , or 9.1 % in 2016 compared to 2015 , primarily due to higher costs for our group health and dental plans and an increase in certain retirement benefit plan costs that are directly linked to the market price of our common stock . our group health and dental costs were higher in 2016 primarily due to a 5.8 % increase in the average cost per covered employee as compared to 2015. as a result , our employee benefit costs increased to 34.2 % of salaries and wages in 2016 as compared to 32.6 % in 2015. operating supplies and expenses decreased $ 30.9 million in 2016 as compared to 2015. these costs as a percent of revenue improved to 10.8 % of revenue in 2016 from 11.9 % of revenue in 2015 primarily due to a reduction in fuel costs . the cost of diesel fuel , excluding fuel taxes , represents the largest component of operating supplies and expenses , and can vary based on both average price per gallon and consumption . the decrease in our diesel fuel costs , excluding fuel taxes , during 2016 was due primarily to a 13.4 % decline in our average cost per gallon , while our fuel consumption remained relatively consistent between the periods compared despite the increase in miles driven . our fuel consumption benefited from an overall improvement in miles per gallon , which continues to improve as we add newer , more fuel-efficient equipment to our operations . we do not use diesel fuel hedging instruments and are therefore subject to market price fluctuations . other operating supplies and expenses , excluding diesel fuel , remained relatively consistent as a percent of revenue between the periods compared . depreciation and amortization increased $ 24.5 million due primarily to the assets acquired as part of our 2015 and 2016 capital expenditure programs . as a percent of revenue , our depreciation and amortization expense increased to 6.3 % in 2016 compared to 5.6 % in 2015. we believe depreciation will continue to increase based on our 2017 capital expenditure plan . while our investments in real estate , equipment and technology can increase our costs in the short-term , we believe these investments are necessary to support our continued growth and strategic initiatives . purchased transportation decreased $ 42.2 million , or 36.3 % in 2016 as compared to 2015. the decrease was due primarily to the strategic elimination of certain services in the second quarter of 2015 that reduced our use of third-party providers for the remainder of 2015 and throughout 2016. we continue to utilize purchased transportation services , when beneficial , to support our ltl services and other non-ltl services , including our container drayage and truckload brokerage services . our effective tax rate in 2016 was 38.1 % as compared to 37.8 % in 2015. our effective tax rates in 2016 and 2015 were favorably impacted by various tax credits . our effective tax rate generally exceeds the federal statutory rate of 35 % due to the impact of state taxes , and to a lesser extent , certain other non-deductible items . 23 2015 compared to 2014 key financial and operating metrics for 2015 and 2014 are presented below : replace_table_token_13_th revenue our revenue in 2015 increased $ 184.5 million , or 6.6 % as compared to 2014. ltl tonnage increased 7.4 % primarily due to an 11.6 % increase in ltl shipments , although our tonnage growth was affected by a 3.8 % decrease in weight per shipment . we attribute the decline in weight per shipment in 2015 to softening economic conditions and changes in the mix of our freight as compared to 2014. ltl revenue per hundredweight decreased 0.5 % to $ 18.23 in 2015 , primarily due to declines in our fuel surcharges . ltl revenue per hundredweight , excluding fuel surcharges , increased 5.7 % in 2015 as compared to 2014 , which included the positive effect on this metric from a decrease in weight per shipment . we believe the increase in revenue per hundredweight , excluding fuel surcharges , reflected our continued commitment to a disciplined yield management process and a relatively stable pricing environment . most of our tariffs and contracts provide for a fuel surcharge that is generally indexed to the doe 's published diesel fuel prices that reset each week . our fuel surcharges are designed to offset fluctuations in the cost of petroleum-based products and are one of the many components included in the overall negotiated price we charge for our services . fuel surcharge revenue decreased to 10.4 % of revenue in 2015 from 15.5 % in 2014 , primarily due to a decrease in the average price per gallon for diesel fuel for those comparative periods . operating costs and other expenses salaries , wages and benefits increased $ 188.5 million , or 13.6 % in 2015 due to a $ 143.6 million increase in salaries and wages and a $ 44.9 million increase in benefit costs . story_separator_special_tag the increase in salaries and wages , excluding benefits , was primarily due to an increase in the average number of full-time employees of 2,063 , or 13.5 % , over 2014 , as well as annual wage increases provided to our employees in september of 2014 and 2015. the increase in full-time employees was necessary to provide capacity for the increase in shipments during the year . we also implemented certain operational initiatives that decreased our reliance on purchased transportation providers and increased our utilization of company employees and equipment . the additional freight density contributed to a slight improvement in our p & d and platform shipments per hour , which improved 1.1 % and 1.8 % , respectively , from 2014. our aggregate productive labor costs increased to 27.9 % of revenue in 2015 as compared to 25.8 % in 2014 , while our other salaries and wages increased to 11.9 % of revenue in 2015 as compared to 11.5 % in 2014. employee benefit costs increased $ 44.9 million , or 13.2 % , primarily due to an increase in the number of full-time employees eligible for benefits , certain enhancements to paid-time-off benefits and an increase in our workers compensation expense . these increases were partially offset by a reduction in expense for certain retirement benefit plans directly linked to the share price of our common stock . our group health costs increased in the fourth quarter of 2015 and continued to increase into 2016. employee benefit costs in 2015 were 32.6 % of salaries and wages as compared to 32.8 % in 2014 . 24 operating supplies and expenses decreased $ 78.8 million in 2015 as compared to 2014. the cost of diesel fuel , excluding fuel taxes , represents the largest component of operating supplies and expenses , and can vary based on both average price per gallon and consumption . our diesel fuel costs decreased primarily due to a 33.7 % decrease in our average cost per gallon during 2015 as compared to the prior year . this decrease was partially offset by an increase in fuel consumption of 9.1 % , primarily due to an 11.6 % increase in linehaul and p & d miles driven . our fuel consumption benefited from an overall improvement in miles per gallon , which continues to improve as we add newer , more fuel-efficient equipment to our operations . the additional fuel consumption resulted in an increase in fuel taxes , which increased our operating taxes and licenses . depreciation and amortization expenses increased $ 18.9 million primarily due to the assets acquired through our 2015 and 2014 capital expenditures . as a percent of revenue , our depreciation and amortization expense increased to 5.6 % in 2015 compared to 5.3 % in 2014. purchased transportation expense decreased $ 13.0 million , or 10.1 % , in 2015 as compared to 2014. we primarily utilized purchased transportation services from third-party providers to support our container drayage , international freight-forwarding and truckload brokerage services . we also utilized purchased transportation to perform limited services in our ltl operations . the decrease in purchased transportation was primarily due to operational improvement initiatives to reduce our use of third-party providers for the movement of our customers ' shipments . our effective tax rate in 2015 was 37.8 % as compared to 38.1 % in 2014. our effective tax rates in 2015 and 2014 were favorably impacted by various tax credits , including credits for the use of alternative fuel in our operations . our effective tax rate generally exceeds the federal statutory rate of 35 % due to the impact of state taxes , and to a lesser extent , certain other non-deductible items . liquidity and capital resources a summary of our cash flows is presented below : replace_table_token_14_th the change in our cash flows provided by operating activities during 2016 was impacted by an increase in depreciation and amortization of $ 24.5 million as compared to 2015. this increase was partially offset by an $ 8.9 million decrease in net income as well as other fluctuations in certain working capital accounts . the change in our cash flows provided by operating activities in 2015 as compared to 2014 was due primarily to fluctuations within our working capital accounts , which included changes in income taxes , customer receivables and certain accrued liabilities . in addition , an increase in our net income and higher depreciation and amortization expenses in 2015 as compared to 2014 , as described above in “ results of operations , ” also resulted in increased cash flows provided by operating activities . the changes in our cash flows used in investing activities for all periods were due primarily to fluctuations in our capital expenditure programs and proceeds from asset disposals each year . changes in our capital expenditures are more fully described below in “ capital expenditures. ” the changes in our cash flows used in financing activities for all periods were due primarily to increases in repurchases of our common stock , fluctuations in our senior unsecured revolving line of credit and scheduled principal payments under our long-term debt agreements . our repurchases of common stock and financing arrangements are more fully described below in `` stock repurchase program `` and `` financing agreements , '' respectively . 25 we have three primary sources of available liquidity : cash and cash equivalents , cash flows from operations and available borrowings under our senior unsecured revolving credit agreement , which is described below . we believe we also have sufficient access to debt and equity markets to provide other sources of liquidity , if needed .
| 21 2016 compared to 2015 key financial and operating metrics for 2016 and 2015 are presented below : replace_table_token_12_th revenue our revenue in 2016 increased $ 19.1 million , or 0.6 % as compared to 2015 due to a $ 45.9 million increase in ltl revenue , partially offset by a $ 26.8 million reduction in non-ltl revenue . ltl revenue was higher in 2016 as a result of an increase in ltl revenue per hundredweight that was negatively impacted by a slight decline in ltl tonnage . the reduction in non-ltl revenue was primarily due to strategic changes in our container drayage and international freight forwarding service offerings that we initiated in the second half of 2015. ltl revenue per hundredweight increased 1.5 % to $ 18.51 in 2016 primarily due to our disciplined yield management process and a generally stable pricing environment . the increase in ltl revenue per hundredweight was negatively impacted by a decline in our fuel surcharges that reflected lower average diesel fuel prices . excluding fuel surcharges , ltl revenue per hundredweight increased 2.6 % in 2016 as compared to 2015. most of our tariffs and contracts provide for a fuel surcharge that is generally indexed to the doe 's published diesel fuel prices that reset each week . our fuel surcharges are designed to offset fluctuations in the cost of petroleum-based products and are one of the many components included in the overall negotiated price we charge for our services . fuel surcharge revenue decreased to 9.5 % of revenue in 2016 from 10.4 % in 2015 , primarily due to a decrease in the average price per gallon for diesel fuel for those comparative periods . we regularly monitor the components of our pricing , including base freight rates and fuel surcharges , and our costs at the customer level . we address individual customer profitability issues to minimize the negative impact on our profitability that would likely result from a rapid and significant change in any of our operating expenses . first quarter 2017 update total revenue per day for january 2017
| 15,034 |
on july 24 , 2020 , the company received aggregate commitments of up to $ 100 million from certain of its lenders pursuant to the accordion feature ( the “ accordion ” ) under its credit facility . with the closing of the accordion , the borrowing capacity under the 41 company 's credit facility was increased to $ 600 million , consisting of a $ 250 million capacity revolver ( the “ revolver ” ) , a $ 350 million term loan ( the “ term loan ” ) , and a remaining $ 50 million accordion . the remaining terms of the credit facility were unchanged . on july 27 , 2020 , the company entered into an interest rate swap with wells fargo bank , n.a . with a notional amount of $ 50 million ( the term component of the accordion ) , a fixed interest rate of 0.16 % and a maturity date of august 8 , 2023. as of december 31 , 2020 , we had six interest rate swaps with four counterparties to hedge the libor component of our interest rate risk related to the term loan . together , these swaps fix the libor component of the entire term loan on a weighted average basis at 1.91 % . an aggregate of $ 200 million of the swaps mature in august 2024 and an additional $ 150 million matures in august 2023. in connection with the acquisition of the dumfries facility in april 2020 , we assumed a cmbs loan with an outstanding balance of approximately $ 12.1 million , an interest rate of 4.68 % and a remaining term of four years . in connection with the acquisition of the rosedale facilities in july 2020 , we entered into a loan with fvcbank in the amount of $ 14.8 million with an annual interest rate of 3.85 % and a term of five years . recent developments 2021 completed acquisitions and capital raising since december 31 , 2020 , we have completed three acquisitions encompassing an aggregate of 86,035 leasable square feet for an aggregate purchase price of $ 25.4 million with annualized base rent of $ 2.0 million . since december 31 , 2020 , we generated gross proceeds of $ 35.4 million through atm equity issuances of 2.7 million shares of our common stock at a weighted average offering price of $ 13.07 per share . lease renewal activity during the fourth quarter of 2020 , we extended leases totaling 7.1 % of our annualized base rent , including two leases with encompass health originally expiring in 2021 and the lease with kindred healthcare at mercy rehabilitation hospital in oklahoma city , oklahoma , for a weighted average additional term of 9.2 years . properties under contract as of march 3 , 2021 , we had six properties under contract for an aggregate purchase price of approximately $ 75.7 million . we are currently in the due diligence period for our properties under contract . if we identify problems with any of these properties or the operator of any property during our due diligence review , we may not close the transactions on a timely basis or we may terminate the purchase agreements and not close the transaction . trends which may influence our results of operations we believe the following trends may positively impact our results of operations : ● growing healthcare expenditures . according to the u.s. department of health and human services , overall healthcare expenditures are expected to grow at an average rate of 5.5 % per year through 2027. we believe the long-term growth in healthcare expenditures will help maintain or increase the value of our healthcare real estate portfolio . ● an aging population . according to the 2010 u.s. census , the segment of the population consisting of people 65 years or older comprise the fastest growing segment of the overall u.s. population . we believe this segment of the u.s. population will utilize many of the services provided at our healthcare facilities such as orthopedics , cardiac , gastroenterology and rehabilitation . ● a continuing shift towards outpatient care . according to the american hospital association , patients are demanding more outpatient operations . we believe this shift in patient preference from inpatient to outpatient facilities will benefit our tenants as most of our properties consist of outpatient facilities . 42 ● physician practice group and hospital consolidation . we believe the trend towards physician group consolidation will serve to strengthen the credit quality of our tenants if our tenants merge or are consolidated with larger health systems . we believe the following trends may negatively impact our results of operations : ● continuation of the covid-19 pandemic – although covid-19 vaccines are currently being distributed and administered in the u.s. , it is unclear when or if the covid-19 pandemic will subside and the u.s. economy will recover . although many of our tenants are continuing to operate during the pandemic , it is unclear when/if our tenants will return to pre-covid-19 patient volumes . although we do not believe the current state of the covid-19 pandemic will negatively affect our ability to collect rents in the near term , a prolonged pandemic or resurgence could put additional strain on our tenants and could affect their ability to pay rents to us . ● changes in third party reimbursement methods and policies . even prior to the covid-19 pandemic , the price of healthcare services was increasing , and we believed that third-party payors , such as medicare and commercial insurance companies , would continue to scrutinize and reduce the types of healthcare services eligible for , and the amounts of , reimbursement under their health insurance plans . additionally , many employer-based insurance plans were continuing to increase the percentage of insurance premiums for which covered individuals are responsible . story_separator_special_tag we expect these trends will only be exacerbated by the covid-19 pandemic , as federal and state budgets are likely to be under tremendous stress due to the pandemic and private insurers are likely to incur substantial losses due to covid-19-related claims and the downturn in the financial and credit markets . if these trends continue , our tenants ' businesses will continue to be negatively affected , which may impact their ability to pay rent to us . ● our ability to grow our business depends on access to debt and equity capital . since our ipo , we have grown our healthcare portfolio significantly . in order to continue growing our portfolio and maintain appropriate leverage levels , we require access to both debt and equity capital . the revolver component of our credit facility is the primary source of our acquisition funding , and we primarily rely on equity capital to reduce the balance of the revolver to provide capacity for continued acquisitions . as of february 28 , 2021 , we had cash balances and availability under our revolver of approximately $ 85 million . if we are unable to increase our debt capacity or raise equity to reduce the balance of our revolver , our growth prospects may be negatively affected . critical accounting policy the preparation of financial statements in conformity with gaap requires our management to use judgment in the application of accounting policies , including making estimates and assumptions . we base estimates on the best information available to us at the time , our experience and on various other assumptions believed to be reasonable under the circumstances . these estimates affect the reported amounts of assets and liabilities , disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods . if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different , it is possible that different accounting would have been applied , resulting in a different presentation of our financial statements . from time-to-time , we re-evaluate our estimates and assumptions . in the event estimates or assumptions prove to be different from actual results , adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain . for a more detailed discussion of our significant accounting policies , see note 2 – “ summary of significant accounting policies ” in the footnotes to the accompanying financial statements . below is a discussion of accounting policies that we consider critical in that it may require complex judgment in its application or require estimates about matters that are inherently uncertain . investment in real estate we determine when an acquisition meets the definition of a business or alternatively should be accounted for as an asset acquisition in accordance with accounting standard codification ( “ asc ” ) topic 805 “ business combinations ” ( “ asc topic 805 ” ) , which requires that , when substantially all of the fair value of an acquisition is concentrated in a single identifiable asset or a group of similar identifiable assets , the asset or group of similar identifiable assets does not meet the definition of a business and therefore is required to be accounted for as an asset acquisition . transaction costs continue to be capitalized for asset acquisitions and expensed as incurred for business combinations . asc topic 805 resulted in all of our post-january 1 , 2018 acquisitions being accounted for as asset acquisitions because substantially all of the fair value of the gross assets we acquire are concentrated in a single asset or group of similar 43 identifiable assets . for asset acquisitions that are “ owner occupied ” ( meaning that the seller either is the tenant or controls the tenant ) , the purchase price , including capitalized acquisition costs , will be allocated to land and building based on their relative fair values with no value allocated to intangible assets or liabilities . for asset acquisitions where there is a lease in place but not “ owner occupied , ” we will allocate the purchase price to tangible assets and any intangible assets acquired or liabilities assumed based on their relative fair values . fair value is determined based upon the guidance of asc topic 820 , “ fair value measurements and disclosures , ” and generally are determined using level 2 inputs , such as rent comparables , sales comparables , and broker indications . although level 3 inputs are utilized , they are minor in comparison to the level 2 data used for the primary assumptions . the determination of fair value involves the use of significant judgment and estimates . we make estimates to determine the fair value of the tangible and intangible assets acquired and liabilities assumed using information obtained from multiple sources , including pre-acquisition due diligence , and we routinely utilize the assistance of a third-party appraiser . valuation of tangible assets : the fair value of land is determined using the sales comparison approach whereby recent comparable land sales and listings are gathered and summarized . the available market data is analyzed and compared to the land being valued and adjustments are made for dissimilar characteristics such as market conditions , size , and location . we estimate the fair value of buildings acquired on an as-if-vacant basis and depreciate the building value over its estimated remaining life . fair value is primarily based on estimated cash flow projections that utilize discount and or capitalization rates as well as available market information . we determine the fair value of site improvements ( non-building improvements that include paving and other ) using the cost approach , with a deduction for depreciation , and depreciate the site improvements over their estimated remaining useful lives . tenant improvements represent fixed improvements to tenant spaces , the fair value of which is estimated using prevailing market tenant improvement allowances .
| the increase was primarily the result of rental revenue earned from the facilities we acquired during 2020 , as well as from the recognition of a full year of rental revenue in 2020 from acquisitions that were completed during 2019. within that increase , $ 8.9 million in revenue was recognized from net lease expense recoveries during the year ended december 31 , 2020 , compared to $ 5.2 million for the same period in 2019. the increase was partially offset by the recognition of reserves for approximately $ 1.4 million of rent , which includes $ 0.4 million of deferred rent . expenses general and administrative general and administrative expenses for the year ended december 31 , 2020 were $ 11.9 million , compared to $ 6.5 million for the same period in 2019 , an increase of $ 5.4 million . the increase was primarily driven by the impact of the internalization and our recognition of compensation-related costs and other administrative expenses that prior to the internalization were the obligation of our former advisor . in addition , reflecting the impact of ltip unit grants made in connection with the internalization , this increase was also due to an increase in non-cash ltip compensation expense , which was $ 5.3 million for the year ended december 31 , 2020 , compared to $ 3.3 million for the same period in 2019. operating expenses operating expenses for the year ended december 31 , 2020 were $ 10.9 million , compared with $ 6.0 million for the same period in 2019 , an increase of $ 4.9 million . the increase results primarily from $ 8.9 million of recoverable property operating expenses incurred during the year ended december 31 , 2020 , compared to $ 5.2 million for the same period in 2019. in addition , our operating expenses 46 include $ 1.2 million of property operating expenses from gross leases for the year ended december 31 , 2020 , compared to $ 0.4 million for the same period in 2019 . management fees – related party management fee expense for the year ended december 31 , 2020 was $ 4.0 million , compared to $ 6.3 million for the same period in 2019 , a decrease of $ 2.3 million . the decrease was the result of only incurring management fee expense for the first six months of the year ended december 31 , 2020 , compared to a full year in 2019. this fee was calculated based on our stockholders ' equity balance . depreciation expense depreciation expense
| 15,035 |
our level of acquisition activity has fluctuated based on the number of suitable investments and the level of capital available to invest . during the year ended december 31 , 2016 , our total portfolio increased by 9,642 homes , including 8,936 homes acquired after completing the arpi merger , 859 homes acquired through trustee acquisitions , 346 homes acquired through broker acquisitions , 223 homes acquired through bulk acquisitions and net of 722 homes sold or rescinded , of which 418 properties were former arpi properties . during the fourth quarter of 2016 , our total portfolio increased by 269 homes , including 189 homes acquired through broker acquisitions , 158 homes acquired through trustee acquisitions , 51 homes acquired through bulk acquisitions and net of 129 homes sold or rescinded , of which 78 properties were former arpi properties . rescinded properties represent properties for which the sale has been unwound , as in certain jurisdictions , our purchases of single-family properties at foreclosure and judicial auctions are subject to the right of rescission , which is generally caused by the borrower filing for bankruptcy . prior to december 10 , 2014 , we paid an acquisition and renovation fee to ah llc equal to 5 % of all costs and expenses incurred in connection with the initial acquisition , repair and renovation of our single-family properties for its services in identifying , evaluating , acquiring and overseeing the renovation of our properties . on december 10 , 2014 , ah llc ceased providing acquisition and renovation services for us , we stopped paying ah llc an acquisition and renovation fee and we hired all of ah llc 's acquisition and renovation personnel necessary for our operations . no termination or other fee was paid to ah llc in connection with the termination of ah llc providing such services . as a result of the internalization of ah llc 's acquisition and renovation personnel , a larger proportion of the internalized cost structure is expensed in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) , compared to the 5 % acquisition and renovation fee previously paid to ah llc , which was primarily capitalized related to asset acquisitions in accordance with gaap and included in the cost basis of our single-family properties . property operations the acquisition of properties involves expenditures in addition to payment of the purchase price , including property inspections , closing costs , liens , title insurance , transfer taxes , recording fees , broker commissions , property taxes and hoa fees , when applicable . in addition , we typically incur costs between $ 10,000 and $ 25,000 to renovate a home to prepare it for rental . renovation work varies , but may include paint , flooring , carpeting , cabinetry , appliances , plumbing hardware and other items required to prepare the home for rental . the time and cost involved in initially accessing our homes to prepare them for rental can impact our financial performance and varies among properties based on several factors , including the source of acquisition channel , whether the property is located in a judicial or non-judicial foreclosure state , if applicable , and whether or not the home is occupied at the time of acquisition . this process of finalizing the acquisition and gaining initial access to the home can range from immediate access to multiple months and , on average , takes approximately 20 to 30 days . additionally , after gaining access to the home , the time to renovate a property can vary significantly among properties and is most impacted by the age and condition of the property . on average , it takes approximately 50 to 70 days to complete the renovation process after gaining initial access to the home . our operating results are also impacted by the amount of time it takes to market and lease a property , which can vary greatly among properties , and is impacted by local demand , our marketing techniques and the size of our available inventory . on average , it takes approximately 20 to 40 days to lease a property after completing the renovation process . lastly , our operating results are impacted by the length of stay of our tenants and the amount of time it takes to prepare and re-lease a property after a tenant vacates . this process , which we refer to as `` turnover , '' is impacted by numerous factors , including the condition of the home upon move-out of the previous tenant , and by local demand , our marketing techniques and the size of our available inventory at the time of the turnover . on average , it takes approximately 45 to 55 days to complete the turnover process . revenue our revenue is derived primarily from rents collected under lease agreements with tenants for our single-family properties . these include short-term leases that we enter into directly with our tenants , which typically have a term of one year . our rental rates and occupancy levels are affected by macroeconomic factors and local and property-level factors , including market conditions , seasonality and tenant defaults , and the amount of time it takes to renovate and re-lease properties when tenants vacate . additionally , our ability to collect revenues and related operating results are impacted by the credit worthiness and quality of our tenants . on average , our tenants have household incomes ranging from $ 70,000 to $ 100,000 and primarily consist of families with approximately two adults and one or more children . in addition to rental revenues , we receive fees and other reimbursements , referred to as `` tenant charge-backs , '' from our tenants , which are primarily designed to recover costs for certain items , such as utilities , damages and maintenance . in accordance with gaap , these fees and tenant charge-backs are presented gross in the consolidated statements of operations . story_separator_special_tag 39 as our total portfolio occupancy is now essentially stabilized , our ability to maintain and grow revenues will be dependent on our ability to retain tenants and increase rental rates . we believe that our platform will allow us to achieve strong tenant retention and lease renewal rates at our properties . the average increase in rent for renewals was 3.7 % and 3.2 % , respectively , and the average increase in rent for re-leases was 5.1 % and 3.5 % , respectively , for the years ended december 31 , 2016 and 2015 . based on our same-home population of properties , we experienced retention rates of 67.5 % and 68.5 % , respectively , for the years ended december 31 , 2016 and 2015 . expenses we monitor the following categories of expenses that we believe most significantly affect our results of operations . property operating expenses once a property is available for lease , which we refer to as `` rent-ready , '' we incur ongoing property-related expenses , primarily hoa fees ( when applicable ) ; property taxes ; insurance ; marketing expenses ; repairs and maintenance ; and turnover costs , which may not be subject to our control . property management expenses as we internally manage our portfolio of single-family properties through our proprietary property management platform , we incur costs such as salary expenses for property management personnel , lease expenses and operating costs for property management offices and technology expenses for maintaining the property management platform . as part of developing our property management platform , we have made significant investments in our infrastructure , systems and technology . we believe that these investments will enable the costs of our property management platform to become more efficient over time and as our overall portfolio grows in size . seasonality we believe that our business and related operating results will be impacted by seasonal factors throughout the year . in particular , we have experienced higher levels of tenant move-outs and move-ins during the late spring and summer months , which impacts both our rental revenues and related turnover costs . further , our property operating costs are seasonally impacted in certain markets for expenses such as hvac repairs , turn costs and landscaping expenses during the summer season . general and administrative expense general and administrative expense primarily consists of payroll and personnel costs , trustees ' and officers ' insurance expenses , audit and tax fees , state taxes , trustee fees and other expenses associated with our corporate and administrative functions . story_separator_special_tag from same-home properties for the year ended december 31 , 2016 , increased $ 22.5 million , or 5.6 % , to $ 426.4 million from $ 403.8 million for the year ended december 31 , 2015 . this rise was primarily attributable to higher average monthly rental rates , which increased to $ 1,502 per month as of december 31 , 2016 , compared to $ 1,448 per month as of december 31 , 2015 , and to higher average occupancy levels , which increased to 95.1 % for the year ended december 31 , 2016 , from 94.0 % for the same period in 2015 . non-same home and other properties core property revenues from non-same-home and other properties were $ 235.4 million and $ 157.6 million for the years ended december 31 , 2016 and 2015 , respectively . this increase was primarily attributable to growth in our average number of leased non-same-home and other properties , which rose to 12,976 leased properties for the year ended december 31 , 2016 , from 7,666 leased properties for the same period in 2015 . core property operating expenses core property operating expenses consist of direct property operating expenses , net of tenant charge-backs , and property management costs . same-home properties core property operating expenses from same-home properties for the year ended december 31 , 2016 , increased $ 1.0 million , or 0.6 % , to $ 160.0 million from $ 159.0 million for the year ended december 31 , 2015 . same-home core property operating expenses as a percentage of total same-home core revenues from single-family properties decreased to 37.5 % for the year ended december 31 , 2016 , from 39.4 % for the year ended december 31 , 2015 . this decrease was primarily attributable to lower maintenance and turnover costs , net of tenant charge-backs , as well as to higher core revenues from same-home properties , partially offset by higher property taxes . non-same-home and other properties core property operating expenses from non-same-home and other properties were $ 86.2 million and $ 59.4 million for the years ended december 31 , 2016 and 2015 , respectively . this increase was primarily attributable to growth in our average number of non-same-home and other properties , which rose to 13,888 properties for the year ended december 31 , 2016 , from 11,858 properties for the same period in 2015 . non-same-home and other core property operating expenses as a percentage of total non-same-home and other core revenues from single-family properties decreased to 36.6 % for the year ended december 31 , 2016 , from 37.7 % for the year ended december 31 , 2015 . this decrease was primarily attributable to higher core revenues from non-same-home and other properties . general and administrative expense general and administrative expense , which primarily consists of payroll and personnel costs , trustees ' and officers ' insurance expense , audit and tax fees , state taxes , trustee fees and other expenses associated with our corporate and administrative functions , was $ 31.0 million for the year ended december 31 , 2016 , compared to $ 24.9 million for the same period in 2015 . this rise was primarily related to increases in state taxes and software costs , as well as to the growth in our portfolio .
| single-family properties that we acquire individually ( i.e. , not through a bulk purchase ) are classified as either stabilized or non-stabilized . a property is classified as stabilized once it has been renovated and then initially leased or available for rent for a period greater than 90 days . we classify a property as former arpi if it was acquired through the arpi merger and is not classified as held 40 for sale as of the end of the current period . all other properties , including those classified as held for sale , are classified as non-same-home and other . one of the primary financial measures we use in evaluating the operating performance of our single-family properties is core net operating income ( “ core noi ” ) , which we define as rents and fees from single-family properties , net of bad debt expense , less property operating expenses for single-family properties , excluding expenses reimbursed by tenant charge-backs and bad debt expense . we use core noi as a primary financial measure as it reflects the economic operating performance of our single-family properties without the impact of certain tenant reimbursed operating expenses that are presented gross in the consolidated statements of operations in accordance with gaap . 41 comparison of the year ended december 31 , 2016 , to the year ended december 31 , 2015 the following table presents a summary of core noi for our same-home properties , non-same-home and other properties , former arpi properties and total properties for the years ended december 31 , 2016 and 2015 ( in thousands ) : replace_table_token_11_th ( 1 ) includes 25,270 properties that have been stabilized longer than 90 days prior to january 1 , 2015 . a reconciliation of core noi to net income or loss as determined in accordance with gaap is located at the end of this item 7— management 's discussion and analysis of financial condition and results of operations . 42 core
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factors considered in the determination of whether the license performance obligations are distinct included , among other things , the research and development capabilities of roche and roche 's sublicense rights , and for the remaining performance obligations the fact that they are not proprietary and can be and have been provided by other vendors . the transaction price is allocated to the separate performance obligation on a relative standalone selling price basis . we do not disclose the value of unsatisfied performance obligations for ( i ) contracts with an original expected length of one year or less and ( ii ) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed . 59 collaboration revenue upon adoption of financial accounting standards board ( the “ fasb ” ) accounting standards codification ( “ asc ” ) 606 on january 1 , 2018 , we recognize research and development ( “ r & d ” ) reimbursements as collaboration revenue earned over time as services are performed . prior to adoption of asc 606 , we recorded research reimbursement as collaboration revenue and development reimbursement as an offset to r & d expense once the license revenue cap was met . milestone revenue we generally classify each of its milestones into one of three categories : ( i ) clinical milestones ; ( ii ) regulatory and development milestones ; and ( iii ) commercial milestones . clinical milestones are typically achieved when a product candidate advances into or completes a defined phase of clinical research . for example , a milestone payment may be due to us upon the initiation of a clinical trial for a new indication . regulatory and development milestones are typically achieved upon acceptance of the submission for marketing approval of a product candidate or upon approval to market the product candidate by the u.s. food and drug administration ( the “ fda ” ) or other regulatory authorities . for example , a milestone payment may be due to us upon submission for marketing approval of a product candidate by the fda . commercial milestones are typically achieved when an approved product reaches certain defined levels of net royalty sales by the licensee of a specified amount within a specified period . in general , we consider such milestone payments as variable consideration with constraint and therefore we recognize the revenue from such milestone payments as collaboration revenue at point in time when we can conclude it is probable that a significant revenue reversal will not occur in future periods . research and development we expense r & d costs as incurred . r & d expenses include , but are not limited to , salary and benefits , share-based compensation , clinical trial activities , drug development and manufacturing prior to fda approval and third-party service fees , including clinical research organizations and investigative sites . we recognize costs for certain development activities , such as clinical trials , based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment , clinical site activations , or information provided to us by our vendors on their actual costs incurred . the objective of our accrual policy is to match the recording of the expenses in our consolidated financial statements to the actual services we have received and efforts we have expended . as such , expense accruals related to clinical trials are recognized based on our estimate of the degree of completion of the events specified in the specific clinical study or trial contract . payments for these activities are based on the terms of the individual arrangements , which may differ from the pattern of costs incurred , and are reflected in our consolidated financial statements as prepaid or accrued research and development . amounts due may be fixed fee , fee for service , and may include upfront payments , monthly payments , and payments upon the completion of milestones or receipt of deliverables . the information contained in note 2 to the consolidated financial statements under the heading “ recent accounting pronouncements ” is hereby incorporated by reference into this part ii , item 7. story_separator_special_tag roman ' , sans-serif ; font-size:6.5pt ; font-style : italic ; font-weight:400 ; line-height:120 % ; position : relative ; top : -3.5pt ; vertical-align : baseline '' > ( 2 ) cumulative r & d costs to date for prasinezumab and related antibodies include the costs incurred from the date when the program was separately tracked in nonclinical development . expenditures in the early discovery stage are not tracked by program and accordingly have been excluded from this cumulative amount . prasinezumab costs include payments to roche for our share of the development expenses incurred by roche related to prasinezumab programs . for the years ended december 31 , 2020 , 2019 and 2018 , respectively , $ 0.6 million , $ 0.8 million and $ 1.0 million of reimbursements from roche for development services were recorded as part of collaboration revenue . ( 3 ) cumulative r & d costs to date for prx003 include the costs incurred from the date when the program was separately tracked in nonclinical development . expenditures in the early discovery stage are not tracked by program and accordingly have been excluded from this cumulative amount . based on the phase 1b multiple ascending dose study results announced in september 2017 , we announced that we will not advance prx003 into mid-stage clinical development for psoriasis or psoriatic arthritis as previously planned . ( 4 ) cumulative r & d costs to date for prx004 include the costs incurred from the date when the program was separately tracked in nonclinical development . expenditures in the early discovery stage are not tracked by program and accordingly have been excluded from this cumulative amount . story_separator_special_tag ( 5 ) other r & d is comprised of preclinical development and discovery programs that have not progressed to first patient dosing in a phase 1 clinical trial . we expect our r & d expenses to increase in 2021 over the prior year , primarily due to increased spending for our late stage programs , birtamimab and prx004 . general and administrative expenses our g & a expenses increased by $ 3.0 million , or 8 % , for the year ended december 31 , 2020 , compared to the prior year . the increase for the year ended december 31 , 2020 , compared to the prior year , was primarily due to higher costs for our director and officer insurance premiums . for the year ended december 31 , 2019 , our g & a expenses decreased by $ 6.7 million , or 16 % , compared to the prior year . the decrease for the year ended december 31 , 2019 , was primarily due to lower personnel costs ( including share-based compensation expense ) , receipt of sublease rental income from sub-sublease of current ssf facility , lower legal and accounting fees , and lower depreciation and other expenses , which was offset in part by higher lease costs recorded as operating expenses due to the adoption of asc 842. we expect our g & a expenses to increase slightly in 2021 compared to the prior ye ar , primarily related to increases in our director and officer insurance premiums . restructuring and impairment related charges in may 2018 , we commenced a reorganization plan to reduce our operating costs and better align our workforce with the needs of our business following our decision in april 2018 to discontinue further development of neod001 . we have completed all of our restructuring activities in fiscal year 2019 and do not expect to incur additional costs associated with the restructuring . the cumulative amount incurred to date was $ 16.1 million , including a restructuring credit recorded for the year ended december 31 , 2019 of approximately $ 61,000 primarily due to an adjustment in previously recorded employee termination benefits . see note 11 , “ restructuring ” to the consolidated financial statements for more information . 62 restructuring charges incurred under this plan primarily consisted of employee termination benefit and contract termination costs ( including costs associated with the termination of our commercial supply contract with rentschler biopharma se ) . employee termination benefits include severance costs , employee-related benefits , supplemental one-time termination payments and non-cash share-based compensation expense related to the acceleration of stock options . all of the cash payments were paid out by the end of the first quarter of 2019. impairment charges in 2018 were related to the write off of approximately $ 0.5 million of long-lived assets surrendered to the landlord as part of the full and final settlement of our office lease in dún laoghaire , ireland . we entered into a surrender agreement for our office space in dún laoghaire , ireland in october 2018. other income ( expense ) replace_table_token_5_th interest income , net decreased by $ 6.8 million , or 83 % , for the year ended december 31 , 2020 , compared to the prior year , primarily due to lower interest income from our cash and money market accounts resulting from lower interest rates and lower cash and money market balances . other income ( expense ) , net for the year ended december 31 , 2020 , was primarily foreign exchange losses from transactions with vendors denominated in euros . interest income , net increased by $ 5.5 million , or 205 % , for the year ended december 31 , 2019 , compared to the prior year , primarily due to higher interest income in our cash and money market accounts associated with higher interest rates and no recorded interest expense associated with the build-to-suit accounting upon the adoption of asc 842 in 2019. other income ( expense ) , net for the year ended december 31 , 2019 , was primarily foreign exchange gains from transactions with vendors denominated in euros . provision for ( benefit from ) income taxes replace_table_token_6_th the provision for ( benefit from ) income taxes were $ ( 0.3 ) million , $ 0.4 million and $ ( 0.5 ) million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . the benefit from income taxes increased by $ 0.7 million for the year ended december 31 , 2020 as compare d to the same period in the prior year , primarily due to a decrease in tax shortfall related to higher stock option cancellations in the prior year . the provision for income taxes increased by $ 0.8 million for the year ended december 31 , 2019 , compared to the same period of the prior year , primarily due to an increase in stock option cancellations for which we wrote off the associated deferred tax assets and an increase in the amount disallowed as tax deduction related to compensation of certain executives during the year . the tax provisions for all periods presented primarily reflect u.s. federal taxes associated with recurring profits attributable to intercompany services that our u.s. subsidiary performs for the company , and to a lesser extent , 2018 a lso include swiss taxes associated with intercompany services that our former swiss subsidiary performed for the company . no tax benefit has been recorded related to tax losses recognized in ireland and any deferred tax assets for those losses are offset by a valuation allowance .
| the increase for year ended december 31 , 2020 , was primarily due to higher manufacturing costs primarily related to our prx005 , birtamimab and prx012 programs and to a lesser extent prx004 , higher collaboration expense with roche related to the prasinezumab program and higher r & d consulting expense . for the year ended december 31 , 2019 , our r & d expenses decreased by $ 50.3 million , or 50 % , compared to the prior year . the decrease for the year ended december 31 , 2019 , was primarily due to lower clinical costs ( primarily associated with the discontinuation of the neod001 program partially offset by higher costs for the prx004 program ) , lower personnel costs ( including share-based compensation expense ) , lower consulting costs and lower manufacturing costs ( primarily associated with the discontinuation of the neod001 program and to a lesser extent to declines from the prx004 program , offset in part by increase in costs for the prx005 program ) . our research activities are aimed at developing new drug products . our development activities involve the translation of our research into potential new drugs . r & d expenses include personnel costs and related expenses , external expenses associated with nonclinical and drug development and materials , equipment and facilities costs that are allocated to clearly related r & d activities . the following table sets forth the r & d expenses for our major programs ( specifically , any program with successful first dosing in a phase 1 clinical trial , which were birtamimab , prasinezumab , prx003 , prx004 and other r & d expenses for the years ended december 31 , 2020 , 2019 and 2018 , and the cumulative amounts to date ( in thousands ) : 61 replace_table_token_4_th ( 1 ) cumulative r & d costs to date for birtamimab ( neod001 ) include the costs incurred from the date when the program was separately tracked in preclinical development . expenditures in the early discovery stage are not tracked by program and accordingly have been excluded from this cumulative amount . < span style= '' color : # 000000 ; font-family : 'times new
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as a result of the share consolidation , every eighteen shares of common stock outstanding on august 25 , 2011 were combined into one share of common stock . our common stock began trading on the toronto stock exchange and the otc market ( on the otcqb tier ) on a post-share consolidation basis on august 30 , 2011. the share consolidation reduced the number of shares of the company 's outstanding common stock from approximately 452.8 million , to approximately 25.2 million effective as of august 25 , 2011 , the effective date of the share consolidation .consequently , the company has retroactively adjusted its financial statements for all periods presented to show the shares , stock options and warrants as if they had always been presented on this basis . our current prioritization initiative focuses primarily on our clinical activities with eniluracil , as well as logistical and product support of ongoing clinical programs . eniluracil was previously under development by glaxosmithkline . glaxosmithkline advanced eniluracil into a comprehensive phase iii clinical development program that did not produce positive results and glaxosmithkline terminated further development . we developed a hypothesis as to why the glaxosmithkline phase iii trials were not successful and licensed the compound from glaxosmithkline in july 2005. we believe that eniluracil might enhance and expand the therapeutic spectrum of activity of 5-fu , reduce the occurrence of a disabling side effect known as hand foot syndrome and allow 5-fu to be given orally . in april of 2011 , we commenced a phase ii trial comparing the anti-tumor activity and safety of eniluracil plus 5-fu and leucovorin regimen ( treatment arm 1 ) versus xeloda® ( capecitabine ) ( treatment arm 2 ) for metastatic breast cancer . patients who have disease progression in arm 2 may crossover to take eniluracil plus 5-fu and leucovorin ( treatment arm x ) . we expect the proceeds we received from the april 2010 private placement and the rights offering completed in march 2011 will be sufficient to fund the phase ii trial . we expect results from those trials to be indicative of the future viability of eniluracil and will allow us to assess whether further development and testing of eniluracil is warranted . the phase ii trial completed enrollment at the end of 2012. the company enrolled 153 patients and anticipates that final safety and efficacy data will be available during the second or third quarter of 2013. we do not presently have the financial or human resources to complete phase iii trials for eniluracil . if our phase ii trial for eniluracil is successful , and if we decide to continue to develop eniluracil , we will need additional funding , or we will need to enlist a partner to conduct future trials . patient enrollment is continuing in the phase iii trials of sts conducted by the international childhood livertumour strategy group , known as siopel and the children 's oncology group . each of these trials is managed by siopel and the children 's oncology group , respectively , and each group is responsible for the costs of the trial . we continue to hold sts patents and our responsibility in the testing is limited to providing the drug , drug distribution and pharmacovigilance , or safety monitoring , for the study . the siopel trial is expected to enroll approximately 100 pediatric patients with liver ( hepatoblastoma ) cancer at participating siopel centers worldwide and the children 's oncology group study is expected to enroll up to 135 pediatric patients worldwide in five different disease indications . the company 's children oncology group study completed during the first half of 2012 with the final results expected during the second or third quarter of 2013. the siopel trial has enrolled 69 patients as of march 16 , 2013. in addition to our current development efforts with eniluracil , we continue to pursue collaborations with other pharmaceutical and biotechnology companies , governmental agencies , academic or other corporate collaborators with respect to these candidate molecules . some of these preclinical candidates are currently being tested under agreements with third parties that may help to advance these products into future clinical development , either by us or under investigator-initiated studies . 22 we have not received and do not expect to have significant revenues from our product candidates until we are either able to sell our product candidates after obtaining applicable regulatory approvals or we establish collaborations that provide us with up-front payments , licensing fees , milestone payments , royalties or other revenue . we experienced net losses of approximately $ 5.2 million for the twelve months ended december 31 , 2012 and generated net income of $ 4.7 million for the twelve months ended december 31 , 2011 ( as a result of a non-cash gain on derivatives of $ 8.1 million ) . as of december 31 , 2012 , our deficit accumulated during development stage was approximately $ 110.5 million . as a result of our limited financial resources we have postponed or terminated many of our previously planned or ongoing clinical development programs including our cadherin technology platform . we continue to pursue various strategic alternatives , including collaborations with other pharmaceutical and biotechnology companies . as a result , there is uncertainty of our ability to continue as a going concern . our projections of our capital requirements are subject to substantial uncertainty . more capital than we anticipated may be requiredthereafter . to finance our continuing operations we will need to raise substantial additional funds through either the sale of additional equity , the issuance of debt , the establishment of collaborations that provide us with funding , the out-license or sale of certain aspects of our intellectual property portfolio or from other sources . story_separator_special_tag given current economic conditions , we might not be able to raise the necessary capital or such funding may not be available on financially acceptable terms if at all . if we can not obtain adequate funding in the future , we might be required to further delay , scale back or eliminate certain research and development studies , consider business combinations or even shut down some , or all , of our operations . our operating expenses will depend on many factors , including the progress of our drug development efforts and the implementation of further cost reduction measures . our research and development expenses , which include expenses associated with our clinical trials , drug manufacturing to support clinical programs , salaries for research and development personnel , stock-based compensation , consulting fees , sponsored research costs , toxicology studies , license fees , milestone payments , and other fees and costs related to the development of product candidates , will depend on the availability of financial resources , the results of our clinical trials and any directives from regulatory agencies , which are difficult to predict . our general and administration expenses include expenses associated with the compensation of employees , stock-based compensation , professional fees , consulting fees , insurance and other administrative matters associated in support of our drug development programs . story_separator_special_tag our preclinical studies or clinical trials ; unfavorable toxicology in our clinical programs , our drug substance requirements to support clinical programs ; change in the focus , direction , or costs of our research and development programs ; headcount expense ; the costs involved in preparing , filing , prosecuting , maintaining , defending and enforcing our patent claims ; competitive and technological advances ; the potential need to develop , acquire or license new technologies and products ; our business development activities ; new regulatory requirements implemented by regulatory authorities ; the timing and outcome of any regulatory review process ; and commercialization activities , if any . we had cash and cash equivalents of approximately $ 2.3 million as of december 31 , 2012. on april 30 , 2010 , we announced that we had completed a first closing of a non-brokered private placement of 240,066,664 units , at a price of cad $ 0.03 per unit for gross proceeds of cad $ 7.2 million . on march 29 , 2011 we completed a rights offering to our shareholders for an aggregate of 84,559,178 units , representing total proceeds of approximately $ 2.5 million . these financings allowed for the development of our phase ii trial of eniluracil and the phase iii trials of sts . financial instruments we invest excess cash and cash equivalents in high credit quality investments held by financial institutions in accordance with our investment policy designed to protect the principal investment . at december 31 , 2012 , we had approximately $ 0.1 million in our cash accounts and $ 2.2 million in our money market accounts . we have not experienced any loss or write down of our money market investments for the year ended december 31 , 2012 or for any other year since the inception of the company . our investment policy is to manage investments to achieve , in the order of importance , the financial objectives of preservation of principal , liquidity and return on investment . investments may be made in u.s. or canadian obligations and bank securities , commercial paper of u.s. or canadian industrial companies , utilities , financial institutions and consumer loan companies , and securities of foreign banks provided the obligations are guaranteed or carry ratings appropriate to the policy . securities must have a minimum dun & bradstreet rating of a for bonds or r1 low for commercial paper . the policy also provides for investment limits on concentrations of securities by issuer and maximum-weighted average time to maturity of twelve months . this policy applies to all of our financial resources . the policy risks are primarily the opportunity cost of the conservative nature of the allowable investments . as our main purpose is research and development , we have chosen to avoid investments of a trading or speculative nature . we classify investments with original maturities at the date of purchase greater than three months which mature at or less than twelve months as current . we carry investments at their fair value with unrealized gains and losses included in other comprehensive income ( loss ) ; however we have not held any instruments that were classified as short term investments during the periods presented in this annual report . off-balance sheet arrangements since our inception , we have not had any material off-balance sheet arrangements . contractual obligations and commitments since our inception , inflation has not had a material impact on our operations . we had no material commitments for capital expenses or contractual obligations beyond 3 years as of december 31 , 2012. the following table represents our contractual obligations and commitments at december 31 , 2012 ( in thousands of u.s. dollars ) : replace_table_token_6_th ( 1 ) under the service agreement with oct group llc entered in august 2010 , the company is required to make several payments over the course of our phase ii clinical trial in russia . the payments will be made upon the fulfillment of several milestones during the planned clinical trial including regulatory approval of trial , enrollment of patients and the completion of therapy of patients . the company amended the agreement in april 2011 and august 2011 for the addition of additional sites for oct to service during the phase ii clinical trial .
| · our liabilities increased $ 1.9 million between december 31 , 2011 and december 31 , 2012. the increase was primarily a result of the valuation of the derivative liability at the two valuation dates as well as an increase in accrued liabilities from costs related to the phase 2 study of eniluracil . · current liabilities excluding derivative warrant liability increased between december 31 , 2011 and december 31 , 2012. the increase was due to a december 31 , 2012 accrual for research and development expenses which reflects a timing difference in invoicing as compared to december 31 , 2011 . · at december 31 , 2012 , our working capital decreased by approximately $ 3.3 million from december 31 , 2011 due to operating expenses for the year . replace_table_token_5_th the net cash flow used in operating activities for the year ended december 31 , 2012 was approximately $ 3.0 million as compared to $ 3.2 million during the same period in 2011. this decrease is due to adecrease in our overall administrative activities during the fiscal year ended december 31 , 2012 , as compared to the same period in 2011. our administrative activities decreased from fiscal year 2012 to fiscal year 2011 due to $ 0.3 million in costs incurred related to the 2011 rights offering during fiscal 2011. during fiscal 2012 our average monthly cash burn was $ 0.25 million , as compared to $ 0.26 million for fiscal 2011 . 24 on july 7 , 2009 , we announced that we intended to primarily focus our remaining financial resources on the development of eniluracil . in 2009 , we terminated our eniluracil study using our topical formulation and decided to focus our resources on the development of a redesigned study combining eniluracil and 5-fluorouracil , or 5-fu , targeting anti-cancer indications . we continue to pursue various strategic alternatives including collaborations with other pharmaceutical and biotechnology companies . our projections of further capital requirements are subject to substantial uncertainty . our working capital requirements may fluctuate in future periods depending upon numerous factors , including : our ability to obtain additional financial resources ; our ability
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the level of covid-19 related deferrals formerly totaled $ 558.8 million , or 28 % of total loans , at june 30 , 2020. of the loans that have exited deferral agreements , $ 469.2 million , or 98 % , were current and performing as of december 31 , 2020. critical accounting policies the accounting and financial reporting policies of the company conform to generally accepted accounting principles in the united states ( “ gaap ” ) and to general practices within the banking industry . accordingly , the financial statements require certain estimates , judgments and assumptions , which are believed to be reasonable , based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the periods presented . the following accounting policies comprise those that management believes are the most critical to aid in fully understanding and evaluating our reported financial results . these policies require numerous estimates or economic assumptions that may prove inaccurate or may be subject to variations which may significantly affect our reported results and financial condition for the period or in future periods . allowance for credit losses adoption of asc 326 , financial instruments - credit losses due to the adoption of asc 326 on january 1 , 2020 , management maintains , based on current and forecasted information , an allowance for credit losses ( `` acl '' ) that reflects a current estimate of expected credit losses ( `` cecl '' ) for the estimated life of the loan portfolio at reporting periods subsequent to the adoption date . for reporting periods prior to january 1 , 2020 , management maintained an allowance for loan losses ( `` all '' ) at a level which reflected losses that were probable and reasonably estimable at the relevant reporting date . under current and prior accounting guidance , loans are charged against the allowance when management believes that the collectability of the principal is unlikely . subsequent recoveries are added to the allowance . the acl and all policies described below are supplemented by periodic reviews and validations performed by independent loan reviewers . the results of the reviews are reported to the audit committee of the board of directors . the establishment of the acl and all is and was significantly affected by management judgment . there is likelihood that different amounts would be reported under different conditions or assumptions . federal regulatory agencies , as an integral part of their examination process , periodically review our acl and all . such agencies may require management to make additional provisions for estimated losses based upon judgments different from those of management . we continue to monitor and modify our acl as conditions warrant . no assurance can be given that our level of acl will cover all of the losses on our loans or that future adjustments to the acl will not be necessary if economic and other conditions differ substantially from the conditions used by management to determine the current level of the acl . 22 for reporting periods beginning on and after january 1 , 2020 and the adoption of asc 326 : the acl which equals the sum of the all and the acl on unfunded lending commitments , is established through provisions for credit losses . management recalculates the acl at least quarterly to reassess the estimate of credit losses for the total portfolio at the relevant reporting date . under asc 326 , the acl is measured on a pool basis when similar risk characteristics exist . for each pool of loans , management also evaluates and applies qualitative adjustments to the calculated acl based on several factors , including , but not limited to , changes in current and expected future economic conditions , changes in industry experience and industry loan concentrations , changes in the volume and severity of nonperforming assets , changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry . loans that do not share similar risk characteristics are individually evaluated and are excluded from the pooled loan analysis . refer to note 2 of the consolidated financial statements for more information on the adoption of asc 326 and its impact on the consolidated financial statements . for reporting periods prior to january 1 , 2020 and the adoption of asc 326 : the all was maintained at an amount which management determined covered the reasonably estimable and probable losses . the all was established through a provision for loan losses charged to expense . the all estimation process included , among other things , an analysis of delinquency trends , nonperforming loan trends , the level of charge-offs and recoveries , prior loss experience , total loans outstanding , the volume of loan originations , the type , size and geographic concentration of loans , the value of collateral securing loans , the borrower 's ability to repay and repayment performance , the number of loans requiring heightened management oversight , economic conditions and industry experience . based on the evaluation , management assigned risk ratings to segments of the loan portfolio . such risk ratings were periodically reviewed by management and revised as deemed appropriate . with respect to acquired loans , prior to january 1 , 2020 , the company followed the reserve standard set forth in asc 310 , receivables . at acquisition , the company reviewed each loan to determine whether there is evidence of deterioration in credit quality since origination and if it was probable that the company would be unable to collect all amounts due according to the loan 's contractual terms . story_separator_special_tag the company considered expected prepayments and estimated the amount and timing of undiscounted expected principal , interest and other cash flows for each loan pool meeting the criteria above , and determined the excess of the loan pool 's scheduled contractual principal and interest payments in excess of cash flows expected at acquisition as an amount that should not be accreted ( nonaccretable difference ) . the remaining amount , representing the excess of the pool 's cash flows expected to be collected over the fair value , was accreted into interest income over the remaining life of the pool ( accretable yield ) . the company recorded a discount on these loans at acquisition to record them at their estimated fair values . as a result , acquired loans subject to asc 310 were excluded from the calculation of the all at the acquisition date . if the present value of expected cash flows for a pool was less than its carrying value , an impairment was recognized by an increase in the all and a charge to the provision for loan losses . see note 5 to the consolidated financial statements for additional information concerning our allowance for acquired loans prior to the adoption of asc 326. loans the following describes the distinction between originated and acquired loans and certain significant accounting policies relevant to each category . originated loans loans originated for investment are reported at the principal balance outstanding net of unearned income . interest on loans and accretion of unearned income are computed in a manner that approximates a level yield on recorded principal . interest on loans is recorded as income is earned . the accrual of interest on an originated loan is discontinued when it is probable the borrower will not be able to meet payment obligations as they become due . for reporting periods prior to january 1 , 2020 , the company maintained an all on originated loans that represented management 's estimate of probable losses incurred in this portfolio category . for reporting periods beginning on and after january 1 , 2020 , the company maintains an acl on all loans that reflects management 's estimate of expected credit losses for the full life of the loan portfolio due to the adoption of the guidance under asc 326. refer to note 2 of the consolidated financial statements for more information on the adoption of asc 326 . 23 acquired loans loans that were acquired as a result of business combinations are referred to as “ acquired loans. ” the company 's acquired loans were purchased prior to the adoption of asc 326 on january 1 , 2020 and were recorded at estimated fair value at the acquisition date with no carryover of the related all . the acquired loans were segregated between those considered to be performing and those with evidence of credit deterioration ( purchased credit impaired or `` pci '' ) , and then further segregated into loan pools designed to facilitate the estimation of expected cash flows . the fair value estimate for each pool of acquired performing and pci loans was based on the estimate of expected cash flows , both principal and interest , from that pool , discounted at prevailing market interest rates . the difference between the fair value of an acquired loan pool and the contractual amounts due at the acquisition date ( the “ fair value discount ” ) is accreted into income over the estimated life of the pool . for reporting periods beginning on and after january 1 , 2020 and the adoption of asc 326 : management estimates the acl for acquired loans under the same methodology as originated loans . changes in the acl for acquired loans are recognized through the provision for loan losses and the provision for credit losses on unfunded lending commitments . asc 326 replaced the guidance for pci loans with the concept of purchased credit deteriorated ( `` pcd '' ) . for reporting periods beginning on and after january 1 , 2020 , pci loans have been re-classified as pcd loans . for pcd loans , the company applied the guidance under asc 326 using the prospective transition approach . as a result , the company adjusted the amortized cost basis of the pcd loans to reclassify $ 1.0 million of purchase discount to the all on january 1 , 2020. the company applied the guidance under asc 326 using the modified retrospective approach for all non-pcd assets , which resulted in an increase in the all and a corresponding decrease to retained earnings . refer to note 2 of the consolidated financial statements for more information on the adoption of asc 326. pcd loans , under prior accounting policies , were excluded from nonperforming loans because they continued to earn interest income from the accretable yield at the pool level . with the adoption of asc 326 , the pools were discontinued and performance is based on contractual terms for individual loans . for reporting periods prior to january 1 , 2020 and the adoption of asc 326 : management estimated the all for acquired performing loans using a methodology similar to that used for originated loans . the allowance determined for each loan pool was compared to the remaining fair value discount for that pool . if the allowance amount calculated under the company 's methodology was greater than the company 's remaining discount , the additional amount called for was added to the reported allowance through a provision for loan losses . if the allowance amount calculated under the company 's methodology was less than the company 's recorded discount , no additional allowance or provision was recognized . actual losses first reduced any remaining nonaccretable discount for the loan pool . once the nonaccretable discount was fully depleted , losses were applied against the allowance established for that pool . acquired performing loans were placed on nonaccrual status and were considered and reported as nonperforming or past due using the same criteria applied to the originated portfolio .
| net interest income totaled $ 92.2 million in 2020 , up $ 6.2 million , or 7.2 % , compared to $ 86.0 million in 2019. the increase was primarily due to lower deposit costs and an increase in loan income primarily due to ppp loans . total interest expense on deposits decreased $ 4.0 million , or 26.7 % , in 2020 compared to 2019. the average cost of total interest-bearing deposits decreased by 38 basis points to 0.72 % in 2020. the company recognized $ 4.1 million of ppp lender fees in loan interest income in 2020. the remaining balance of $ 5.4 million in deferred lender fees will be amortized into interest income over the life of the ppp loans . though net interest income increased , outstanding ppp loans negatively impacted the average loan yield by 17 basis points and the net interest margin by 4 basis points during 2020. in addition , the increase in average cash and cash equivalents from 2019 to 2020 negatively impacted the average yield on total interest-earning assets and the net interest margin by 17 and 15 basis points , respectively . average cash and cash equivalents are reflected in the increase in the average balance of other interest-earning assets . average other interest-earning assets during 2020 were up $ 87.1 million from the average of $ 55.0 million during 2019. in 2019 , net interest income totaled $ 86.0 million , down $ 6.0 million , or 6.5 % , compared to $ 92.0 million in 2018. the decrease in net interest income for 2019 compared to 2018 was primarily due to higher deposit costs during 2019. total interest expense on deposits increased $ 6.0 million , or 65.8 % , in 2019 compared to 2018. the average cost of total interest-bearing deposits in 2019 totaled 1.10 % , up 43 basis points from 2018. the company 's net interest margin , which is net interest income as a percentage of average interest-earning assets , was 3.96 % , 4.26 % , and
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we are preparing for the transition of the paducah gdp after the end of the arrangement in may 2013. we are in discussions regarding the potential for continuing enrichment at paducah for several months following the completion of the current arrangement at the end of may 2013 , and we also have expressed to doe our interest in continuing enrichment of tails and other doe uranium materials at paducah under any other arrangement that is economically supportable . however , we may not be able to reach an agreement for a short term extension or other arrangement . we believe it will be difficult to continue commercial enrichment beyond the end of the current arrangement in may 2013 and any short-term follow-on arrangement . we have already made regulatory submittals to the nrc to support the de-lease of a portion of the paducah gdp and return to doe certain areas currently leased from doe and expect to be taking additional actions over the next several months as our planning continues . under our lease , doe has the obligation for decontamination and decommissioning of the paducah plant . once we cease enrichment at the paducah gdp , for a period of time we will still need to lease certain areas used for ongoing operations such as shipping and handling , inventory management and site services . we are currently in discussions with doe regarding the timing of our de-lease and are seeking to minimize our transition costs , which could be substantial . for a discussion of potential transition costs , see below under “ leu segment – paducah gdp transition. ” we are also seeking to manage the impacts of the paducah transition on our existing business . we had planned to continue enrichment at paducah as a bridge to our deployment of the american centrifuge technology but absent a new arrangement that allows us to continue enrichment at paducah , we expect there to be a transition period of at least several years until the american centrifuge plant ( “ acp ” ) is in commercial operations , during which we are no longer enriching uranium but are making sales from our existing inventory and our future purchases from russia . we have an objective of minimizing the period of transition until we have a new source of domestic u.s. enrichment production . we expect to continue discussions with customers regarding our existing backlog , which includes contracts that must be revised to reflect our anticipated supply sources during that transition period and anticipated timing for the financing and commercial production from the acp . for a discussion of the potential implications of the transition of the paducah gdp , see item 1a , risk factors . 74 during 2012 , we made progress in demonstrating the american centrifuge technology . we entered into a cooperative agreement with doe to provide cost-share funding for the rd & d program . the agreement provides for 80 % doe and 20 % usec cost sharing for work performed during the period june 1 , 2012 through december 31 , 2013 with a total estimated cost of $ 350 million . doe 's total contribution would be up to $ 280 million and our contribution would be up to $ 70 million . the cooperative agreement is being incrementally funded , and $ 177.8 million of doe funding has been provided . although we have adjusted our program spending to accommodate changes to the timing and amount of federal funding , we remain on schedule and budget to complete the rd & d program by the end of 2013. the amount of federal funding made available to date is expected to fund rd & d program activities through june 15 , 2013 , and we will continue to work with congress and the administration to fund the rd & d program through december 2013 and achieve the remaining program milestones . the objectives of the rd & d program are to demonstrate the american centrifuge technology through the construction and operation of a commercial demonstration cascade of 120 centrifuge machines and sustain the domestic u.s. centrifuge technical and industrial base for national security purposes and potential commercialization of the american centrifuge technology . this includes activities to reduce the technical risks and improve the future prospects of deployment of the american centrifuge technology . usec is working to meet these objectives through the construction and operation of one complete demonstration cascade and supporting infrastructure . this will enable us to demonstrate redundancy of the primary cascade support systems for commercial plant operation and to complete integrated system testing against operational requirements . we are also updating a commercialization plan for the american centrifuge project following the completion of the rd & d program and working to improve our balance sheet to position usec financially to move forward as a stronger sponsor of the american centrifuge project . in 2013 , we expect to update our application for a $ 2 billion loan guarantee from doe , obtain additional debt and equity financing for the project and secure additional sales commitments . as part of the commercialization effort , we expect to need additional investors in the project which would reduce our ownership in the project . additional details are provided in part i , items 1 and 2 , “ business and properties – the american centrifuge plant. ” we are in the last year of the 20-year contract implementing the megatons to megawatts program . in march 2011 , we signed a commercial agreement with russia that provides continued access to this important source of supply following the conclusion of the megatons to megawatts program . we have also agreed to conduct a feasibility study to explore the possible deployment of an enrichment plant in the united states employing russian centrifuge technology . story_separator_special_tag we completed the transition of our contract services activities at the former portsmouth gdp in 2011. revenue for the contract services segment declined substantially in 2012 and was derived primarily from our wholly owned subsidiary , nac international ( “ nac ” ) . nac was acquired by usec in 2004 and provides transportation and storage systems for spent nuclear fuel and provides nuclear and energy consulting services . on march 15 , 2013 , usec sold nac to a subsidiary of hitachi zosen corporation for $ 42.4 million , subject to final working capital adjustment . we also must continue to manage events that occur that are outside of our control , including actions that may be taken by vendors , customers , creditors and other third parties in response to our decisions or based on their view of our financial strength and future business prospects . for a discussion of the potential risks and uncertainties facing our business , see item 1a , risk factors . 75 nuclear industry outlook there is significant uncertainty in the near term outlook for the nuclear fuel industry . the nuclear fuel industry continues to be affected by the aftermath of the march 2011 earthquake and tsunami in japan that irreparably damaged nuclear reactors at fukushima . following the events at fukushima , almost all of the 50 unaffected reactors in japan remain off-line at the start of 2013. the restart of reactors in japan has been a meticulous process that has taken longer than initially estimated . two of the 50 unaffected reactors in japan were restarted in 2012 after new safety guidelines were put into place , however the remainder of the 50 japanese reactors remain out of service . as more japanese reactors go through a safety evaluation process established in 2012 , additional reactors could restart in the second half of 2013 , however the delays in restart could continue . germany has shut down eight of its reactors and announced that it will be phasing out all 17 nuclear reactors by 2022. although we do not serve any of the german reactors , the shutdown of any reactor contributes to the excess supply in the market . the events at fukushima and its aftermath have negatively affected the balance of supply and demand and we see limited uncommitted demand for leu prior to the end of the decade , and therefore fewer opportunities to make additional sales for delivery during that period . this supply/demand imbalance is reflected in lower uranium and nuclear fuel prices during 2012. these spot-market prices for our products are at their lowest levels in seven years . the longer term effect of the events in japan on the nuclear fuel market is uncertain and subject to changes in the energy strategies of individual countries . we see continued growth in the number of nuclear power reactors internationally , but that growth may be at a slower pace than previously anticipated or may be concentrated more in emerging markets that may be more difficult for us to enter . we continue to believe that nuclear power is an essential component of the world 's electricity generation mix . at year-end 2012 , the global fleet of 435 nuclear reactors provides about 14 % of the world 's electricity . although several smaller reactors were retired in 2012 , three new reactors began operation and two refurbished reactors returned to service for a net increase in nuclear capacity . the united states has the largest number of reactors with 103 operating units that provide approximately 20 % of the nation 's electricity . the world nuclear association reports that more than 60 reactors are currently under construction in 13 countries and another 500 are ordered , planned or proposed to be in operation over the next two decades . in response to issues raised by fukushima , a safety review of proposed plants in china was completed in october 2012 and construction resumed on that nation 's largest nuclear facility . almost 30 new units are under construction in china and another 50 reactors are in the planning stage . ten reactors are under construction in russia and a four-reactor site is underway in the united arab emirates . the first generation of a smaller , modular reactor is also being built and u.s. government has provided funds for building a first-of-its-kind modular reactor in the united states . this generally positive outlook should be balanced against a slower global growth forecast for electric power demand due to lingering recessionary conditions , the slower than expected restart of nuclear reactors in japan and lower prices for alternative fuels . for example , natural gas prices in the united states are their lowest levels in at least a decade due to new supplies . this could slow the need for new base load nuclear power capacity or hasten the retirement of smaller nuclear plants . in addition , capital cost estimates for building new reactors have increased significantly . nonetheless , concern about climate change makes emission-free nuclear power an attractive choice for new generating capacity . population growth , increasing per capita demand for electric power in emerging markets , and pollution from coal-fired plants further provide a strong foundation for increased demand for nuclear fuel . 76 on the enrichment capacity side , the successful megatons to megawatts program with russia will end in 2013 ; the gaseous diffusion plant operating in france closed in 2012 ; and although the facility has been running at peak efficiency in recent years , our paducah plant is expected to end commercial enrichment in 2013. at the same time , our competitors have expanded facilities in their home countries and one has built a plant in the united states . urenco is expanding its european capacity and is increasing capacity of its gas centrifuge enrichment plant in new mexico .
| revenue from the contract services segment declined $ 138.8 million ( or 66 % ) in 2012 compared to 2011. contract service revenues at the portsmouth site declined $ 120.6 million ( or 97 % ) as this work was transferred to doe 's d & d contractor over the course of 2011. revenues by nac decreased $ 15.0 million in 2012 compared to 2011 primarily as a result of timing in sales related to dry cask storage systems . cost of sales cost of sales for the leu segment increased $ 327.4 million ( or 24 % ) in 2012 compared to 2011 primarily due to higher swu sales volumes , partially offset by lower uranium sales volumes . cost of sales per swu was 1 % higher in 2012 compared to 2011 . 92 cost of sales was reduced during 2012 for revisions to prior accrued amounts related to estimated disposal costs for depleted uranium , property taxes and power prepayments related to enrichment operations . these accrued estimated amounts had been previously included in our production costs and included in swu inventory . the total reduction to cost of sales recognized in 2012 was approximately $ 33.5 million . in addition , prior to the start of 2012 , a significant portion of the costs related to pension and postretirement health and life benefit plans were attributed to portsmouth contract services , based on the employee base performing contract services work . in 2012 , ongoing pension costs related to our former portsmouth employees were charged to the leu segment rather than the contract services segment based on our continuing enrichment operations that support our active and retired employees . these net benefit costs totaled $ 13.2 million in 2012 and are directly charged to cost of sales rather than production . additionally , the shorter expected service life of the paducah gdp resulted in accelerated charges to expense of $ 5.6 million in 2012 , including $ 3.5 million of costs that would have previously been capitalized as part of construction work in progress and $ 2.1 million of accelerated depreciation . although unit production costs declined in 2012 compared to 2011 ( described below ) , the swu unit cost is negatively impacted by the carryforward effect of higher production and purchase costs from prior years . under our monthly moving average cost method , new production and acquisition costs are averaged with the
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the exco/hgi jv acquired the conventional oil and natural gas assets from exco for approximately $ 725.0 million of total consideration , representing hgi 's effective equity interest of $ 372.5 million , $ 127.5 million in properties contributed by exco , in each case before giving effect to the closing adjustments related to the july 1 , 2012 effective date , and approximately $ 225.0 million of indebtedness borrowed by the exco/hgi jv from a revolving credit agreement entered into by the exco/hgi jv ( “ exco/hgi jv credit agreement ” ) . in exchange for the contribution of its assets , exco received cash consideration of $ 574.8 million , a 24.5 % limited partner interest in the exco/hgi jv and a 50.0 % interest in the general partner of the exco/hgi jv . hgi and its subsidiaries contributed $ 349.8 million cash , after customary closing adjustments , and received a 73.5 % limited partner interest in the exco/hgi jv and a 50.0 % interest in the general partner . after giving effect to the 2.0 % general partner interest in the exco/hgi jv , exco and hgi own an economic interest in the partnership of 25.5 % and 74.5 % respectively . exco/hgi jv 's primary business objective is to over time generate stable cash flows and grow its asset base through acquisitions from a variety of sources , including third parties , exco parent and hgi . it is expected that the acquisition focus will be on assets and or companies that own mature properties with long-lived , predictable production profiles , modest capital requirements and substantial reserve exploitation potential . consistent with this strategy , on february 14 , 2013 , the exco/hgi jv entered into an agreement to acquire oil and natural gas assets in the danville , waskom and holly fields in east texas and north louisiana from an affiliate of bg group plc ( “ bg group ” ) for $ 132.5 million , subject to customary closing adjustments . these properties represent an incremental working interest in properties that exco contributed to the exco/hgi jv . this transaction was funded using funds drawn from the exco/hgi jv credit agreement . the exco/hgi jv intends to use oil and natural gas derivatives and financial risk management instruments to manage its exposure to commodity prices . management of the exco/hgi jv believes that these oil and natural gas derivative contracts may allow the exco/hgi jv to mitigate the impact of price fluctuations and achieve a more predictable cash flow from the exco/hgi jv 's operations . financial services segment our financial services segment includes the activities of our asset-based lender , salus , and our newly formed asset manager , five island . through salus , we are a provider of secured loans to the middle market across a variety of industries . salus finances loan commitments that typically range from $ 5.0 to $ 50.0 million with the ability to lead and agent larger transactions . the salus platform may also serve as an asset manager to certain institutional investors such as community and regional banks , insurance companies , family offices , private equity funds and or hedge funds who may lack the infrastructure and dedicated competency within senior secured lending . salus ' loans are funded through capital commitments from salus equity , funds committed by fgl and fsr as participants and funds committed by salus ' clo . as of september 30 , 2013 , salus , along with its co-lenders fgl and fsr , have funded loans totaling $ 565.6 million aggregate principal amount outstanding on a consolidated basis . during fiscal 2013 salus closed on 33 transactions , representing approximately $ 779.5 million in total commitments to a variety of well recognized businesses . salus provides secured asset-based loans to the middle market . asset-based finance is a financing tool where the decision to lend is primarily based on the value of the borrowers ' collateral . collateral is viewed as the primary source of repayment , while the borrowers ' creditworthiness is viewed a secondary source of repayment . as a result , asset-based finance emphasizes the monitoring of the collateral that secures the asset-based loan . salus focuses its credit analysis on the value of accounts receivable and inventory ( or other assets ) and estimates how much liquidity it can provide against those assets . salus establishes a loan structure and collateral monitoring process that is continuous and focused on the collateral , significantly reducing the risk of loss inherent in delayed intervention and or asset recovery . as of september 30 , 2013 , none of these loans were delinquent . 110 salus looks to create partnerships with borrowers that may not qualify for traditional bank financing because of their size , historical performance , geography or complexity of their situation . salus ' loans are used across a range of industries for growth capital , general working capital or seasonal needs , acquisitions or opportunistic situations , trade finance , turnarounds , dividend recaps , refinancing and debtor-in-possession financing . highlights for the fiscal 2013 significant transactions and activity during fiscal 2013 , we made significant progress in our business strategy to reduce our cost of capital , increase our investor base , grow our existing business , and diversify the businesses in which we operate . the most significant of these steps include the following : hgi in december 2012 , we issued $ 700.0 million aggregate principal amount 7.875 % senior secured notes due 2019 ( the “ 7.875 % notes ” ) and used part of the proceeds of the offering to accept for purchase $ 498.0 million aggregate principal amount of our 10.625 % senior secured notes due 2015 ( the “ 10.625 % notes ” ) pursuant to a tender offer ( the “ tender offer ” ) for the 10.625 % notes . story_separator_special_tag the remaining 10.625 % notes were redeemed by the trustee on january 23 , 2013. the remainder of the proceeds of the issuance of the 7.875 % notes was used for working capital by the company and its subsidiaries and for general corporate purposes , including the financing of future acquisitions and businesses . in july 2013 , the initial offering of 7.7875 % notes were supplemented by a further issuance of $ 225.0 million aggregate principal amount of the 7.875 % notes ( the “ new notes ” . ) the new notes were issued under the same indenture governing the 7.875 % notes by and between the company and wells fargo bank , national association , a national banking association , as trustee . the new notes were priced at 101.50 % of par plus accrued interest from july 15 , 2013. in december 2012 , we assisted the hcp stockholders with the closing of a secondary offering of 20.0 million shares of common stock at a price to the public of $ 7.50 per share , increasing our public float and broadening our shareholder base . in addition , in january 2013 , the underwriters exercised their option to purchase an additional 3.0 million shares of common stock from the hcp stockholders . we did not receive any proceeds from the sale of shares in this offering . in february 2013 , we finalized a joint venture with exco to create the exco/hgi jv . the exco/hgi jv purchased and will operate certain of exco 's producing u.s. conventional oil and natural gas assets in the permian basin , east texas and north louisiana . in september 30 , 2013 , we repurchased 1,700.0 thousand shares of our common stock at a price of $ 7.25 per share from the hcp stockholders under our $ 50.0 million share repurchase program . consumer products segment in december 2012 , spectrum brands acquired the residential hardware and home improvement business ( the “ hhi business ” ) from stanley black & decker , inc. ( “ stanley black & decker ” ) ( the “ hardware acquisition ” ) . the hardware acquisition is expected to enhance spectrum brand 's top-line growth , margins and free cash flow profile , while providing added scale , greater product diversity and attractive cross-selling opportunities . in december 2012 , spectrum brands assumed from spectrum brands escrow corp. $ 520.0 million aggregate principal amount of 6.375 % senior notes due 2020 ( the “ 6.375 % notes ” ) and $ 570.0 million aggregate principal amount of 6.625 % senior notes due 2022 ( the “ 6.625 % notes ” ) , in connection with the hardware acquisition . spectrum brands used the net proceeds from the offering to fund a portion of the purchase price and related fees and expenses for the hardware acquisition . spectrum brands financed the remaining portion of the hardware acquisition with a new $ 800.0 million term loan facility , of which $ 100.0 million is in canadian dollar equivalents ( the “ hhi term loan ” ) . a portion of the hhi term loan proceeds were also used to refinance the former term loan facility , maturing june 17 , 2016 , which had an aggregate amount outstanding of $ 370.2 million prior to refinancing . in april 2013 , the company completed the acquisition of certain assets of tong lung metal industry co. ltd. , a taiwan corporation ( “ tlm taiwan ” ) , completing the hardware acquisition . tlm taiwan is involved in the production of residential locksets . in september 2013 , spectrum brands , announced that it had closed on $ 1.15 billion of term loans ( the “ new term loans ” , and together with the hhi term loan , the “ term loan ” ) pursuant to the new term loan commitment agreement no . 1 among spectrum brands , the lenders party thereto , and deutsche bank ag new york branch , as administrative agent ( the “ term administrative agent ” ) . the proceeds of the new term loans were used ( i ) to fund the consummation of spectrum brands cash tender offer and consent solicitation ( the “ tender offer and consent solicitation ” ) to purchase any and all of its outstanding 9.5 % senior secured notes due 2018 ( the “ 9.5 % notes ” ) , ( ii ) to fund the satisfaction and discharge of the 111 indenture governing the 9.5 % notes not tendered in the tender offer and consent solicitation and ( iii ) for working capital and general corporate purposes . insurance segment in december 2012 , fidelity & guaranty life holdings , inc. , ” fgh ” ( formerly , old mutual u.s. life holdings , inc. ) entered into a coinsurance agreement ( the “ reinsurance agreement ” ) with front street re ( cayman ) ltd. ( “ front street cayman ” ) , also an indirect subsidiary of the company . pursuant to the reinsurance agreement , front street cayman has reinsured approximately 10 % , or approximately $ 1.5 billion of fgh 's policy liabilities , on a funds-withheld basis . in march 2013 , fgh issued $ 300.0 million aggregate principal amount of their 6.375 % senior notes , due april 1 , 2021 , at par value ( the “ fgl notes ” . ) fgh used a portion of the net proceeds from the issuance to pay a special dividend to hgi and expects to use the remainder for general corporate purposes , to support the growth of its subsidiary life insurance company . in august 2013 , fgl filed a registration statement on form s-1 with the sec relating to a proposed initial public offering of its common stock . all of the shares will be offered by the issuer , fgl . we are not a selling stockholder in the offering .
| operating profit for fiscal 2012 increased $ 245.8 million , or 150.2 % , to $ 409.5 million from $ 163.7 million for fiscal 2011 . the increase was primarily the result of higher sales and efficiency gains at spectrum brands and higher realized investment gains at our insurance segment resulting from strategic portfolio re-positioning trades to shorten the overall portfolio duration in anticipation of rising interest rates and lower external asset management fees . interest expense . interest expense increased $ 260.9 million to $ 511.9 million for fiscal 2013 from $ 251.0 million for fiscal 2012 . the increase is principally due to ( i ) $ 58.9 million of fees incurred by hgi related to the issuance of the 7.875 % notes and the extinguishment of the 10.625 % notes ; ( ii ) spectrum brands incurred $ 122.2 million of fees related to the extinguishment of the 9.5 % notes ; and ( iii ) $ 29.0 million of costs incurred by spectrum brands associated with the financing of the hardware acquisition . the fees incurred by hgi consisted of $ 45.9 million cash charges for fees and expenses , and $ 13.0 of non-cash charges for the write down of debt issuance costs and net unamortized discount related to the extinguishment of the 10.625 % notes . the $ 122.2 million fees incurred by spectrum brands included cash tender , consent and redemption premium costs totaling $ 111.3 million and non-cash costs for the write off of unamortized deferred financing fees less unamortized original issue premium totaling $ 10.9 million . the $ 29.0 million of costs incurred by spectrum brands relating to the hardware acquisition financing included : ( i ) $ 13.0 million of cash costs related to unused bridge financing commitments ; ( ii ) $ 6.0 million of cash costs related to interest on the 6.375 % notes and the 6.625 % notes incurred while in escrow prior to the
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the new furnace has throughputs that is more than triple the company 's existing furnaces due to its size and efficiency . 27 story_separator_special_tag his improvement was primarily attributable to increased revenue that drove a similar increase in gross profit and higher gross profit margin caused by a favorable mix shift toward marine scrubber systems , offset by higher operating expenses caused primarily by the growth in headcount to support additional sales and production . 29 liquidity and capital resources the accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the united states of america , which contemplate continuation of the company as a going concern . we have historically satisfied our capital and liquidity requirements through offerings of equity instruments , internally generated cash from operations and our available lines of credit . at the filing date , the company had an available line of credit from the bank amounting to dkk20,000,000 ( $ 3,000,000 ) which is used for a leasing arrangement and guarantees issued to customers for prepayments and for warranties after delivery . at december 31 , 2019 , we had cash of $ 9,783,932 and net working capital of $ 17,155,126 , and at december 31 , 2018 , we had cash of $ 3,776,111 and net working capital of $ 6,753,593. at december 31 , 2019 , our net working capital had increased by $ 10,401,533 compared to december 31 , 2018. total current assets were $ 27,487,257 and $ 11,373,206 at december 31 , 2019 and december 31 , 2018 , respectively , and total current liabilities were $ 10,332,131 and $ 4,619,613 at december 31 , 2019 and december 31 , 2018 , respectively . in connection with certain orders , we provide the customer a working guarantee , a prepayment guarantee or a security bond . for that purpose , we maintain a guarantee credit line of dkk10,000,000 ( approximately $ 1,500,000 ) . the credit line is secured by a cash deposit of $ 2,700,000. further , we have a guarantee for a specific project delivered in 2016 of dkk 94,620 ( approximately $ 14,186 at december 31 , 2019 ) with a bank , subject to certain base limitations . this line of credit is guaranteed by vækstfonden ( the danish state 's investments fund ) and is secured by certain assets of liqtech systems such as receivables , inventory and equipment . cash flows year ended december 31 , 201 9 compared to year ended december 31 , 201 8 cash provided ( used ) by operating activities is net income ( losses ) adjusted for certain non-cash items and changes in assets and liabilities . cash used by operating activities for the year ended december 31 , 2019 was $ 4,546,761 , representing an increase of $ 632,587 compared to cash used by operating activities of $ 3,914,174 for the year ended december 31 , 2018. the change in cash used by operating activities for the year ended december 31 , 2019 was mainly due to an increase in accounts receivables of $ 4,180,917 , increase in other receivables of $ 2,098,896 , and increase in inventory of $ 683,405 , off-set by an increase in accounts payable of $ 1,769,852 and an increase in accrued expenses of $ 2,164,358. net cash used in investing activities was $ 3,700,675 for the year ended december 31 , 2019 as compared to net cash used in investing activities of $ 170,890 for the year ended december 31 , 2018 , representing an increase of $ 3,529,785. this increase was due to the initial payment for the acquisition of bs plastic a/s of $ 1,154,902 and a period-over-period increase of $ 2,363,885 for the purchase of property and equipment especially related to the installation of new furnaces in ballerup to increase production capacity in the context of a growing demand . cash provided by financing activities was $ 14,627,470 for the year ended december 31 , 2019 , as compared to cash provided by financing activities of $ 6,017,280 for the year ended december 31 , 2018. this change of $ 8,610,190 was mainly due to cash received in connection with a registered public offering in may 2019 that generated net proceeds of $ 14,650,039 , which was greater than cash received in connection with a registered public offering in april 2018. off balance sheet arrangements as of december 31 , 2019 , we had no off-balance sheet arrangements . we are not aware of any material transactions that are not disclosed in our consolidated financial statements . 30 operating leases the company leases office and production facilities under operating lease agreements . the future minimum lease payments for non-cancelable operating leases having remaining terms in excess of one year as of december 31 , 2019 is reflected in note 4. significant accounting policies and critical accounting estimates the methods , estimates , and judgments that we use in applying our accounting policies have a significant impact on the results that we report in our consolidated financial statements . some of our accounting policies require us to make difficult and subjective judgments , often as a result of the need to make estimates regarding matters that are inherently uncertain . our most critical accounting estimates include : ● the assessment of revenue recognition , which impacts revenue and cost of sales ; ● the assessment of allowance for product warranties , which impacts gross margin ; ● the assessment of collectability of accounts receivable , which impacts operating expenses when and if we record bad debt or adjust the allowance for doubtful accounts ; ● the assessment of recoverability of long-lived assets , which impacts gross margin or operating expenses when and if we record asset impairments or accelerate their depreciation ; ● the recognition and measurement of current and deferred income taxes ( including the measurement of uncertain tax positions ) , which impact our provision for taxes ; ● the valuation of inventory , which impacts gross margin ; and ● the recognition story_separator_special_tag and measurement of loss contingencies , which impact gross margin or operating expenses when we recognize a loss contingency , revise the estimate for a loss contingency , or record an asset impairment . we discuss these policies further below , as well as the estimates and judgments involved . accounts receivable / long term receivable / allowance for doubtful accounts / bad debt we assess the collectability of accounts receivable and long-term receivable on an ongoing basis and establish an allowance for doubtful accounts when collection is no longer reasonably assured . in establishing the allowance , we consider factors such as known troubled accounts , historical experience , age of receivables , financial and liquidity information that is publicly accessible , and other currently available evidence . the roll forward of the allowance for doubtful accounts for the year ended december 31 , 2019 and december 31 , 2018 was as follows : replace_table_token_3_th 31 goodwill and definite-life intangible assets the company accounts for goodwill and definite-life intangible assets in accordance with provisions of the statement of financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 350 , intangibles , goodwill and other . goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized , but instead are tested for impairment at least annually in accordance with the provisions of topic 350. impairment losses arising from this impairment test , if any , are included in operating expenses in the period of impairment . topic 350 requires that definite intangible assets with estimable useful lives be amortized over their respective estimated useful lives and reviewed for impairment in accordance with topic 360 , criteria for recognition of an impairment of long-lived assets . goodwill goodwill is evaluated for impairment annually in the fourth quarter of the company 's fiscal year , and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable . triggering events that may indicate impairment include , but are not limited to , a significant adverse change in customer demand or business climate that could affect the value of goodwill or a significant decrease in expected cash flows . the company recorded an impairment charge of $ 0 on goodwill during the years ended december 31 , 2019 and 2018 , as management 's estimated fair value of the reporting unit exceeded its carrying value determined during impairment testing in the fourth quarters of 2019 or 2018. long-lived assets we assess the impairment of long-lived assets when events or changes in circumstances indicate that the carrying value of the assets or the asset grouping may not be recoverable . factors that we consider in deciding when to perform an impairment review include significant under-performance of a business or product line in relation to expectations , significant negative industry or economic trends , and significant changes or planned changes in our use of the assets . we measure the recoverability of assets that will continue to be used in our operations by comparing the carrying value of the asset grouping to our estimate of the related total future undiscounted net cash flows . if an asset grouping 's carrying value is not recoverable through the related undiscounted cash flows , the asset grouping is considered to be impaired . the impairment is measured by comparing the difference between the asset grouping 's carrying value and its fair value . long-lived assets such as goodwill , intangible assets , and property , plant and equipment are considered non-financial assets and are recorded at fair value only if an impairment charge is recognized . impairments of long-lived assets are determined for groups of assets related to the lowest level of identifiable independent cash flows . due to our asset usage model and the interchangeable nature of our ceramic filter manufacturing capacity , we must make subjective judgments in determining the independent cash flows that can be related to specific asset groupings . in addition , as we make manufacturing process conversions and other factory planning decisions , we must make subjective judgments regarding the remaining useful lives of assets , primarily process-specific filter manufacturing tools and building improvements . if we determine that the useful lives of assets are shorter than we had originally estimated , we accelerate the rate of depreciation over the assets ' new , shorter useful lives . during the years ended december 31 , 2019 and 2018 , no impairment charge of long-lived assets has been recorded . revenue recognition on january 1 , 2018 , the company adopted accounting standards codification topic 606 , “ revenue from contracts with customers , ” which includes clarifying asus issued in 2015 , 2016 and 2017 ( “ new revenue standard ” ) . the new revenue standard was applied to all open revenue contracts using the modified-retrospective method as of january 1 , 2018. the new revenue standard did not have a material impact on revenue recognition . the company does not expect the impact of the adoption of the new standard to be material to sales or net income on an ongoing basis . 32 for membrane , dpf and plastic product sales , revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied which occurs when control of the membrane , dpf or plastic product is transferred to the customer . the majority of the company 's sales contracts contain performance obligations satisfied at a point in time when title and the risks and rewards of ownership have transferred to the customer . this generally occurs when the product is shipped or accepted by the customer . revenue for service contracts are recognized as the services are provided . revenue is measured as the amount of consideration expected to be received in exchange for transferring the goods or providing services .
| 28 expenses total operating expenses for the year ended december 31 , 2019 were $ 7,554,664 , representing an increase of $ 2,003,012 or 36.1 % , compared to $ 5,551,652 for the same period in 2018. selling expenses for the year ended december 31 , 2019 were $ 2,426,971 compared to $ 1,703,327 for the same period in 2018 , representing an increase of $ 723,644 or 42.5 % . this change is attributable to an increase in sales activities and the addition of new sales employees from an average of seven in 2018 to an average of nine in 2019. further the participation in tradeshows and exhibitions increased in 2019 compared to the same period in 2018. general and administrative expenses for the year ended december 31 , 2019 were $ 4,378,444 compared to $ 3,187,311 for the same period in 2018 , representing an increase of $ 1,191,133 , or 37.4 % . this change is attributable to the addition of administrative employees , where the number of employees increased from 11 in 2018 to 16 in 2019. the increase in the number of employees also created additional it-expenses and office costs . included in general and administrative expenses is non-cash compensation expenses , that were $ 197,945 and $ 116,434 for the years ended december 31 , 2019 and december 31 , 2018 , representing an increase of $ 81,511 or 70.0 % , attributable to increased non-cash compensation expense for stock options granted to employees . the following is a summary of our non-cash compensation : replace_table_token_2_th research and development expenses for the year ended december 31 , 2019 were $ 749,249 compared to $ 661,014 for the same period in 2018 , representing an increase of $ 88,235 , or 13.3 % . this change is attributable to an increase in the number of employees in the research and development area as the company focuses on the further development of existing and new products for the marine industry . other income/ ( expense ) total other income/ ( expenses ) for the year ended december 31 , 2019 was $ 134,714 compared to $ 305,550 for the comparable period in 2018 , representing a decrease of $ 170,836. this
| 15,042 |
currently , amikacin can not be absorbed enterally and must be given by intravenous , intramuscular or nebulization routes with the significant risk of nephrotoxicity and ototoxicity , which makes it an impractical choice when treating serious infections which often require long courses of therapy , often 12 to 18 months or longer . mat2501 , taking advantage of its innovative , nano-encapsulation delivery technology , is being developed to be orally administered , and is designed to be a safer and targeted therapy for improved treatment of these serious and life-threatening bacterial infections in patients , including those who are severely immunocompromised . we are initially developing mat2501 for the treatment of non-tuberculous mycobacteria ( ntm ) . ntm causes many serious and life-threatening diseases , including pulmonary disease , skin and soft tissue disease , joint infections and , in immunocompromised individuals , disseminated infection . the most common clinical manifestation of ntm disease is pulmonary , or lung , disease . ntm lung infection occurs when a person inhales the organism from their environment . there are about 50,000 to 90,000 people with ntm pulmonary disease in the united states , with a much higher prevalence in older adults , and these numbers appear to be increasing . however , ntm can affect any age group . without treatment , the progressive lung infection caused by ntm results in severe cough , fatigue and weight loss , and ultimately can lead to death . in some people ntm infections can become chronic and require ongoing treatment . treatment may be difficult because ntm bacteria may be resistant to many common types of antibiotics . severe ntm lung disease can have a significant impact on quality of life and can be life-threatening . we are also developing mat2501 for the treatment of a variety of serious and acute bacterial infections , including the treatment of gram negative bacterial infections , currently the most significant unmet medical need identified by infectious disease specialists . we recently filed an investigational new drug ( ind ) application with fda and were cleared to commence phase 1 clinical studies in january 2016. we plan to initiate the first phase 1 study of mat2501 during 2016. we are currently exploring strategic partnering options for our legacy cardiovascular drug , mat9001 , which has been developed and targeted to date for the treatment of very high triglycerides and mat8800 , our discovery program seeking to identify product candidates derived from omega-3 fatty acids for the treatment of nan-alcoholic fatty liver disease . - 66 - we are a development stage company and have generated $ .2 million in contract research revenues during 2015. these contract research revenues ended during 2015 and we do not anticipate any revenues during 2016. we have incurred losses for each period from inception . our net loss was approximately $ 9.1 million and $ 10.2 million for the fiscal years ended december 31 , 2015 and 2014 , respectively . we expect to incur significant expenses and increasing operating losses for the foreseeable future . we expect our expenses to increase significantly in connection with our ongoing activities to develop , seek regulatory approval and commercialization of mat2203 and mat2501 and any other product candidates we choose to develop based upon our platform technology . accordingly , we will need additional financing to support our continuing operations . we will seek to fund our operations through public or private equity or debt financings or other sources , which may include collaborations with third parties . adequate additional financing may not be available to us on acceptable terms , or at all . our failure to raise capital as and when needed would impact our going concern and would have a negative impact on our financial condition and our ability to pursue our business strategy and continue as a going concern . we will need to generate significant revenues to achieve profitability , and we may never do so . financial operations overview revenue during fiscal 2015 , we generated approximately $ .2 million in contract research revenues resulting from the acquisition of aquarius . our ability to generate product revenue from our lead clinical product candidates , if approved , which we do not expect to occur before 2020 , if ever , will depend significantly on the successful development and eventual commercialization of mat2203 and mat2501 . research and development expenses research and development expenses consist of costs incurred for the development of mat2203 and mat2501 and , to a lesser extent , mat9001 , which include : - 67 - · the cost of conducting pre-clinical work ; · the cost of acquiring , developing and manufacturing pre-clinical and human clinical trial materials ; · costs for consultants and contractors associated with chemistry and manufacturing controls ( cmc ) , pre-clinical and clinical activities and regulatory operations ; · expenses incurred under agreements with contract research organizations , or cros , including the national institutes of health ( nih ) , that conduct our pre-clinical or clinical trials ; and · employee-related expenses , including salaries and stock-based compensation expense for those employees involved in the research and development process . the table below summarizes our direct research and development expenses for our product candidates for the years ended december 31 , 2015 and 2014. our direct research and development expenses consist principally of external costs , such as fees paid to contractors , consultants , analytical laboratories and cros and or the nih , in connection with our development work . we typically use our employee and infrastructure resources for manufacturing clinical trial materials , conducting product analysis , study protocol development and overseeing outside vendors . included in “ internal staffing , overhead and other ” below is the cost of laboratory space , supplies , r & d employee costs ( including stock option expenses ) , travel and medical education . replace_table_token_2_th research and development activities are central to our business model . story_separator_special_tag we expect our research and development expenses to increase because 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 human trials . 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 facility costs , insurance , investor relations expenses , professional fees for legal , patent review , consulting and accounting/audit services . we anticipate that our general and administrative expenses will be flat in 2016 due to the implementation of a cost savings steps , offset by increased expenses related to our status as a publicly traded company , including expenses in support of compliance with the requirements of section 404 of the sarbanes oxley act . sale of net operating losses ( nols ) constitutes income obtained from selling unused net operating losses ( nols ) and unused research tax credits under the new jersey technology business tax certificate program . other income ( expense ) , net other expense , net is largely comprised of interest income/ ( expense ) and franchise taxes . application of critical accounting policies our discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or u.s. gaap . the preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements . on an ongoing basis , we evaluate our estimates and judgments . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . - 68 - our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this annual report . we believe the following accounting procedures to be most critical to the judgments and estimates used in the preparation of our financial statements . accrued research and development expenses as part of the process of preparing our financial statements , we are required to estimate our accrued expenses , particularly for product development costs . this process involves reviewing open contracts and purchase orders , communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost . the majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met . we make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time . we periodically confirm the accuracy of our estimates with the service providers and make adjustments as necessary . examples of estimated accrued research and development expenses include : · fees paid to contractors in connection with the development of manufacturing processes for products in development ; · fees paid to cros in connection with preclinical and clinical development activities ; · fees paid to contractors in connection with preparation of regulatory submissions ; and · fees paid to vendors related to product manufacturing , development and distribution of clinical study supplies . we base our expenses related to pre-clinical and human studies on our estimates of the services received and efforts expended pursuant to contracts with multiple development contractors that conduct and manage development work and studies on our behalf . the financial terms of these agreements are subject to negotiation , vary from contract to contract and may result in uneven payment flows . there may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense . payments under some of these contracts may depend on factors such as the successful enrollment of subjects and the completion of specific study milestones . in accruing service fees , we will estimate the time period over which services will be performed , the completion of certain tasks , enrollment of subjects , study center activation and the level of effort to be expended in each period . if the actual timing of the performance of services or the level of effort varies from our estimate , we will adjust the accrual or prepayment accordingly . although we do not expect our estimates to be materially different from amounts actually incurred , our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period . based on limited historical experience , actual results have not been materially different from our estimates . - 69 - identifiable intangible assets identifiable intangible assets are measured at their respective fair values and are not amortized until commercialization . once commercialization occurs , these intangible assets will be amortized over their estimated useful lives . the fair values assigned to our intangible assets are based upon reasonable estimates and assumptions given available facts and circumstances . unanticipated events or circumstances may occur that may require us to review the assets for impairment . events or circumstances that may require an impairment assessment include negative clinical trial results , material delays in our development program or sustained decline in market capitalization .
| 2015 private placement in march and april 2015 , we completed the 2015 private placement funding which is detailed in our financial statement footnotes ( note e ) , under which we sold an aggregate of 20,000,000 shares of our common stock and warrants to purchase an aggregate of 20,000,000 shares of our common stock with an exercise price of $ 0.75 per share , which warrants are exercisable for a period of five years from the initial closing date . aegis capital corp. acted as the placement agent for the 2015 private placement ( the “ placement agent ” ) . the gross proceeds to us from the 2015 private placement were $ 10.0 million . - 73 - cash flows the following table sets forth the primary sources and uses of cash for each of the period set forth below : replace_table_token_5_th operating activities we have incurred significant costs in the area of research and development , including clinical , manufacturing , analytical , regulatory and other development costs . in addition , g & a costs are incurred related to becoming a public company , personnel costs in the finance and executive area , as well as costs associated with legal and patent review . net cash used in operating activities was approximately $ 7.8 million for the year ended december 31 , 2015 and $ 8.0 million for the year ended december 31 , 2014. in the event we are able to raise additional financing , we expect that there will be a significant increase in cash used in our research and development activities during the second half of 2016 as we continue to move our product candidates forward in their development cycle . investing activities net cash used in investing activities was $ 5,000 for the year ended december 31 , 2015 and $ .3 million for the year ended december 31 , 2014. the cash used in investing activities for the years ended december 31 , 2015 and december 31 , 2014 was primarily the purchase of scientific laboratory equipment . financing activities net cash provided by financing activities was $ 8.5 million for the year
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the expansion includes new resin mixing and delivery systems , new hot-melt film and tape manufacturing lines , space to accommodate an additional hot-melt tape line or solution treating line , space to accommodate a confidential joint development project with a major aerospace customer , additional slitting capability , significant additional freezer and storage space , an expanded production lab , a new r & d lab and additional office space . during 2019 , the company recorded a non-cash charge of $ 0.5 million in connection with the modification of previously granted employee stock options resulting from the $ 4.25 per share special cash dividend paid by the company in february 2019. selling , general and administrative expenses in 2019 included $ 1.2 million of stock option expense . in order to raise the approximately $ 87 million to fund the special cash dividend of $ 4.25 per share paid in february 2019 , the company liquidated marketable securities and recorded losses on the sales of marketable securities of $ 1.5 million . the company 's total net sales worldwide in 2019 were 27 % higher than in 2018 due primarily to the “ end customer ” of a major company customer ramping up commercial jet production and the company 's customer restocking depleted inventory , particularly in the fourth quarter , and to an increase in military sales during 2019. the company 's gross profit margin , measured as a percentage of sales , increased to 31.7 % in 2019 from 28.1 % in 2018 due primarily to higher sales and production levels combined with the fixed nature of certain overhead costs and cost reduction efforts . the company 's earnings from continuing operations in 2019 were 464 % higher than in 2018 , primarily as a result of the aforementioned increases in sales and gross profit margin and a 9 % reduction in selling , general and administrative expenses , which included the additional stock option modification charge of $ 0.5 million . the company 's net earnings from continuing operations in 2019 were 65 % lower than in 2018 , primarily due to the $ 17.8 million tax benefit recorded in the 2018 year resulting from the tax act enacted on december 22 , 2017 and to a loss on sales of marketable securities of $ 1.5 million incurred to raise funds for the special cash dividend of $ 4.25 per share paid in february 2019. the company has a number of long-term contracts pursuant to which certain of its customers , some of which represent a substantial portion of the company 's revenue , place orders . long-term contracts with the company 's customers are primarily requirements based and do not guarantee quantities . an order forecast is generally agreed concurrently with pricing for any applicable long-term contract . this order forecast is then typically updated periodically during the term of the underlying contract . purchase orders generally are received in excess of three months in advance of delivery . the markets for the company 's products continue to be strong , and the company anticipates sales will increase in 2020 from 2019 . 23 story_separator_special_tag this item 7 . 25 net earnings from continuing operations the company 's net earnings from continuing operations for 2019 were $ 6.3 million , including the stock option modification pre-tax charge of $ 0.5 million in connection with the special dividend of $ 4.25 per share paid in february 2019 and the pre-tax loss of $ 1.5 million on the sales of marketable securities . the company 's net earnings from continuing operations for 2018 were $ 18.5 million , including the tax benefit of $ 17.8 million related to the tax act , the stock option modification pre-tax charge of $ 0.5 million in connection with the special dividend of $ 3.00 per share paid in february 2018 , the pre-tax loss of $ 1.3 million on the sales of marketable securities and the pre-tax deferred financing costs of $ 0.1 million related to the termination of the credit agreement in 2018. the net impact of the items described above was to decrease net earnings by $ 2.0 million in 2019 and to increase net earnings by $ 16.0 million in 2018. discontinued operations on december 4 , 2018 , park completed the previously announced sale of its electronics business , including manufacturing facilities in singapore , france , california and arizona and r & d facilities in singapore and arizona , to agc inc. for an aggregate purchase price of $ 145 million in cash , subject to post-closing adjustments for changes in working capital compared to the target net working capital , excluding cash in certain acquired subsidiaries and certain accrued and unpaid taxes of certain acquired subsidiaries . see note 13 , “ discontinued operations ” , of the notes to consolidated financial statements elsewhere in this report for additional information on the sale . the operating results of the electronics business are classified , together with certain costs related to the sale , as discontinued operations , net of tax , in the consolidated statements of operations . the company 's net earnings from discontinued operations were higher in 2019 compared to 2018 primarily as a result of the gain recognized on the sale of the electronics business of $ 102,145 and the gain of $ 2,945 recognized on the sale of its new england laminates co. , inc. facility located in newburgh , new york . story_separator_special_tag basic and diluted earnings per share basic and diluted earnings per share from continuing operations for 2019 were $ 0.31 , including the stock option modification charge in connection with the special dividend paid in february 2019 and the pre-tax loss on the sales of marketable securities described above , compared to basic and diluted earnings per share for 2018 of $ 0.91 , including the tax benefit related to the tax act , the stock option modification charge in connection with the special dividend paid in february 2018 , the pre-tax loss on the sales of marketable securities and the deferred financing costs described above . the net impact of the items described above was to increase basic and diluted earnings per share by $ 0.08 in 2019 and decrease basic and diluted earnings per share by $ 0.81 in 2018 . 26 201 8 compared to 201 7 replace_table_token_5_th net sales sales in 2018 increased $ 8.4 million , or 26 % , from 2017. the increase in sales was due primarily to higher sales to a major customer following completion of that customer 's inventory correction . gross profit the company 's gross profit margin , measured as a percentage of sales , increased to 28.1 % in 2018 from 26.1 % in 2017 due primarily to higher sales and production levels of the company 's aerospace products combined with the fixed nature of certain overhead costs . selling , general and administrative expenses selling , general and administrative expenses decreased by $ 0.4 million , or 4 % , during 2018 compared to 2017. such expenses measured as percentages of sales were 24.5 % during 2018 compared to 32.3 % during 2017. the decrease in such expenses in 2018 was primarily due to lower salary , incentive compensation and stock option expenses and lower professional fees . selling , general and administrative expenses in 2018 included $ 1.4 million of stock option expenses , including $ 0.5 million due to the modification of previously granted stock options , compared to $ 1.2 million of such expenses in 2017 . 27 earnings from continuing operations for the reasons set forth above , the company 's earnings from continuing operations were $ 1.3 million for 2018 , including pre-tax charges of $ 0.5 million associated with the modification of stock options , compared to negative $ 2.0 million for 2017. loss on sale s of marketable securities the changes in the u.s. tax code , enacted by the tax cuts and jobs act enacted in december 2017 ( the “ tax act ” ) , allowed the company to repatriate its foreign accumulated income at a lower effective tax rate . in response to the tax act , the company liquidated certain marketable securities and repatriated cash held by foreign subsidiaries during the 13-week period ended february 25 , 2018. as a result , the company recorded losses on the sales of marketable securities of $ 1.3 million in connection with the repatriation of cash and the prepayment of all outstanding debt under the credit agreement in the amount of $ 68.5 million of principal and the funding of a special cash dividend of $ 3.00 per share paid in february 2018. interest expense interest expense in 2018 was $ 2.3 million , compared to $ 1.4 million in 2017. the increase in interest expense in 2018 was primarily due to higher average interest rates and the pre-tax deferred financing costs of $ 0.1 million related to the termination of the credit agreement in 2018 , partially offset by lower average outstanding debt . as previously reported , the company voluntarily prepaid the remaining loan balance of $ 68.5 million with hsbc bank and terminated the credit agreement . the prepayment was made with the company 's cash and cash equivalents , marketable securities and restricted cash . in connection with the termination of the credit agreement , the company expensed the remaining deferred financing costs of $ 0.1 million in the fourth quarter of 2018. see note 10 of the notes to consolidated financial statements included elsewhere in this report and “ liquidity and capital resources ” elsewhere in this item 7 for additional information . interest and other income interest and other income were $ 2.6 million and $ 1.6 million for 2018 and 2017 , respectively . the 61 % increase in 2018 was primarily the result of higher weighted average interest rates based on longer average maturities of marketable securities held by the company in 2018 compared to 2017 's comparable period , partially offset by lower average invested cash during the period . as mentioned above , the company prepaid all outstanding debt under the credit agreement in the amount of $ 68.5 million of principal and paid a special cash dividend of $ 3.00 per share in february 2018. during 2018 and 2017 , the company earned interest income principally from its investments , which were primarily in short-term instruments and money market funds . income tax provision on december 22 , 2017 , the tax act was enacted and significantly revised u.s. corporate income tax by , among other things , lowering corporate income tax rates , imposing a one-time transition tax on deemed repatriated earnings of non-u.s. subsidiaries , and implementing a territorial tax system . in the fourth quarter of 2018 , the company recorded a discrete tax benefit of $ 17.8 million due to the reduction of liabilities previously recorded , partially offset by the one-time transition tax on deemed repatriated earnings of certain non-u.s. subsidiaries . this one-time transition tax and the previously recorded liabilities are based on the company 's post-1986 earnings and profits ( “ e & p ” ) not previously subjected to u.s. taxation . 28 in the fourth quarter of 2018 , as a result of the tax act , the company recorded a discrete non-cash tax benefit of $ 0.2 million due to the remeasurement of u.s. deferred tax assets and liabilities .
| earnings from continuing operations for the reasons set forth above , the company 's earnings from continuing operations were $ 7.2 million for 2019 , including a pre-tax stock option modification charge of $ 0.5 million resulting from the special dividend of $ 4.25 per share paid in february 2019. the company 's earnings from continuing operations were $ 1.3 million in 2018 , including a pre-tax stock option modification charge of $ 0.5 million resulting from the special dividend of $ 3.00 per share paid in february 2019. loss on sales of marketable securities the company recorded losses on the sales of marketable securities of $ 1.5 million in connection with the liquidation of securities to fund the special cash dividend of $ 4.25 per share paid in february 2019. the company recorded losses on the sales of marketable securities of $ 1.3 million in connection with the repatriation of cash and the prepayment of all outstanding debt under the credit agreement in the amount of $ 68.5 million of principal and the funding of a special cash dividend of $ 3.00 per share paid in february 2018. interest expense interest expense in 2019 was $ 0 , compared to $ 2.3 million in 2018. the decrease in interest expense in 2019 was primarily due to the termination of the credit agreement , dated as of january 16 , 2016 , between the company and hsbc bank usa ( the “ credit agreement ” ) in 2018. as previously reported , the company voluntarily prepaid the remaining loan balance of $ 68.5 million with hsbc bank and terminated the credit agreement . the prepayment was made with the company 's cash and cash equivalents , marketable securities and restricted cash . in connection with the termination of the credit agreement , the company expensed the remaining deferred financing costs of $ 0.1 million in the fourth quarter of 2018. see note 10 of the notes to consolidated financial statements included elsewhere in this report and “ liquidity and capital resources ” elsewhere in this item 7 for additional information . interest and other income interest and other income were $ 2.4 million and $ 2.6 million for 2019 and 2018 , respectively . the decrease from 2018 was primarily the result of lower average invested cash during the period , partially offset by higher weighted average
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with partial reopening of the economy and improved collections experience , the economic effects of the pandemic and resulting societal changes remain unpredictable . there are a number of uncertainties that could impact our future results of operations , including the effectiveness of covid-19 mitigation measures , the duration of the pandemic , the efficacy and widespread distribution of a vaccine , global economic conditions , changes to our operations , changes in consumer confidence , behaviors and spending , work and learn from home trends and the sustainability of supply chains . we expect operating results and cash flows to continue to be adversely impacted by covid-19 for the duration of the pandemic . we expect our 2021 results to be impacted by the following : lower revenues from the continued partial closure of movie theaters and higher costs based on our decision to distribute 2021 films on hbo max in the u.s. simultaneous with theaters for 31 days and costs associated with the international launch of hbo max ; uncertainty in revenues from international wireless roaming services due to reduced travel , particularly in the first quarter ; and continued expenses to protect front-line employees , contractors and customers . 29 at & t inc. dollars in millions except per share amounts results of operations consolidated results our financial results are summarized in the following table . we then discuss factors affecting our overall results . additional analysis is discussed in our “ segment results ” section . we also discuss our expected revenue and expense trends for 2021 in the “ operating environment and trends of the business ” section . certain prior-period amounts have been reclassified to conform to the current period 's presentation . replace_table_token_3_th overview operating revenues decreased in 2020 , with declines in all segments reflecting impacts of the covid-19 pandemic . lower warnermedia segment revenues reflect limited and postponed theatrical and home entertainment releases as well as lower television licensing , productions and advertising revenues . communications segment revenue declines were driven by continued declines in video and legacy services , partially offset by higher wireless device sales and increases in strategic and managed business service revenues . latin america segment revenue declines were primarily due to foreign exchange rates . operations and support expenses decreased in 2020 , driven by impacts of the pandemic which resulted in lower broadcast and programming costs in our communications and warnerm edia segments and lower film-related print and advertising costs at warnermedia . also contributing to declines were a noncash gain of $ 900 on a spectrum transaction in the first quarter that was recorded as an offset to operating expenses as well as our continued focus on cost management . offsetting these expense decreases were higher costs associated with our investment in hbo max , employee separation charges and incremental costs related to covid-19 . as part of our cost and efficiency initiatives , we expect operations and support expense improvements to continue as we size ou r operations to reflect the current economic activity level . asset impairments and abandonments inc reased in 2020 , primarily due to noncash impairment charges of $ 15,508 in the fourth quarter , resulting from our assessment of the recoverability of the long-lived assets and goodwill associated with our video business ( see notes 7 and 9 ) . the increase also includes a goodwill impairment of $ 2,212 at our vrio business unit in the second quarter ( see note 9 ) and $ 780 from the impairment of production and other content inventory at warnermedia , with approximately $ 524 resulting from the continued shutdown of theaters during the pandemic and the hybrid distribution model for our 2021 film slate ( see note 11 ) . charges in 2019 primarily related to the abandonment of certain copper assets that were not necessary to support future network activity ( see note 7 ) . 30 at & t inc. dollars in millions except per share amounts depreciation and amortization expense increased in 2020. amortization expense increased $ 307 , or 3.9 % , in 2020 due to the amortization of orbital slot licenses , which began in the first quarter of 2020 ( see note 1 ) . amortization expense in 2021 will reflect approximately $ 1,200 of reductions from the 2020 impairment of orbital slots and customers lists associated with our domestic video business ( see note 9 ) . depreciation expense decreased $ 8 in 2020 primarily due to ongoing capital spend for network upgrades and expansion partially offset by fully depreciated assets in our communications segment . depreciation expense in 2021 will reflect approximately $ 480 of reductions from the 2020 impairment of property , plant and equipment associated with our domestic video business ( see note 7 ) . operating income decreased in 2020 and increased in 2019. our operating margin was 3.7 % in 2020 , compared to 15.4 % in 2019 and 15.3 % in 2018. interest expense decreased in 2020 , primarily due to lower interest rates and debt balances . equity in net income ( loss ) of affiliates increased in 2020 , reflecting changes in our investment portfolio , including $ 130 equity in earnings resulting from an investee transaction . other income ( expense ) – net decreased in 2020 primarily due to the recognition of $ 1,405 of debt redemption costs and lower income from rabbi trusts and other investments . offsetting the decrease were lower actuarial losses in 2020 , $ 4,169 compared to $ 5,171 in 2019 ( see note 15 ) . income tax expense decreased in 2020 , primarily driven by decreased income before income taxes offset by impairments of goodwill ( see note 9 ) , which are not deductible for tax purposes . our effective tax rate was ( 33.8 ) % in 2020 , 18.9 % in 2019 , and 19.8 % in 2018. the effective tax rate in 2020 was impacted by the goodwill impairments , which are not deductible for tax purposes . story_separator_special_tag story_separator_special_tag style= '' background-color : # cceeff ; padding:2px 0 2px 1pt ; text-align : right ; vertical-align : bottom '' > ( 5.3 ) % 0.4 % selected subscribers and connections december 31 , ( 000s ) 2020 2019 2018 mobility subscribers 182,558 165,889 151,921 total domestic broadband connections 15,384 15,389 15,701 network access lines in service 7,263 8,487 10,002 u-verse voip connections 3,816 4,370 5,114 operating revenues decreased in 2020 and were impacted by the covid-19 pandemic . declines in our video , broadband and business wireline business units were partially offset by increases in our mobility business unit . the decrease also reflects the continued shift away from linear video and legacy services , partially offset by higher equipment and service revenues . operating contribution decreased in 2020 and increased in 2019. the 2020 operating contribution includes declines in our video , broadband and business wireline business units , and reflects stable operating contribution from our mobility business . our communications segment operating income margin was 22.0 % in 2020 , 22.6 % in 2019 and 22.3 % in 2018. communications business unit discussion replace_table_token_4_th 32 at & t inc. dollars in millions except per share amounts the following tables highlight other key measures of performance for mobility : subscribers percent change ( in 000s ) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 postpaid 77,154 75,207 76,068 2.6 % ( 1.1 ) % prepaid 18,102 17,803 16,828 1.7 5.8 reseller 6,535 6,893 7,693 ( 5.2 ) ( 10.4 ) connected devices 1 80,767 65,986 51,332 22.4 28.5 total mobility subscribers 182,558 165,889 151,921 10.0 % 9.2 % 1 includes data-centric devices such as wholesale automobile systems , monitoring devices , fleet management and session-based tablets . mobility net additions percent change ( in 000s ) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 postpaid phone net additions 1,457 483 194 — % — % total phone net additions 5 1,640 989 1,248 65.8 ( 20.8 ) postpaid 2 , 6 2,183 ( 435 ) ( 90 ) — — prepaid 5 , 6 379 677 1,301 ( 44.0 ) ( 48.0 ) reseller 6 ( 449 ) ( 928 ) ( 1,599 ) 51.6 42.0 connected devices 3 14,785 14,645 12,324 1.0 18.8 mobility net subscriber additions 1 16,898 13,959 11,936 21.1 % 16.9 % postpaid churn 4 0.98 % 1.18 % 1.12 % ( 20 ) bp 6 bp postpaid phone-only churn 4 0.79 % 0.95 % 0.90 % ( 16 ) bp 5 bp 1 excludes acquisition-related additions during the period . 2 in addition to postpaid phones , includes tablets and wearables and other . tablet net ( losses ) were ( 512 ) , ( 1,487 ) and ( 1,200 ) for the years ended december 31 , 2020 , 2019 and 2018 , respectively . wearables and other net adds were 1,223 , 569 and 916 for the years ended december 31 , 2020 , 2019 and 2018 , respectively . 3 includes data-centric devices such as session-based tablets , monitoring devices and primarily wholesale automobile systems . excludes postpaid tablets . 4 calculated by dividing the aggregate number of wireless subscribers who canceled service during a month by the total number of wireless subscribers at the beginning of that month . the churn rate for the period is equal to the average of the churn rate for each month of that period . 5 the year ended december 31 , 2020 , includes 188 subscriber disconnections resulting from updating our prepaid activation policy . 6 the year ended december 31 , 2020 , includes subscribers transferred in connection with business dispositions . 1 service revenue increased during 2020 largely due to growth in phone subscribers and connected devices , offset by declines in international roaming revenue due to reduced travel during the pandemic . successful offers aimed at customer retention contributed to subscriber growth and lower churn . arpu average revenue per subscriber ( arpu ) decreased primarily due to the decline in international roaming and waived fees . churn the effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins . postpaid churn and postpaid phone-only churn were lower in 2020 due to migrations to unlimited plans , continued network improvements , subscriber retention offers in the fourth quarter , and lower overall involuntary disconnects . 33 at & t inc. dollars in millions except per share amounts equipment revenue increased in 2020 primarily due to higher equipment revenue from higher postpaid upgrade volumes , the mix of sales of higher-priced smartphones , and higher sales of data devices , including wearables , wireless modems and hotspots . operations and support expenses increased in 2020 , largely driven by higher equipment costs , increased commission deferral amortization and intercompany content costs associated with plans offering hbo max , partially offset by lower bad debt expense . the increase in commission deferral amortization is partly offset by the impacts of our second-quarter 2020 updates to extend the expected economic life of our mobility customers . depreciation expense increased in 2020 , primarily due to ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets . operating income increased in 2020 and 2019. our mobility operating income margin was 30.8 % in 2020 , 31.4 % in 2019 and 30.6 % in 2018. our mobility ebitda margin was 42.0 % in 2020 , 42.7 % in 2019 and 42.3 % in 2018. subscriber relationships as the wireless industry has matured , future wireless growth will depend on our ability to offer innovative services , plans and devices that take advantage of our premier 5g wireless network , which went nationwide in july 2020 , and to provide these services in bundled product offerings . subscribers that purchase two or more services from us have significantly lower churn than subscribers that purchase only one service .
| ebitda margin is ebitda divided by total revenues . 31 at & t inc. dollars in millions except per share amounts communications segment percent change 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 segment operating revenues mobility $ 72,564 $ 71,056 $ 70,521 2.1 % 0.8 % video 28,610 32,124 33,363 ( 10.9 ) ( 3.7 ) broadband 12,318 13,012 13,108 ( 5.3 ) ( 0.7 ) business wireline 25,358 26,167 26,729 ( 3.1 ) ( 2.1 ) total segment operating revenues 138,850 142,359 143,721 ( 2.5 ) ( 0.9 ) segment operating contribution mobility 22,372 22,321 21,568 0.2 3.5 video 1,729 2,064 1,331 ( 16.2 ) 55.1 broadband 1,822 2,681 3,369 ( 32.0 ) ( 20.4 ) business wireline 4,598 5,164 5,840 ( 11.0 ) ( 11.6 ) total segment operating contribution $ 30,521 $ 32,230 $ 32,108 < td colspan= '' 2 ''
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our pipeline includes cat-5571 and cat-4001 , for which we are currently conducting preclinical activities . we are developing cat-5571 initially as a potential oral treatment for cf , with potential beneficial effects on both trafficking and function of cystic fibrosis transmembrane conductance regulator , or cftr , and the clearance of pseudomonas aeruginosa . in cf , a malfunctioning cftr ion channel impairs chloride secretion , with deleterious effects on multiple organs , and particularly devastating effects on pulmonary , intestinal and pancreatic function . patients affected with cf are also predisposed to respiratory failure caused by persistent lung infections , notably bacteria and most commonly pseudomonas aeruginosa , that are difficult to treat with standard antibiotics . cat-5571 is a small molecule that activates autophagy , a process that maintains cellular homeostasis and host defense mechanisms , which are known to be impaired in cf . in addition , we are developing cat-4001 as a potential treatment for neurodegenerative diseases such as fa and als , irrespective of mutation status . fa is a rare genetic disease that causes nervous system damage and compromises motor coordination . als , sometimes called lou gehrig 's disease or classical motor neuron disease , is a rapidly progressive , fatal neurological disease that attacks the nerve cells responsible for controlling voluntary muscles . cat-4001 is a small molecule that activates nuclear factor ( erythroid-derived 2 ) -like 2 , or nrf2 , and inhibits nf- k b , two pathways that have been implicated in fa and als . we have previously applied our smart linker drug discovery platform to engineer our cat-2000 series product candidates to inhibit the sterol regulatory element binding protein , or srebp , pathway . inhibitors of srebp have been proposed for the treatment of nonalcoholic steatohepatitis , or nash , based on the role of srebp in lipid metabolism and known human polymorphisms associated with nash disease progression . nash is characterized by the build-up of fat in the liver and chronic inflammation , which can trigger progression to fibrosis and ultimately cirrhosis and sometimes hepatocellular carcinoma . we have advanced two cat-2000 molecules , cat-2003 and cat-2054 , into clinical development and intend to pursue a partnership for further development of the cat-2000 series in nash , which , in addition to cat-2003 and cat-2054 , includes other discovery-stage molecules with intermediate rates of hydrolysis . since our inception in june 2008 , we have devoted substantially all of our resources to developing our proprietary platform technology , identifying potential product candidates , undertaking preclinical studies and conducting clinical trials for three clinical-stage compounds , building our intellectual property portfolio , organizing and staffing our company , business planning , raising capital , and providing general and administrative support for these operations . to date , we have primarily financed our operations through private placements of our preferred stock , registered offerings of our common stock , including our initial public offering , or ipo , as well as a secured debt financing . from our inception through december 31 , 2016 , we have raised an aggregate of $ 185.8 million , of which $ 92.9 million was from private placements of preferred stock , $ 69.0 million represented gross proceeds from our ipo , $ 11.5 million represented gross proceeds from our september 2016 registered direct offering , $ 10.0 million was from a secured debt financing , $ 1.6 million represented gross proceeds from our at-the-market , or atm , offering program , and $ 0.8 million was from common stock option and warrant exercises . 84 financial overview revenue to date , we have not generated any revenue from product sales or any other source and do not expect to generate any revenue from the sale of products in the near future . in the future , we will seek to generate revenue primarily from a combination of product sales and collaborations with strategic partners . research and development expenses research and development expenses consist primarily of costs incurred for our research activities , including our drug discovery efforts , and the development of our product candidates , which include : employee-related expenses including salaries , benefits and stock-based compensation expense ; expenses incurred under agreements with third parties , including contract research organizations , or cros , that conduct clinical trials and research and development and preclinical activities on our behalf ; the cost of consultants ; the cost of lab supplies and acquiring , developing and manufacturing preclinical study materials ; and facilities and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies . research and development costs are expensed as incurred . nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized . the capitalized amounts are expensed as the related goods are delivered or the services are performed . the following summarizes our most advanced current research and development programs : edasalonexent edasalonexent is a smart linker conjugate of salicylic acid and the omega-3 fatty acid docosahexaenoic acid , or dha , a naturally occurring unsaturated fatty acid with anti-inflammatory properties . we designed edasalonexent to inhibit nf- k b , a protein that is activated in dmd and that drives inflammation , fibrosis and muscle degeneration , and suppresses muscle regeneration . we reported results from part a of the movedmd trial in january 2016 and reported top-line safety and efficacy results for part b of the trial in january 2017. results from both part a and part b of the movedmd trial are described further under `` businessour product candidatesedasalonexentedasalonexent clinical development '' above . in july 2016 , we initiated an open-label extension , part c of the movedmd trial , which is on-going and is expected to provide additional safety and efficacy data on edasalonexent . story_separator_special_tag following continued assessment of the effects in patients on edasalonexent in part c of the movedmd trial , we will determine next steps for the edasalonexent program in dmd . cat-5571 cat-5571 is a smart linker conjugate that contains cysteamine , a naturally occurring molecule that is a degradation product of the amino acid cysteine , and dha . we are developing cat-5571 initially as a potential oral treatment for cf with potential effects on both the cftr and on the clearance of pseudomonas aeruginosa . cat-5571 is a small molecule that activates autophagy , a process that maintains cellular homeostasis and host defense mechanisms , which are known to be impaired in cf . in 2017 , we plan to continue preclinical evaluation of cat-5571 in animal models of cf , and to conduct investigational new drug , or ind , application-enabling activities for cat-5571 . if we are successful in these activities , we intend to advance cat-5571 into a phase 1 clinical trial in 2018 . 85 cat-4001 cat-4001 is a smart linker conjugate that we designed to combine the potentially beneficial activities of monomethyl fumarate and dha on the nrf2 and nf- k b pathways . we are developing cat-4001 initially for the treatment of severe , rare neurodegenerative diseases , such as fa and als , two diseases of the central nervous system in which the nrf2 and nf- k b pathways have been implicated , irrespective of mutation status . nrf2 is a gene transcription factor , a protein that works inside of cells to control the expression of genes , that control the body 's response to cellular stress and oxidative damage . in 2017 , we plan to continue preclinical evaluation of cat-4001 in animal models of fa as well as als . other programs other research and development programs include activities related to pathway biology validation and smart linker conjugate design and optimization . our focus in these efforts is on rare diseases . we typically use our employee , consultant and infrastructure resources across our development programs . we track outsourced development costs by product candidate or development program , but we do not allocate personnel costs , other internal costs or external consultant costs to specific product candidates or development programs . we record our research and development expenses net of any research and development tax incentives we are entitled to receive from government authorities . the following table summarizes our research and development expenses by program ( in thousands ) : replace_table_token_5_th since inception , the total direct expenses to support the edasalonexent program have been $ 23.5 million . since we began separately tracking cat-2054 in 2013 , the direct expenses to support that program have totaled $ 12.7 million . since inception , the total direct expenses to support the cat-2003 program have been $ 15.6 million . the successful development of our product candidates is highly uncertain . accordingly , at this time , we can not reasonably estimate the nature , timing and costs of the efforts that will be necessary to complete the remainder of the development of these product candidates . we are also unable to predict when , if ever , material net cash inflows will commence from edasalonexent , or any of our other current or potential product candidates . this is due to the numerous risks and uncertainties associated with developing medicines , including the uncertainties of : establishing an appropriate safety profile with ind-enabling toxicology studies ; 86 successful enrollment in , and completion of clinical trials ; receipt of marketing approvals from applicable regulatory authorities ; establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers ; obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates ; launching commercial sales of the products , if and when approved , whether alone or in collaboration with others ; and a continued acceptable safety profile of the products following approval . a change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate . research and development activities are central to our business model . product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development , primarily due to the increased size and duration of later-stage clinical trials . we expect to incur significant research and development costs for the foreseeable future , if and to the extent that our product candidate development programs progress . we expect that our research and development expenses in the year ending december 31 , 2017 will be lower than in the year ending december 31 , 2016 as a result of our plans to conduct clinical trials supporting one program in 2017 as compared to two programs in 2016. we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization . there are numerous factors associated with the successful commercialization of any of our product candidates , including future trial design and various regulatory requirements , many of which can not be determined with accuracy at this time based on our stage of development . additionally , future commercial and regulatory factors beyond our control will impact our clinical development programs and plans . general and administrative expenses general and administrative expenses consist primarily of salaries and other related costs , including stock-based compensation , for personnel in executive , finance , accounting , business development and human resources functions . other significant costs include facility costs not otherwise included in research and development expenses , legal fees relating to patent and corporate matters , and fees for accounting and consulting services .
| the increase in general and administrative expenses was attributable to increased employee costs of $ 0.7 million associated with salaries , benefits , and stock-based compensation expenses for new hires ; increased consulting and professional fees of $ 0.5 million , driven by the costs of operating as a public company ; and increased insurance expense of $ 0.3 million due to our public company directors and officers insurance policy . other expense , net other expense , net decreased by $ 0.5 million to $ 0.5 million for the year ended december 31 , 2016 from $ 1.0 million for the year ended december 31 , 2015. the decrease in other expense , net consisted of $ 0.2 million in lower interest expense as a result of amortization of debt principal , $ 0.2 million in increased interest and investment income as a result of our investments in available-for-sale securities , and $ 0.1 million from property insurance claim gains . comparison of the years ended december 31 , 2015 and 2014 the following table summarizes our results of operations for the years ended december 31 , 2015 and 2014 , together with the dollar change in those items ( in thousands ) : replace_table_token_9_th research and development expenses research and development expenses increased by $ 7.3 million to $ 23.0 million for the year ended december 31 , 2015 from $ 15.7 million for the year ended december 31 , 2014 , an increase of 46 % . the 91 increase in research and development expenses was primarily attributable to a net increase of $ 5.7 million in direct program costs , reflecting an increase of $ 5.2 million in costs related to edasalonexent primarily related to the movedmd phase 1/2 clinical trial , and a net increase of $ 0.5 million in costs related to our other programs . in addition , the costs related to internal research and development increased by $ 1.6 million , $ 0.8 million of which was attributable to compensation increases for new hires , $ 0.4 million of which was attributable to obligations under a letter agreement with a former employee , pursuant to which we agreed to make severance payments , $ 0.3 million of which was attributable to increases in consulting and
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37 our current initiatives to execute this strategy include the following : provide products that can compete effectively in the healthcare market where cost and quality are important ; focus our research and development efforts on three areas : new proprietary product platform development ; the creation of improved products and new products for existing markets and unmet clinical needs ; and pursuit of collaborations with , or acquisitions of , other companies for new and existing products and markets that advance our strategy to develop differentiated technologies and products ; leverage our international infrastructure and enhance our global footprint to support our international operations and future growth ; strengthen our market and brand leadership in current markets by acquiring and or developing and introducing clinically superior diagnostic solutions ; strengthen our direct sales force to enhance relationships with integrated delivery networks , laboratories and hospitals , with a goal of driving growth through improved physician and laboratorian satisfaction ; leverage our wireless connectivity and data management systems , including cloud-based tools ; support payer evaluation of diagnostic tests and establishment of favorable reimbursement rates ; provide clinicians with validated studies that encompass the clinical efficacy and economic efficiency of our diagnostic tests for the professional market ; create strong global alliances to support our efforts to achieve leadership in key markets and expand our presence in emerging markets ; further refine our manufacturing efficiencies and productivity improvements to increase profit ; and focus on innovative products and markets and leverage our core competency in new product development . product development activities are inherently uncertain , and there can be no assurance that we will be able to obtain regulatory body clearance to market any of our products , or if we obtain clearances , that we will successfully commercialize any of our products . in addition , we may terminate our development efforts with respect to one or more of our products under development at any time , including before or during clinical trials . outlook we anticipate continued revenue growth over the next year with a positive impact on gross margin and earnings . we expect continued and significant investment in research and development activities as we develop our next generation immunoassay and molecular platforms . we will continue our focus on prudently managing our business and delivering solid financial results , while at the same time striving to continue to introduce new products to the market and maintaining our emphasis on research and development investments for longer term growth . finally , we will continue to evaluate opportunities to acquire new product lines , technologies and companies . 38 results of operations comparison of years ended december 31 , 2019 and 2018 our fiscal year is the 52 or 53 weeks ending the sunday closest to december 31. fiscal years 2019 and 2018 were both 52 weeks . total revenues the following table compares total revenues for the years ended december 31 , 2019 and 2018 ( in thousands , except percentages ) : replace_table_token_4_th for the year ended december 31 , 2019 , total revenues increased 2 % to $ 534.9 million . on a constant currency basis , 2019 revenue growth was 3 % . the increase in total revenues was driven primarily by increases in rapid immunoassay revenues due to growth in respiratory products , bolstered by a strong start to the respiratory season in the last quarter of 2019. molecular products were up 12 % over prior year driven by continued revenue growth on the solana platform . growth otherwise experienced in the cardiac immunoassay products in constant currency was fully offset by an unfavorable impact from foreign currency fluctuations . excluding such impact , cardiac immunoassay grew 2 % . see further discussion in item 7a of this annual report for additional information related to our calculation and use of constant currency and constant currency revenue growth . gross profit gross profit increased by 2 % over prior year , to $ 320.8 million , or 60 % of revenue for the year ended december 31 , 2019 , compared to $ 315.7 million , or 60 % of revenue for the year ended december 31 , 2018 . the higher gross profit was mainly driven by increased influenza sales in the current year , partially offset by unfavorable fluctuations in foreign currency . gross margin was flat compared to the prior year as the impact of a favorable product mix was offset by lower factory overhead absorption during the current year as well as unfavorable fluctuations in foreign currency . operating expenses the following table compares operating expenses for the years ended december 31 , 2019 and 2018 ( in thousands , except percentages ) : replace_table_token_5_th research and development expense research and development expense for the year ended december 31 , 2019 increased from $ 51.6 million to $ 52.6 million due primarily to higher spend on projects related to sofia and savanna platforms . such increases were partially offset by lower spending on projects related to cardiovascular and solana platforms , as they were largely completed in 2018 . 39 research and development expenses include direct external costs such as fees paid to third-party contractors and consultants and internal direct and indirect costs such as compensation and other expenses for research and development personnel , supplies and materials , clinical trials and studies , facility costs and depreciation . due to the risks inherent in the product development process and given the early-stage of development of certain projects , we are unable to estimate with meaningful certainty the costs we will incur in the continued development of our product candidates for commercialization . we expect our research and development costs to be substantial as we move other product candidates into preclinical and clinical trials and advance our existing product candidates into later stages of development . story_separator_special_tag sales and marketing expense sales and marketing expense for the year ended december 31 , 2019 increased from $ 109.0 million to $ 111.1 million primarily due to higher employee-related costs , product promotion costs and higher freight costs partially offset by lower transition service fees as we have completed the globalization of our commercial team . general and administrative expense general and administrative expense for the year ended december 31 , 2019 increased from $ 45.0 million to $ 52.8 million primarily due to increased facility and information technology costs required to support the new global infrastructure . the increase was partially offset by lower transition service fees . acquisition and integration costs acquisition and integration costs for the year ended december 31 , 2019 decreased from $ 14.2 million last year to $ 11.7 million this year primarily , as more of the global operations became fully integrated into the business . such decrease was partially offset by $ 2.8 million incurred in the current year related to the evaluation of new business development opportunities . other expense , net the following table compares other expense , net , for the years ended december 31 , 2019 and 2018 ( in thousands , except percentages ) : replace_table_token_6_th interest and other expense , net decreased from $ 24.3 million to $ 14.8 million . interest and other expense , net primarily relates to accretion of interest on the deferred consideration , coupon and accretion of interest related to our convertible senior notes and interest and amortization of deferred financing costs associated with our credit agreement . the decrease in interest expense of $ 9.5 million over the prior year was primarily due to lower debt balances under the company 's convertible senior notes , lower interest incurred under the revolving credit facility , and lower accretion of interest as deferred consideration liability outstanding declined . loss on extinguishment of debt of $ 0.7 million for the twelve months ended december 31 , 2019 relates to the extinguishment of $ 45.4 million in aggregate principal of the convertible senior notes in exchange for the company 's common stock during the period . loss on extinguishment of debt of $ 8.3 million for the year ended december 31 , 2018 relates to the $ 161.8 million early payment on the term loan , the extinguishment of $ 108.8 million in aggregate principal of the convertible senior notes in exchange for the company 's common stock during the period and the write-off of certain previously capitalized costs relating to the term loan due to the modification of the credit agreement . income taxes we recognized an income tax provision of $ 4.3 million , resulting in an effective tax rate of 5.5 % for the year ended december 31 , 2019 . the primary factors contributing to a rate lower than the statutory rate in 2019 are the excess tax benefits from stock-based compensation and the generation of research credits . we recognized an income tax benefit of $ 10.8 million for the year ended december 31 , 2018 . the primary factors that contributed to the income tax benefit in 2018 were the reversal 40 of a significant portion of the company 's deferred tax valuation allowance , the excess tax benefits from stock-based compensation and the generation of research credits . liquidity and capital resources as of december 31 , 2019 and 2018 , our principal sources of liquidity consisted of the following ( in thousands ) : replace_table_token_7_th ( 1 ) adjusted working capital excludes the current portion of the convertible senior notes as of december 31 , 2019 and 2018 of $ 12.7 million and $ 54.4 million , respectively , as such notes may be settled at the company 's option in cash or a combination of cash and shares of common stock . as of december 31 , 2019 , we had $ 52.8 million in cash and cash equivalents , a $ 9.1 million increase from the prior year . our cash requirements fluctuate as a result of numerous factors , such as the extent to which we generate cash from operations , progress in research and development projects and integration activities , competition and technological developments and the time and expenditures required to obtain governmental approval of our products . in addition , we intend to continue to evaluate candidates for new product lines , company or technology acquisitions or technology licensing . if we decide to proceed with any such transactions , we may need to incur additional debt or issue additional equity , to successfully complete the transactions . our primary source of liquidity , other than our holdings of cash and cash equivalents , has been cash flows from operations and financing . cash generated from operations provides us with the financial flexibility we need to meet normal operating , investing and financing needs . we anticipate that our current cash and cash equivalents , together with cash provided by operating activities will be sufficient to fund our near-term capital and operating needs for at least the next 12 months . normal operating needs include the planned costs to operate our business , including amounts required to fund working capital and capital expenditures . our primary short-term needs for capital , which are subject to change , include expenditures related to : support of commercialization efforts related to our current and future products , including support of our direct sales force and field support resources ; interest on and repayments of our convertible senior notes , deferred consideration , contingent consideration and lease obligations ; the continued advancement of research and development efforts ; acquisitions of equipment and other fixed assets for use in our current and future manufacturing and research and development facilities ; and potential strategic acquisitions and investments .
| the primary purpose for our capital expenditures is to acquire manufacturing and scientific equipment , to implement facility improvements , to acquire instruments to be leased to customers and to purchase or develop information technology . we plan to fund these capital expenditures with the cash on our balance sheet . we have $ 15.1 million in firm purchase commitments with respect to planned inventory purchases as of december 31 , 2019 . cash used by financing activities was $ 98.3 million during the twelve months ended december 31 , 2019 primarily related to the payments of revolving credit facility of $ 53.2 million , deferred consideration of $ 44.0 million , repurchases of common stock of $ 10.7 million , and acquisition contingent consideration of $ 4.0 million , partially offset by proceeds from issuance of stock of $ 14.8 million from stock option exercises . cash used by financing activities was $ 244.1 million during the year ended december 31 , 2018 primarily related to payments on the term loan of $ 161.8 million , payments on the revolving credit facility of $ 40.0 million , payments on deferred consideration of $ 46.0 million , repurchases of common stock of $ 4.3 million , payments of $ 2.0 million of transaction costs related to the exchange of convertible senior notes for common stock and payments of acquisition contingent consideration of $ 6.3 million , partially offset by proceeds from issuance of stock of $ 17.0 million from stock option exercises . 42 off-balance sheet arrangements at december 31 , 2019 and 2018 , we did not have any relationships with unconsolidated entities or financial partners , such as entities often referred to as structured finance or special purpose entities , which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes . as such , we are not materially exposed to any financing , liquidity , market or credit risk that could arise if we had engaged in such relationships . contractual obligations as of december 31 , 2019 , our
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allowance for doubtful accounts evaluation of the allowance for doubtful accounts involves management judgments and estimates . we evaluate the collectability of our trade accounts receivable based on a number of factors . in circumstances where management is aware of a customer 's inability to meet its financial obligations to us , or a project dispute makes it unlikely that all of the receivable owed by a customer will be collected , a specific reserve for bad debts is estimated and recorded to reduce the recognized receivable to the estimated amount we believe will ultimately be collected . in addition to specific customer identification of potential bad debts , a general reserve for bad debts is estimated and recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding . inventories the majority of inventories are valued at the lower of cost or market under the last-in , first-out ( lifo ) method . the lifo method allocates the most recent costs to cost of products sold , and , therefore , recognizes into 11 operating results fluctuations in raw materials and other inventory costs more quickly than other methods . inventories at our international subsidiaries are measured on the first-in , first-out ( fifo ) method . pension benefits we sponsor pension plans covering all employees who met eligibility requirements as of april 30 , 2005. these pension plans were amended as of april 30 , 2005 , no further benefits have been , or will be , earned under the plans subsequent to the amendment date , and no additional participants have been , or will be , added to the plans . several statistical and other factors , which attempt to anticipate future events , are used in calculating the expense and liability related to the pension plans . these factors include assumptions about the discount rate used to calculate and determine benefit obligations and expected return on plan assets within certain guidelines . the actuarial assumptions used by us may differ materially from actual results due to changing market and economic conditions , higher or lower withdrawal rates , or longer or shorter life spans of participants . these differences may significantly affect the amount of pension income or expense recorded by us in future periods . self-insurance reserves the company 's domestic operations are self-insured for employee health-care . the company has purchased specific stop-loss insurance to limit claims above a certain amount . estimated medical costs were accrued for claims incurred but not reported ( ibnr ) using assumptions based upon historical loss experiences . the company 's exposure reflected in the self-insurance reserves varies depending upon market conditions in the insurance industry , availability of cost-effective insurance coverage , and actual claims versus estimated future claims . story_separator_special_tag provided cash of $ 11.7 million in fiscal year 2017 primarily from operating earnings , a decrease in inventories , and increases in deferred revenue and accounts payable and other accrued expenses , partially offset by increases in receivables . the increase in cash and deferred revenue in fiscal year 2017 included a $ 4.4 million customer advance received at the end of the fiscal year in regard to a large international order . the company 's financing activities used cash of $ 2,484,000 during fiscal year 2018 for cash dividends of $ 1,794,000 paid to stockholders , and cash dividends of $ 74,000 paid to minority interest holders and repayment of long-term debt of $ 918,000 , partially offset by an increase in short-term borrowings of $ 294,000. the company 's financing activities used cash of $ 2,084,000 during fiscal year 2017 for repayment of short-term borrowings of $ 227,000 , cash dividends of $ 1,570,000 paid to stockholders , and cash dividends of $ 56,000 paid to minority interest holders and repayment of long-term debt of $ 421,000. see note 3 of the notes to consolidated financial statements included in item 8 of this annual report for additional information concerning our credit facility . the majority of the april 30 , 2018 accounts receivable balances are expected to be collected during the first quarter of fiscal year 2019 , with the exception of retention amounts on fixed-price contracts which are collected when the entire construction project is completed and all retention funds are paid by the owner . as discussed above , no further benefits have been , or will be , earned under our pension plans after april 30 , 2005 , and no additional participants have been , or will be , added to the plans . we estimate that contributions of $ 1,000,000 will be made to the plans in fiscal year 2019. we made contributions of $ 600,000 and $ 555,000 to the plans in fiscal years 2018 and 2017 , respectively . capital expenditures were $ 3.4 million , $ 2.6 million and $ 2.2 million in fiscal years 2018 , 2017 and 2016 , respectively . capital expenditures in fiscal year 2018 were funded primarily from operations . fiscal year 2019 capital expenditures are anticipated to be approximately $ 6 million , with the majority of these expenditures for manufacturing equipment and facilities improvements . the planned increase in fiscal year 2019 expenditures relates to strategic investments in manufacturing equipment to support the company 's continued sales growth . the fiscal year 2019 expenditures are expected to be funded primarily by operating activities , supplemented as needed by borrowings under our revolving credit facility . story_separator_special_tag working capital was $ 35.9 million at april 30 , 2018 , up from $ 32.9 million at april 30 , 2017 , and the ratio of current assets to current liabilities was 2.3-to-1.0 at april 30 , 2018 and 2.2-to-1.0 at april 30 , 2017. the increase in working capital for fiscal year 2018 was primarily due to an increase in receivables and inventories , partially offset by a decrease in cash . the increase in working capital for fiscal year 2017 was primarily due to an increase in cash and receivables , partially offset by a decrease in inventories . 14 we paid cash dividends of $ 0.66 per share in fiscal year 2018. we paid cash dividends of $ 0.58 and $ 0.51 per share in fiscal years 2017 and 2016 , respectively . we expect to pay dividends in the future in line with our actual and anticipated future operating results . recent accounting standards new accounting standards in may 2014 , the financial accounting standards board ( fasb ) issued accounting standards update 2014-09 , revenue from contracts with customers ( asu 2014-09 ) . this update outlines a new comprehensive revenue recognition model that supersedes most current revenue recognition guidance and requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services . asu 2014-09 also requires additional disclosures about the nature , timing and uncertainty of revenue and cash flows arising from customer contracts , including significant judgments and changes in judgments . the fasb has issued several updates and or practical expedients to asu 2014-09. asu 2014-09 and the subsequent updates and or practical expedients to the standard will be effective for the company during the first quarter of our fiscal year 2019. asu 2014-09 provides two methods of adopting the standard : using either a full retrospective approach or modified retrospective approach . we have elected the modified retrospective approach of adopting the standard . we have conducted an assessment of how asu 2014-09 is likely to affect us , identifying the company 's revenue streams and performance obligations . our contracts with customers may be for single performance obligations or for multiple performance obligations . under the new guidance , revenue is recognized when a customer obtains control of promised goods or service which will either be at a point-in-time or over-time . a large majority of products that the company manufactures for customers have no alternative use as they are designed , engineered and manufactured to a customer specification and are expected to follow an over-time revenue recognition model . under current guidance , the company generally recognizes revenue upon shipment or delivery . under the new guidance , revenue for products that follow an over-time revenue recognition model may be recognized prior to shipment or delivery dependent upon contract-specific terms based on when the customer is deemed to have obtained control . based on the evaluation of our existing customer contracts and revenue streams , the majority of the company 's revenue will be recorded consistently under both the current and new revenue standards . however , the new revenue standard will accelerate the timing of revenue recognition for certain customer contracts as it requires emphasis on transfer of control rather than risks and rewards . the adjustment primarily relates to revenue recognized historically under bill-and-hold arrangements that will transition to an over-time revenue recognition methodology under the new standard . the cumulative impact of our accelerated revenue recognition under the new revenue standard is expected to result in an after tax net increase less than $ 500,000 to opening retained earnings as of may 1 , 2018. the adoption of the new revenue recognition guidance is not expected to materially impact our consolidated statement of operations , consolidated balance sheet , or consolidated statement of cash flows . we are still evaluating the degree to which expanded disclosures would be required in the company 's first quarter of fiscal year 2019. in august 2014 , the fasb issued asu 2014-15 , presentation of financial statements-going concern : disclosure of uncertainties about an entity 's ability to continue as a going concern , which requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity 's ability to continue as a going concern , and requires related footnote disclosures . this guidance was effective for fiscal years , and interim periods within those years , ending after december 15 , 2016. the company adopted this standard effective may 1 , 2016. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in april 2015 , the fasb issued asu 2015-03 , interestimputation of interest : simplifying the presentation of debt issuance costs. this guidance requires that debt issuance costs related to a recognized liability be 15 presented in the balance sheet as a direct deduction from the carrying amount of that debt liability . this guidance was effective for fiscal years , and interim periods within those years , beginning after december 15 , 2015. the company adopted this standard effective may 1 , 2016. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in july 2015 , the fasb issued asu 2015-11 , inventorysimplifying the measurement of inventory. this guidance changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value .
| operating expenses were $ 22.9 million , $ 20.1 million and $ 18.0 million in fiscal years 2018 , 2017 and 2016 , respectively , and 14.5 % , 14.5 % and 14.0 % of sales , respectively . the increase in operating expense dollars in fiscal year 2018 as compared to fiscal year 2017 is related primarily to increases in wages and benefits of $ 359,000 , bad debt expense of $ 307,000 , professional services of $ 167,000 , incentive compensation of $ 606,000 , 12 corporate governance expense of $ 383,000 and an increase of $ 359,000 in operating expense for the company 's international operations , partially offset by a decrease in pension expense of $ 246,000. the increase in operating expense dollars in fiscal year 2017 as compared to fiscal year 2016 is related primarily to increases in wages and benefits of $ 539,000 , incentive compensation of $ 362,000 , pension expense of $ 168,000 , professional services of $ 261,000 , sales and marketing of $ 297,000 and an increase of $ 667,000 in operating expense for the company 's international operations , partially offset by decreases of bad debt expense of $ 37,000 and $ 678,000 of non-recurring expenses incurred in the prior fiscal year . other income was $ 693,000 , $ 496,000 and $ 347,000 in fiscal years 2018 , 2017 and 2016 , respectively . the increase in other income in fiscal year 2018 was primarily due to an increase in interest income from cash on hand at the international subsidiaries . the increase in other income in fiscal year 2017 was primarily due to an increase in interest income from cash on hand at the international subsidiaries . interest expense was $ 299,000 , $ 292,000 and $ 306,000 in fiscal years 2018 , 2017 and 2016 , respectively . the increase in interest expense for fiscal year 2018 was primarily due to increases in interest rate , partially offset by lower levels of bank borrowings .
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the decrease in trinidad was primarily attributable to higher contractual deliveries in 2012. during 2013 , eog recognized net losses on the mark-to-market of financial commodity derivative contracts of $ 166 million , which included net cash received from settlements of commodity derivative contracts of $ 116 million . during 2012 , eog recognized net gains on the mark-to-market of financial commodity derivative contracts of $ 394 million , which included net cash received from settlements of commodity derivative contracts of $ 711 million . 33 during 2013 , gathering , processing and marketing revenues and marketing costs increased , compared to 2012 , primarily as a result of increased crude oil marketing activities . gathering , processing and marketing revenues less marketing costs in 2013 decreased $ 66 million , compared to 2012 , due primarily to lower margins on crude oil marketing activities . operating and other expenses 2014 compared to 2013 . during 2014 , operating expenses of $ 12,794 million were $ 1,982 million higher than the $ 10,812 million incurred during 2013. the following table presents the costs per barrel of oil equivalent ( boe ) for the years ended december 31 , 2014 and 2013 : replace_table_token_14_th ( 1 ) total excludes gathering and processing costs , exploration costs , dry hole costs , impairments , marketing costs and taxes other than income . the primary factors impacting the cost components of per-unit rates of lease and well , transportation costs , dd & a , g & a and net interest expense for 2014 compared to 2013 are set forth below . see `` net operating revenues '' above for a discussion of production volumes . lease and well expenses include expenses for eog-operated properties , as well as expenses billed to eog from other operators where eog is not the operator of a property . lease and well expenses can be divided into the following categories : costs to operate and maintain crude oil and natural gas wells , the cost of workovers and lease and well administrative expenses . operating and maintenance costs include , among other things , pumping services , salt water disposal , equipment repair and maintenance , compression expense , lease upkeep and fuel and power . workovers are operations to restore or maintain production from existing wells . each of these categories of costs individually fluctuates from time to time as eog attempts to maintain and increase production while maintaining efficient , safe and environmentally responsible operations . eog continues to increase its operating activities by drilling new wells in existing and new areas . operating and maintenance costs within these existing and new areas , as well as the costs of services charged to eog by vendors , fluctuate over time . lease and well expenses of $ 1,416 million in 2014 increased $ 310 million from $ 1,106 million in 2013 primarily due to higher operating and maintenance costs ( $ 209 million ) , increased workover expenditures ( $ 69 million ) and increased lease and well administrative expenses ( $ 32 million ) , all in the united states . transportation costs represent costs associated with the delivery of hydrocarbon products from the lease to a downstream point of sale . transportation costs include transportation fees , costs associated with crude-by-rail operations , the cost of compression ( the cost of compressing natural gas to meet pipeline pressure requirements ) , dehydration ( the cost associated with removing water from natural gas to meet pipeline requirements ) , gathering fees and fuel costs . transportation costs of $ 972 million in 2014 increased $ 119 million from $ 853 million in 2013 primarily due to increased transportation costs related to production from the eagle ford ( $ 99 million ) and the rocky mountain area ( $ 15 million ) . dd & a of the cost of proved oil and gas properties is calculated using the unit-of-production method . eog 's dd & a rate and expense are the composite of numerous individual dd & a group calculations . there are several factors that can impact eog 's composite dd & a rate and expense , such as field production profiles , drilling or acquisition of new wells , disposition of existing wells and reserve revisions ( upward or downward ) primarily related to well performance , economic factors and 34 impairments . changes to these factors may cause eog 's composite dd & a rate and expense to fluctuate from period to period . dd & a of the cost of other property , plant and equipment is generally calculated using the straight-line depreciation method over the useful lives of the assets . dd & a expenses in 2014 increased $ 396 million to $ 3,997 million from $ 3,601 million in 2013. dd & a expenses associated with oil and gas properties in 2014 were $ 384 million higher than in 2013 primarily due to increased production in the united states ( $ 630 million ) , partially offset by lower unit rates in the united states ( $ 191 million ) and canada ( $ 37 million ) and a decrease in production in canada ( $ 31 million ) . unit rates in the united states decreased primarily due to upward reserve revisions and reserves added at lower costs as a result of increased efficiencies . g & a expenses of $ 402 million in 2014 were $ 54 million higher than 2013 primarily due to higher costs associated with supporting expanding operations . story_separator_special_tag net interest expense of $ 201 million in 2014 was $ 34 million lower than 2013 primarily due to repayment of the $ 400 million aggregate principal amount of the 6.125 % senior notes due 2013 , the subsidiary debt and the floating rate notes ( $ 31 million ) , as well as an increase in capitalized interest across the company ( $ 8 million ) . this was partially offset by interest expense on the notes issued in march 2014 ( $ 10 million ) . gathering and processing costs represent operating and maintenance expenses and administrative expenses associated with operating eog 's gathering and processing assets . gathering and processing costs increased $ 38 million to $ 146 million in 2014 compared to $ 108 million in 2013 primarily due to increased activities in the eagle ford . exploration costs of $ 184 million in 2014 increased $ 23 million from $ 161 million in 2013 primarily due to increased geological and geophysical expenditures in the united states . impairments include amortization of unproved oil and gas property costs ; as well as impairments of proved oil and gas properties ; other property , plant and equipment ; and other assets . unproved properties with acquisition costs that are not individually significant are aggregated , and the portion of such costs estimated to be nonproductive is amortized over the remaining lease term . when circumstances indicate that a proved property may be impaired , eog compares expected undiscounted future cash flows at a dd & a group level to the unamortized capitalized cost of the asset . if the expected undiscounted future cash flows are lower than the unamortized capitalized cost , the capitalized cost is reduced to fair value . fair value is generally calculated by using the income approach described in the fair value measurement topic of the financial accounting standards board 's accounting standards codification ( asc ) . in certain instances , eog utilizes accepted bids as the basis for determining fair value . impairments of $ 744 million in 2014 increased $ 457 million from $ 287 million in 2013 primarily due to increased impairments of proved properties in the united kingdom ( $ 351 million ) , the united states ( $ 145 million ) and argentina ( $ 39 million ) ; and increased amortization of unproved property costs in the united states ( $ 54 million ) ; partially offset by decreased impairments of proved properties in canada ( $ 67 million ) and trinidad ( $ 14 million ) ; and lower impairments of other assets in the united states ( $ 46 million ) . eog recorded impairments of proved properties ; other property , plant and equipment ; and other assets of $ 575 million and $ 172 million in 2014 and 2013 , respectively . the 2014 and 2013 amounts include impairments of $ 503 million and $ 7 million , respectively , related to certain assets as a result of declining commodity prices and using accepted bids for determining fair value . taxes other than income include severance/production taxes , ad valorem/property taxes , payroll taxes , franchise taxes and other miscellaneous taxes . severance/production taxes are generally determined based on wellhead revenues , and ad valorem/property taxes are generally determined based on the valuation of the underlying assets . taxes other than income in 2014 increased $ 134 million to $ 758 million ( 6.0 % of wellhead revenues ) from $ 624 million ( 5.8 % of wellhead revenues ) in 2013. the increase in taxes other than income was primarily due to increases in severance/production taxes ( $ 112 million ) primarily as a result of increased wellhead revenues and higher ad valorem/property taxes ( $ 34 million ) in the united states , partially offset by an increase in credits available to eog in 2014 for texas high-cost gas severance tax rate reductions ( $ 11 million ) . other expense , net , was $ 45 million in 2014 compared to $ 3 million in 2013. the increase of $ 42 million was primarily due to net foreign currency transaction losses . 35 income tax provision of $ 2,080 million in 2014 increased $ 840 million from $ 1,240 million in 2013 due primarily to higher pretax income . the net effective tax rate for 2014 increased to 42 % from 36 % in the prior year . the net effective tax rate for 2014 exceeded the united states statutory tax rate ( 35 % ) due primarily to valuation allowances in the united kingdom and deferred tax in the united states related to eog 's undistributed foreign earnings . eog no longer asserts that foreign earnings will remain permanently reinvested abroad and therefore recorded deferred tax of $ 250 million on the accumulated balance of such earnings in the fourth quarter of 2014 . 2013 compared to 2012 . during 2013 , operating expenses of $ 10,812 million were $ 609 million higher than the $ 10,203 million incurred during 2012. the following table presents the costs per boe for the years ended december 31 , 2013 and 2012 : replace_table_token_15_th ( 1 ) total excludes gathering and processing costs , exploration costs , dry hole costs , impairments , marketing costs and taxes other than income . the primary factors impacting the cost components of per-unit rates of lease and well , transportation costs , dd & a , g & a and net interest expense for 2013 compared to 2012 are set forth below . see `` net operating revenues '' above for a discussion of production volumes . lease and well expenses of $ 1,106 million in 2013 increased $ 106 million from $ 1,000 million in 2012 primarily due to higher operating and maintenance expenses in the united states ( $ 48 million ) and canada ( $ 13 million ) and increased workover
| ( 4 ) thousand barrels of oil equivalent per day or million barrels of oil equivalent , as applicable ; includes crude oil and condensate , ngl and natural gas . crude oil equivalents are determined using the ratio of 1.0 barrel of crude oil and condensate or ngl to 6.0 thousand cubic feet of natural gas . mmboe is calculated by multiplying the mboed amount by the number of days in the period and then dividing that amount by one thousand . 32 2014 compared to 2013. wellhead crude oil and condensate revenues in 2014 increased $ 1,441 million , or 17 % , to $ 9,742 million from $ 8,301 million in 2013 , due to an increase of 68.5 mbbld , or 31 % , in wellhead crude oil and condensate deliveries ( $ 2,558 million ) , partially offset by a lower composite average wellhead crude oil and condensate price ( $ 1,117 million ) . the increase in deliveries primarily reflects increased production in the eagle ford , the north dakota bakken and the permian basin . eog 's composite wellhead crude oil and condensate price for 2014 decreased 10 % to $ 92.58 per barrel compared to $ 103.20 per barrel in 2013. ngl revenues in 2014 increased $ 160 million , or 21 % , to $ 934 million from $ 774 million in 2013 , due to an increase of 15 mbbld , or 23 % , in ngl deliveries ( $ 179 million ) , partially offset by a lower composite average price ( $ 19 million ) . the increase in deliveries primarily reflects increased volumes in the eagle ford and the permian basin . eog 's composite ngl price in 2014 decreased 2 % to $ 31.91 per barrel compared to $ 32.55 per barrel in 2013. wellhead natural gas revenues in 2014 increased $ 235 million , or 14 % , to $ 1,916 million from $ 1,681 million in 2013 , primarily due to a higher composite wellhead natural gas price . eog 's composite average wellhead natural gas price increased 13 %
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federal and state governments have taken , and may continue to take , unprecedented actions to contain the spread of the disease , including quarantines , travel bans , shelter-in-place orders , closures of businesses and schools , fiscal stimulus , and legislation designed to deliver monetary aid and other relief to businesses and individuals impacted by the pandemic . although in various locations certain activity restrictions have been relaxed and businesses and schools have reopened with some level of success , in many states and localities the number of individuals diagnosed with covid-19 has increased significantly , which may cause a freezing or , in certain cases , a reversal of previously announced relaxation of activity restrictions and may prompt the need for additional aid and other forms of relief . the impact of the covid-19 pandemic is fluid and continues to evolve . the unprecedented and rapid spread of covid-19 and its associated impacts on trade ( including supply chains and export levels ) , travel , employee productivity , unemployment , consumer spending , and other economic activities has resulted in less economic activity , significant volatility and disruption in financial markets . in addition , due to the covid-19 pandemic , market interest rates have declined significantly , with the 10-year treasury bond falling below 1.00 % on march 3 , 2020 , for the first time . the 10-year treasury bond was 0.69 % at september 30 , 2020 compared to 0.66 % at june 30 , 2020 and 1.92 % at december 31 , 2019. further , long-term bond yields have recently begun to rise , nearing where they were before the pandemic in february 2020. in march 2020 , the federal open market committee reduced the targeted federal funds interest rate range to 0 % to 0.25 % . these reductions in interest rates and the other effects of the covid-19 pandemic have had , and are expected to continue to have , possibly materially , an adverse effect on our business , financial condition and results of operations . for instance , the pandemic has had negative effects on the bank 's net interest margin , provision for loan losses , deposit service charges , salaries and benefits , occupancy expense , and equipment expense . the ultimate extent of the impact of the covid-19 pandemic on our business , financial condition and results of operations is currently uncertain and will depend on various developments and other factors , including the effect of governmental and private sector initiatives , the effect of the recent rollout of vaccinations for the virus , whether such vaccinations will be effective against any resurgence of the virus , including any new strains , and the ability for customers and businesses to return to their pre-pandemic routine . our business , financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans , the value of collateral underlying our secured loans , and demand for loans and other products and services we offer , which are highly dependent on the business environment in our primary markets where we operate and in the united states as a whole . we have a business continuity plan that covers a variety of potential impacts to business operations . these plans are periodically reviewed and tested and have been designed to protect the ongoing viability of bank operations in the event of a disruption such as a pandemic . beginning in march 2020 , we activated our pandemic preparedness plan and began to roll it out in phases related to the covid-19 pandemic . 50 following recommendations from the centers for disease control and prevention and the south carolina department of health and environmental control , we implemented enhanced cleaning of bank facilities and provided guidance to employees and customers on best practices to minimize the spread of the virus . as part of our efforts to exercise social distancing , we modified our delivery channels with a shift to drive thru only service at the banking offices supplemented by appointments for service in the office lobbies . we have encouraged the use of online and mobile channels and have seen the number of online banking users increase , as well as the dollar volume of bill payment , zelle , and mobile deposit transactions trend higher . to support the health and well-being of our employees , a portion of our workforce is working from home . we have enhanced our remote work capabilities by providing additional laptops and various audio and video meeting technologies . communication channels for employees and customers were created to provide periodic updates during this rapidly changing environment . these are still in place and in use . we are focused on servicing the financial needs of our commercial and consumer customers with flexible loan payment arrangements , including short-term loan modifications or forbearance payments and reducing or waiving certain fees on deposit accounts . future governmental actions may require these and other types of customer-related responses . beginning in march 2020 , we proactively offered payment deferrals for up to 90 days to our loan customers . we continue to consider potential deferrals with respect to certain customers , which we evaluate on a case-by-case basis . loans on which payments have been deferred declined to $ 16.1 million at december 31 , 2020 from $ 27.3 million at september 30 , 2020. at its peak , which occurred during the second quarter of 2020 , we granted payment deferments on loans totaling $ 206.9 million . story_separator_special_tag as a result of payments being resumed at the conclusion of their payment deferral period , loans in which payments have been deferred decreased from the peak of $ 206.9 million to $ 175.0 million at june 30 , 2020 , to $ 27.3 million at september 30 , 2020 , to $ 16.1 million at december 31 , 2020 , and to $ 8.7 million at march 5 , 2021. we had no loans on which payments were deferred related to the covid-19 pandemic at december 31 , 2019. we had no loans remaining on initial deferral status in which both principal and interest were deferred at december 31 , 2020 and march 5 , 2021. the $ 16.1 million in deferrals at december 31 , 2020 consists of seven loans on which only principal is being deferred . we had three loans totaling $ 8.7 million in continuing deferral status in which only principal is being deferred at march 5 , 2021. two of the continuing deferrals at march 5 , 2021 totaling $ 4.5 million are in the retail industry segment identified by us as one of the industry segments most impacted by the covid-19 pandemic ; the other continuing deferral totaling $ 4.2 million is a mixed use office space that we do not consider to be in an industry segment most impacted by the covid-19 pandemic . some of these deferments were to businesses that temporarily closed or reduced operations and some were requested as a pre-cautionary measure to conserve cash . we proactively offered deferrals to our customers regardless of the impact of the pandemic on their business or personal finances . we are also a small business administration approved lender and participated in the ppp , established under the cares act . we had ppp loans totaling $ 43.3 million gross of deferred fees and costs and $ 42.2 million net of deferred fees and costs at december 31 , 2020. we had ppp loans totaling $ 58.5 million gross of deferred fees and costs and $ 57.1 million net of deferred fees and costs at january 31 , 2021. the ppp deferred fees net of deferred costs will be recognized as interest income over the remaining life of the ppp loans . our asset quality metrics as of december 31 , 2020 remained sound . the non-performing asset ratio was 0.50 % of total assets with the nominal level of $ 7.0 million in non-performing assets . loans past due 30 days or more represented 0.23 % of the loan portfolio . the ratio of classified loans plus oreo was 6.89 % of total bank regulatory risk-based capital . during the twelve months ended december 31 , 2020 , we experienced net loan recoveries of $ 142 thousand and net overdraft charge-offs of $ 43 thousand . 51 at december 31 , 2020 , our non-performing assets were not yet materially impacted by the economic pressures of the covid-19 pandemic . however , the increase in non-performing assets to $ 7.0 million at december 31 , 2020 from $ 3.7 million at december 31 , 2019 was related to one credit relationship , which was impacted by the covid-19 pandemic . as we closely monitor credit risk and our exposure to increased loan losses resulting from the impact of covid-19 on our customers , we evaluated and identified our exposure to certain industry segments most impacted by the covid-19 pandemic as of december 31 , 2020 : replace_table_token_5_th we are also monitoring the impact of the covid-19 pandemic on the operations and value of our investments . we mark to market our publicly traded investments and review our investment portfolio for impairment at , a minimum , quarterly . we do not consider any securities in our investment portfolio to be other-than-temporarily impaired at december 31 , 2020. however , because of changing economic and market conditions affecting issuers , we may be required to recognize future impairments on the securities we hold as well as reductions in other comprehensive income . we can not currently determine the ultimate impact of the pandemic on the long-term value of our portfolio . our capital remained strong and exceeded the well-capitalized regulatory requirements at december 31 , 2020. total shareholders ' equity increased $ 16.1 million or 13.4 % to $ 136.3 million at december 31 , 2020 from $ 120.2 million at december 31 , 2019. in 2018 , the federal reserve increased the asset size to qualify as a small bank holding company . as a result of this change , we are generally not subject to the federal reserve capital requirements unless advised otherwise . the bank remains subject to capital requirements including a minimum leverage ratio and a minimum ratio of “ qualifying capital ” to risk weighted assets . these requirements are essentially the same as those that applied to the company prior to the change in the definition of a small bank holding company . each of the regulatory capital ratios for the bank exceeds the well capitalized minimum levels currently required by regulatory statute at december 31 , 2020 and december 31 , 2019. refer to the liquidity management section for more details . replace_table_token_6_th based on our strong capital , conservative underwriting , and internal stress testing , we expect to remain well capitalized throughout the covid-19 pandemic . however , the bank 's reported regulatory capital ratios could be adversely impacted by future credit losses related to the covid-19 pandemic . we recognize that we face extraordinary circumstances , and we intend to monitor developments and potential impacts on our capital . we believe that we have ample liquidity to meet the needs of our customers and to manage through the covid-19 pandemic through our low cost deposits ; our ability to borrow against approved lines of credit ( federal funds purchased ) from correspondent banks ; and our ability to obtain advances secured by certain securities and loans from the federal home loan bank .
| the increase in non-interest income is primarily related to increases in mortgage banking income of $ 1.0 million , investment advisory fees and non-deposit commissions of $ 699 thousand , gains on sale of securities of $ 99 thousand , gains on sale of other real estate owned of $ 147 thousand , non-recurring bank owned life insurance ( boli ) income of $ 311 thousand , and atm debit card income of $ 197 thousand , partially offset by a $ 528 thousand decrease in deposit service charges . our effective tax rate was 19.82 % during twelve months of 2020 compared to 20.67 % during the twelve months of 2019. the $ 311 thousand in non-recurring boli income was recorded as non-taxable income . net income was $ 11.0 million , or $ 1.45 diluted earnings per common share , for the year ended december 31 , 2019 , as compared to net income of $ 11.2 million , or $ 1.45 diluted earnings per common share , for the year ended december 31 , 2018. net interest income increased $ 1.1 million , or 3.1 % to $ 36.8 million , in 2019 from $ 35.7 million in 2018. the increase in net interest income is primarily due to a $ 37.3 million increase in average earning assets , which was partially offset by a four basis points decline in the net interest margin in 2019 as compared to 2018. net interest margin on a fully tax equivalent basis was 3.65 % in 2019 as compared to 3.69 % in 2018. provision for loan losses declined $ 207 thousand to $ 139 thousand in 2019 from $ 346 thousand in 2018. noninterest income increased $ 1.1 million , or 10.3 % to $ 11.7 million , in 2019 from $ 10.6 million in 2018. the increase in noninterest income was primarily due to increases in mortgage banking income , investment advisory fees and non-deposit commissions , gains/ ( losses ) on sale of securities , and atm debit card income , which were partially offset by lower deposit service charges and a write-down on bank premises held-for-sale . we conducted business from a mortgage loan production office in richland county , south carolina until january 24 , 2020 and have since consolidated such business with other existing
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existing players have broadened their suite of products offering strategies that are , in some cases , similar to ours and large traditional asset managers are also launching etps , some with similar strategies as well . price competition exists in not only commoditized product categories such as traditional , market capitalization weighted index exposures and commodities , but also in non-market capitalization weighted or factor-based exposures and commodities . fee reductions by certain of our competitors has been a trend over the last few years and continues to persist and many of our competitors are well positioned to benefit from this trend . certain larger competitors are able to offer products at lower price points or otherwise as loss leaders due to other revenue sources available within such competitors that are currently unavailable to us . newer players have also been entering the etp industry and frequently seek to differentiate by offering etps at a lower price point . funds are being offered with fees of 20 basis points or less , which have attracted approximately 84 % of the net flows globally during the last three years . however , while these low-cost products have accumulated a significant amount of aum recently , we estimate that these same funds represent only approximately 30 % of global revenues . being a first mover , or one of the first providers of etps in a particular asset class , can be a significant advantage , as the first etp in a category to attract scale in aum and trading liquidity is generally viewed as the most attractive product . we believe that our early launch of products in a number of asset classes or strategies , including fundamental weighting and currency hedging along with commodities including gold , certain fixed income , alternative and thematic categories , positions us well to maintain our standing as one of the leaders of the etp industry . additionally , we believe our affiliated indexing or “ self-indexing ” model , as well as our more recent active etfs , enable us to launch proprietary products that do not have direct competition and are positioned to generate alpha versus benchmarks . as investors increasingly become more comfortable with the product structure , we believe there will be a greater focus on after-fee performance rather than using etps primarily as low-cost market access vehicles . while we have selectively lowered fee rates on certain products that have yet to attain scale , and there is no assurance that we will not lower fee rates on certain products in the future , our strategy continues to include launching new funds in the same category with a differentiated exposure at a lower fee rate , rather than reducing fees on existing products with a significant amount of aum , long performance track records , and secondary market liquidity , which continue to remain competitively priced for the value provided , among other factors . we generally believe we are well positioned from a product pricing perspective . while we are not immune to fee pressure and have selectively lowered prices on a limited number of products and launched recent products at lower fees , we believe our ability to successfully compete will depend largely on our competitive product offerings and our ability to offer exposure to compelling investment strategies with strong after-fee performance , develop distribution relationships , create new investment products , build trading volume , aum and outperforming track records in existing funds , offer a diverse platform of investment choices , promote thought leadership and a differentiated solutions program , build upon our brand and attract and retain talented sales professionals and other employees . 40 components of operating revenue advisory fees substantially all of our revenues are comprised of advisory fees we earn from our etps . these advisory fees are calculated based on a percentage of the etps ' average daily net assets . our weighted average fee rates by product category are as follows : commodity & currency : 38bps leveraged & inverse : 89bps international equity : 53bps fixed income : 19bps u.s. equity : 33bps alternatives : 55bps emerging market equity : 49bps we determine the appropriate advisory fee to charge for our etps based on the cost of operating each etp considering the types of securities the etps will hold , fees third-party service providers will charge us for operating the etps and our competitors ' fees for similar etps . from time to time , we implement voluntary waivers of a portion of our advisory fee . in addition , we earn a fee based on daily aggregate aum of our etps in exchange for bearing certain fund expenses . our advisory fee revenues may fluctuate based on general stock market trends , which include market value appreciation or depreciation , currency fluctuations against the u.s. dollar , increased competition and level of inflows or outflows from our etps . other income other income includes creation/redemption fees earned on our european non-ucits products and fees from licensing our indexes to third parties . components of operating expenses our operating expenses consist primarily of costs related to selling , operating and marketing our etps as well as the infrastructure needed to run our business . compensation and benefits employee compensation and benefits expenses are expensed when incurred and include salaries , incentive compensation , and related benefit costs . virtually all of our employees receive incentive compensation that is based on our operating results as well as their individual performance . therefore , a portion of this expense will fluctuate with our business results . to attract and retain qualified personnel , we must maintain competitive employee compensation and benefit plans . we would expect changes in employee compensation and benefits expense to be correlated with changes in our revenues and net inflows . also included in compensation and benefits are costs related to equity awards granted to our employees . story_separator_special_tag our executive management and board of directors strongly believe that equity awards are an important part of our employees ' overall compensation package and that incentivizing our employees with equity in the company aligns the interests of our employees with that of our stockholders . we use the fair value method in recording compensation expense for equity-based awards . under the fair value method , compensation expense is measured at the grant date based on the estimated fair value of the award and is recognized as an expense over the vesting period . for the year ending december 31 , 2021 , we estimate that our compensation and benefits expense will be $ 75 million to $ 85 million . fund management and administration fund management and administration expenses are expensed when incurred and are comprised of the following costs we pay third-party service providers to operate our etps : portfolio management of our etps ( sub-advisory ) ; fund accounting and administration ; custodial and storage services ; market making ; transfer agency ; accounting and tax services ; printing and mailing of stockholder materials ; index calculation ; indicative values ; 41 distribution fees ; legal and compliance services ; exchange listing fees ; trustee fees and expenses ; preparation of regulatory reports and filings ; insurance ; certain local income taxes ; and other administrative services . we are not responsible for extraordinary expenses , taxes and certain other expenses . we depend on a number of parties to provide critical portfolio management services to our etps . the fees we pay our sub-advisers generally are the higher of the fixed minimums per fund , which range from $ 25,000 to $ 614,000 per year , or the percentage fee , which ranges between 0.015 % and 0.20 % per annum of average daily aum at various breakpoint levels depending on the nature of the etp . in addition , we pay certain costs based on transactions in our etps or based on inflow levels . the fees we pay for accounting , tax , transfer agency , index calculation , indicative values and exchange listing are based on the number of etfs we have . the remaining fees are based on a combination of both aum and number of funds , or as incurred . for the year ending december 31 , 2021 , we estimate that our gross margin percentage will be 77 % to 78 % at current aum/revenue levels . we define gross margin as total operating revenues less fund management and administration expenses . gross margin percentage is calculated as gross margin divided by total operating revenues . marketing and advertising marketing and advertising expenses are recorded when incurred and include the following : advertising and product promotion campaigns that are initiated to promote our existing and new etps as well as brand awareness ; development and maintenance of our website ; and creation and preparation of marketing materials . our discretionary advertising comprises the largest portion of this expense . in addition , we may incur expenditures in certain periods to attract inflows , the benefit of which may or may not be recognized from increases to our aum in future periods . however , due to the discretionary nature of some of these costs , they can generally be reduced if there were a decline in the markets . sales and business development sales and business development expenses are recorded when incurred and include the following : travel and entertainment or conference related expenses for our sales force ; market data services for our research team ; sales related software tools ; voluntary payment of certain costs associated with the creation or redemption of etf shares , as we may elect from time to time ; and legal and other advisory fees associated with the development of new funds or business initiatives . contractual gold payments contractual gold payments expense represents an ongoing obligation requiring us to pay 9,500 ounces of gold annually from the advisory fee income we earn for managing physically backed gold etps . see note 12 to our consolidated financial statements for additional information . professional and consulting fees professional fees are expensed when incurred and consist of fees we pay to corporate advisers including accountants , tax advisers , legal counsel , investment bankers , human resources or other consultants . these expenses fluctuate based on our needs or requirements at the time . certain of these costs are at our discretion and can fluctuate year to year . 42 occupancy , communications and equipment occupancy , communications and equipment expense includes costs for our corporate headquarters in new york city as well as office related costs in our other locations . depreciation and amortization depreciation and amortization expense results primarily from amortization of leasehold improvements to our office space as well as depreciation on fixed assets we purchase , which is depreciated over five to fifteen years . third-party distribution fees third-party distribution fees , which are expensed as incurred , include payments made to enable our products to be included on certain third-party platforms in exchange for commission-free trading or other preferential access . these expenses also include payments to our third-party marketing agents in latin america and israel . for the year ending december 31 , 2021 , we estimate that third-party distribution fees will be approximately $ 6.0 million . acquisition and disposition-related costs acquisition and disposition-related costs are principally associated with costs incurred in connection with the etfs acquisition , which was completed in april 2018. also included are costs associated with the sale of our canadian etf business , which was completed in february 2020. other other expenses consist primarily of insurance premiums , general office related expenses , securities license fees for our sales force , public company related expenses , corporate related travel and entertainment and board of director fees , including stock-based compensation related to equity awards we granted to our directors .
| in october 2020 , we were named “ best international equity etf issuer ( $ 1bn+ ) ” by the etf express u.s. awards 2020 , which recognizes excellence among etf issuers and service providers across a wide range of categories . in october 2020 , we announced a collaboration with 55ip , a financial technology company , to deliver wisdomtree model portfolios utilizing 55ip 's automated tax-smart technology . in september 2020 , we won two awards at the aj bell fund & investment trust awards 2020 for wisdomtree physical gold ( phau ) and wisdomtree cloud computing ucits etf ( wcld ) . in july 2020 , we secured additional third-party relationships for our model portfolios , including carson group , riskalzye , kwanti , etf logic and orion . in june 2020 , we entered into a new distribution agreement in italy for our model portfolios with the intermonte eye , a digital service providing products to its network of private banks . in march 2020 , we were awarded “ best european commodity etf provider ” at the etf express 2020 european awards . in february 2020 , we completed sale of our canadian etf business to ci financial corp. in february 2020 , in collaboration with professor jeremy siegel , we launched two siegel-wisdomtree model portfolios – the siegel-wisdomtree global equity model and the siegel-wisdomtree longevity model . we launched 4 new international listed etps . in connection with our capital management strategy , we issued $ 175.0 million of convertible senior notes due 2023 , repaid our debt previously outstanding and returned approximately $ 51.3 million to our stockholders through stock repurchases and our ongoing quarterly cash dividend . planned reduction in office footprint throughout the covid-19 pandemic , we have been operating our business remotely without disruption . the virtual work environment has led to new operating and cost efficiencies throughout our business . we have therefore decided to adopt a “ remote first ” philosophy with plans to significantly reduce
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this summary should be read in conjunction with our consolidated financial statements and the related notes included in item 8 of this annual report on form 10-k. revenue recognition and accounts receivable allowances . we derive substantially all of our revenues from the performance of professional services . the contracts that we enter into and operate under specify whether the engagement will be billed on a time-and-materials or a fixed-price basis . these engagements generally last three to six months , although some of our engagements can be much longer in duration . each contract must be approved by one of our vice presidents . we recognize substantially all of our revenues under written service contracts when the fee is fixed or determinable , as the services are provided , and only in those situations where collection from the client is reasonably assured . in certain cases we provide services to our clients without sufficient contractual documentation , or fees are tied to performance-based criteria , which require us to defer revenue in accordance with u.s. gaap . in these cases , these amounts are fully reserved until all criteria for recognizing revenue are met . our revenues include projects secured by our non-employee experts as well as projects secured by our employees . we recognize all project revenue on a gross basis based on the consideration of the criteria set forth in accounting standards codification ( `` asc '' ) topic 605-45 , principal agent considerations . most of our revenue is derived from time-and-materials service contracts . revenues from time-and-materials service contracts are recognized as the services are provided based upon hours worked and contractually agreed-upon hourly rates , as well as indirect fees based upon hours worked . revenues from a majority of our fixed-price engagements are recognized on a proportional performance method based on the ratio of costs incurred , substantially all of which are labor-related , to the total estimated project costs . we derived approximately 15 % , 13 % , and 15 % of revenues from fixed-price engagements in fiscal 2014 , fiscal 2013 , and fiscal 2012 , respectively . in general , project costs are classified in costs of services and are based on the direct salary of the consultants on the engagement plus all direct expenses incurred to complete the engagement , including any amounts billed to us by our non-employee experts . the proportional performance method is used for fixed-price contracts because reasonably dependable estimates of the revenues and costs applicable to various stages of a contract can be made , based on historical experience and the terms set forth in the contract , and are indicative of the level of benefit provided to our clients . fixed-price contracts generally convert to time-and-materials contracts in the event the contract terminates . our management maintains contact with project managers to discuss the status of the projects and , for fixed-price engagements , management is updated on the budgeted costs and resources required to complete the project . these budgets are then used to calculate revenue recognition and to estimate the anticipated income or loss on the project . occasionally , we have been required to commit unanticipated additional resources to complete projects , which has resulted in lower than anticipated income or losses on those contracts . we may experience similar situations in the future . provisions for estimated losses on contracts are made during the period in which such losses become probable and can be reasonably estimated . to date , such losses have not been significant . 28 revenues also include reimbursements , which include reimbursement for travel and other out-of-pocket expenses , outside consultants , and other reimbursable expenses . reimbursable expenses are as follows ( in thousands ) : fiscal year ended fiscal year ended fiscal year ended january 3 , 2015 ( 53 weeks ) december 28 , 2013 ( 52 weeks ) december 29 , 2012 ( 52 weeks ) reimbursable expenses $ 36,676 $ 37,320 $ 33,530 for fiscal 2014 , fiscal 2013 , and fiscal 2012 our average days sales outstanding ( dsos ) at the end of the period were 99 days , 94 days , and 98 days , respectively . we calculate dsos by dividing the sum of our accounts receivable and unbilled services balance , net of deferred revenue , at the end of the period by average daily revenues . average daily revenues are calculated by dividing period revenues by the number of days in the period . our project managers and finance personnel monitor payments from our clients and assess any collection issues . we maintain accounts receivable allowances for estimated losses resulting from disputed amounts or the inability of our clients to make required payments . we base our estimates on our historical collection experience , current trends , and credit policy . in determining these estimates , we examine historical write-offs of our receivables and review client accounts to identify any specific customer collection issues . if the financial condition of our customers were to deteriorate or disputes were to arise regarding the services provided , resulting in an impairment of their ability or intent to make payment , additional allowances may be required . a failure to estimate accurately the accounts receivable allowances and ensure that payments are received on a timely basis could have a material adverse effect on our business , financial condition , and results of operations . as of january 3 , 2015 and december 28 , 2013 , $ 4.2 million , and $ 7.2 million were provided for accounts receivable allowances , respectively . share-based compensation expense . share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award . we use the black-scholes option-pricing model to estimate the fair value of stock options . story_separator_special_tag option valuation models require the input of assumptions , including the expected life of the share-based awards , the expected stock price volatility , the risk-free interest rate , and the expected dividend yield . the expected volatility and expected life are based on our historical experience . the risk-free interest rate is based on u.s. treasury interest rates with corresponding terms consistent with the expected life of the share-based award . expected dividend yield is not considered in the option pricing formula because we have not paid dividends in the past and we do not anticipate paying any dividends in the foreseeable future . we will update these assumptions if changes are warranted . the forfeiture rate is based upon historical experience . we adjust the estimated forfeiture rate based upon our actual experience . valuation of goodwill and other intangible assets . we account for our acquisitions under the purchase method of accounting . goodwill represents the purchase price of acquired businesses in excess of the fair market value of net assets acquired . intangible assets that are separate from goodwill and have determinable useful lives are valued separately . these intangible assets typically consist of non-competition agreements , customer relationships , customer lists , developed technology , and trademarks , which are generally amortized on a straight-line basis over their estimated remaining useful lives of four to ten years . in accordance with asc topic 350 , `` intangiblesgoodwill and other '' ( `` asc topic 350 '' ) , goodwill and intangible assets with indefinite lives are not subject to amortization , but are monitored annually on october 15th for impairment , or more frequently , as necessary , if events or circumstances exist that would more likely than not reduce the fair value of the reporting unit below its carrying amount . for our goodwill impairment analysis , we operate under one reporting unit . 29 under asc topic 350 , in performing the first step of the goodwill impairment testing and measurement process , we compare our entity-wide estimated fair value to net book value to identify potential impairment . we estimate the entity-wide fair value utilizing our market capitalization , plus an appropriate control premium . market capitalization is determined by multiplying our shares outstanding on the test date by the market price of our common stock on that date . we have utilized a control premium which considers appropriate industry , market and other pertinent factors , including indications of such premiums from data on recent acquisition transactions . if our estimated fair value is less than our net book value , the second step is performed to determine if goodwill is impaired . if we determine through the impairment evaluation process that goodwill has been impaired , we would record the impairment charge in our consolidated statement of operations . we had no impairment losses related to goodwill during fiscal 2014 or fiscal 2013 as there were no events or circumstances that would more likely than not reduce our fair value below our carrying amount , and our estimated fair value was greater than our carrying value on october 15 th of each respective year . late in the second quarter of fiscal 2012 , our stock price experienced a decline . in the third quarter of fiscal 2012 , our stock price improved but remained below the price levels experienced in fiscal 2011 and the first five months of fiscal 2012. we did not record any impairment losses related to goodwill or intangible assets during the fiscal year to date period ended september 29 , 2012 as the stock price decline was not deemed to be more than temporary , there were no other events or circumstances that would more likely than not reduce our fair value below our carrying amount , and our management felt that an increase in our stock price was a reasonable expectation . however , the depressed stock price levels persisted into the fourth quarter of 2012 and through the date of our annual impairment test performed in the fourth quarter fiscal 2012. when we performed our annual impairment test , our book value exceeded our market capitalization plus an estimated control premium . therefore , we were required to perform the second step of the goodwill impairment test . in this step , our fair value , as determined in the first step of the test , is allocated among all of our assets and liabilities , including any unrecognized intangible assets , in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if we were being acquired in a business acquisition . if the implied fair value of goodwill is less than the recorded goodwill , an impairment charge is recorded for the difference . during the process of conducting the second step of the annual goodwill impairment test in the fourth quarter of fiscal 2012 , we identified significant unrecognized intangible assets . the combination of these hypothetical unrecognized intangible assets and other hypothetical unrecognized fair value changes to the carrying values of other assets and liabilities , together with the lower fair value calculated in the first step of the annual impairment test , resulted in a non-cash goodwill impairment charge of $ 71.4 million in the fourth quarter of fiscal 2012. the re-measurement of goodwill is classified as a level 3 fair value assessment due to the significance of unobservable inputs developed using our specific information . we used a combination of the income , cost and market approach techniques to determine the fair value of our assets and liabilities . the fair value adjustment to goodwill was computed as the difference between our fair value and the fair value of underlying assets and liabilities . the unobservable inputs used to determine the fair value of the underlying assets and liabilities were based on our specific information such as estimates of revenue and cost growth rates , profit margins , discount rates , and cost estimates .
| costs of services increased by $ 17.6 million , or 9.3 % , to $ 206.8 million for fiscal 2014 from $ 189.3 million for fiscal 2013. the increase in costs of services was due primarily to an increase in compensation expense for our employee consultants , specifically in incentive compensation which increases when our profitability increases , and the inclusion of fifty-three weeks of results in fiscal 2014 as compared with fifty-two weeks of results in fiscal 2013. these increases were partially offset by the decrease of $ 0.6 million in client reimbursable expenses . as a percentage of revenues , costs of services decreased to 67.5 % for fiscal 2014 from 68.0 % for fiscal 2013 due primarily to the increase in revenues outpacing the increases in costs of services in fiscal 2014 as compared with fiscal 2013. selling , general and administrative expenses . selling , general and administrative expenses increased by $ 4.8 million , or 7.5 % , to $ 69.1 million for fiscal 2014 from $ 64.2 million for fiscal 2013. the primary contributors to this increase were increases in compensation expense , professional fees , rent and office operating expenses , and commissions to our nonemployee experts for fiscal 2014 as compared to fiscal 2013 and the inclusion of fifty-three weeks of results in fiscal 2014 as compared with fifty-two weeks of results in fiscal 2013. as a percentage of revenues , selling , general and administrative expenses decreased to 22.5 % for fiscal 2014 from 23.1 % for fiscal 2013 due primarily to the increase in revenues outpacing the increase in selling , general , and administrative expenses in fiscal 2014 as compared with fiscal 2013. commissions to non-employee experts represented 3.0 % of revenue in fiscal 2014 and 3.1 % of revenue in fiscal 2013. other expense , net . other expense , net increased by $ 115,000 to $ 295,000 for fiscal 2014 from $ 180,000 for fiscal 2013. other expense , net consists primarily of foreign currency exchange transaction gains and losses . the multi-currency credit facility we entered into on april 24 , 2013 helps us minimize such foreign exchange exposures . we continue to manage our foreign
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include the cost of compensation and related expenses , as well as expenses for third parties who conduct research and development on our behalf . the $ 16.2 million increase in our research and development expenses during the year ended december 31 , 2014 , as compared to the prior year , results primarily from a charge of $ 13.6 million as a result of the fispemifene in-license agreement with forendo in october 2014 as well as other consulting and outside services for the development of room temperature vitaros ® and rayva . we expect to continue to incur expenses in 2015 related to the further development of room temperature vitaros ® , rayva and fispemifene . the $ 0.3 million decrease in our research and development expenditures during the year ended december 31 , 2013 , as compared to the prior year , reflects a decrease in license fee expenses related to our purchase of a pediatrx license in 2012 offset by an increase in consulting services to support our regulatory filings for vitaros ® in europe . general and administrative expenses general and administrative expenses include expenses for personnel , finance , legal , business development and investor relations . the $ 2.1 million decrease in general and administrative expenses during 2014 , as compared to the prior year , is primarily due to a decrease in salary-related expenses as a result of the deconsolidation of our former french subsidiaries in april 2013. in addition , 35 we incurred higher legal expenses in 2013 related to the disposition of certain assets and businesses and certain litigation expenses . consulting and professional fees also decreased in 2014 as compared to 2013. the $ 1.8 million decrease in general and administrative expenses during 2013 , as compared to the prior year , is due to compensation charges in 2012 of $ 0.5 million in severance expenses related to the departure of our former ceo and associated non-cash charges in the amount of $ 0.7 million related to the acceleration of the former ceo 's unvested options . additionally , expenses related to our former french subsidiaries decreased $ 0.9 million in 2013 as compared to the prior period following the deconsolidation of the former french subsidiaries in april 2013. this was partially offset by higher legal expenses related to the disposition of certain assets and businesses and certain litigation expenses . gain on contract settlement the $ 0.9 million gain on contract settlement recorded during 2014 represents the fair value of 388,888 escrowed common shares that were returned to us in connection with the settlement with former managers of the french subsidiaries . these shares were restored as authorized , unissued common stock in march 2014. the $ 0.5 million gain on contract settlement recorded during 2013 represents the difference between the $ 1.2 million in common shares issued to topotarget in exchange for the extinguishment of $ 1.7 million of contingent consideration . recovery on sale of subsidiary in june 2014 , we amended our stock purchase agreement with biotox and received a one-time cash payment of approximately $ 0.6 million in exchange for relinquishing our rights to future minimum payments . prior to the amendment of the agreement , we also received payments of approximately $ 0.1 million for a total received from biotox of $ 0.7 million in 2014. we have rights to certain potential future payments upon a change of control of biotox within a specified time frame . these potential future payments will be recorded if and when realized . we recorded a gain of approximately $ 0.7 million as discontinued operations within our statement of operations in 2014. historically , we reflected the operations and subsequent cash collections associated with the sale of the business as a component of continuing operations , on the line recovery on sale of subsidiary within our consolidated statements of operations . however , we have elected not to correct these prior period amounts which are deemed immaterial . in both 2013 and 2012 , we received $ 0.3 million and $ 0.3 million in payments from the buyer of bio-quant , which were recognized as a recovery on the sale of subsidiary in the respective periods . deconsolidation of former french subsidiaries as a result of our former french subsidiaries entering into judicial liquidation procedures in april 2013 , we deconsolidated the former french subsidiaries in the second quarter of 2013. this deconsolidation resulted in a non-cash gain of $ 0.6 million in 2013. at that time , we also recorded a liability of $ 2.8 million , equal to the net deconsolidated liabilities . in june 2014 , consistent with the global settlement agreement ( “ gsa ” ) signed in february of that year , the works council withdrew its previously submitted 4.1 million claim in the versailles civil court ( the “ civil court ” ) , all parties accepted the withdrawal and the civil court judge closed the discussions between all parties . the final procedural step occurred in october 2014 , when we received a written judgment from the civil court acknowledging the dismissal of the claim and the closure of the litigation . given the existence of the aforementioned ratified gsa , the accepted withdrawal and the closure of the discussions by the civil court judge , it was concluded during the second quarter of 2014 that we were relieved of all claims previously asserted by the french works council . pursuant to the aforementioned license and settlement agreements , majorelle agreed to make certain severance payments of approximately $ 2.0 million to the former french subsidiaries ' employees on our behalf . in addition , the works council and the judicial liquidator and trustee of our former french subsidiaries as well as each of the former french subsidiaries ' employees , waived all claims they had asserted or could have asserted against us related to the liquidation and reorganization of the french subsidiaries . story_separator_special_tag as a result , during the second quarter of 2014 , we released the approximate $ 2.8 million liability previously recorded in connection with the deconsolidation of the former french subsidiaries and recognized approximately $ 0.8 million as a gain on deconsolidation as follows : release of deconsolidation liability $ 2.8 less : payments made by majorelle on our behalf ( 2.0 ) gain on deconsolidation of former french subsidiaries $ 0.8 36 impairment on goodwill and intangible assets in 2012 , france implemented changes in reimbursement policy to favor generic drugs . this change in policy resulted in our former french subsidiaries experiencing a loss and interruption in certain key contract agreements . accordingly , we determined that the goodwill associated with our former french subsidiaries was impaired and recorded a charge of $ 8.3 million to write down the entire balance of goodwill as of december 31 , 2012. this impairment is presented in impairment of goodwill and intangible assets in our consolidated statements of operations . other income and expense other income and expense were as follows ( in thousands , except percentages ) : replace_table_token_5_th interest expense , net interest expense decreased $ 0.4 million during 2014 as compared to the prior year primarily due to the repayment of $ 1.5 million in principal on the 2012 convertible notes in april 2014 , resulting in a reduction of interest expense . the terms of the 2012 convertible notes were amended during the fourth quarter of 2014 and the remainder of the balance was satisfied at that time . we will continue to recognize interest expense in connection with our credit facility with oxford and svb ( see note 6 to our consolidated financial statements for further details ) . interest expense increased $ 0.4 million during 2013 as compared to the prior year , primarily as a result of interest expense in connection with the amortization of the discount related to the 2012 convertible notes ( see note 6 to our consolidated financial statements for further details ) as well as non-cash interest expense related to contingent consideration , which has been eliminated following the settlement agreement with topotarget during the third quarter of 2013. loss on extinguishment of debt in october 2014 , we amended the terms of our 2012 convertible notes due december 31 , 2014 and repaid the remaining aggregate principal balance of $ 1.2 million with accrued interest . we incurred a loss on extinguishment of debt of approximately $ 0.l million during the fourth quarter of 2014 , which consisted of the fair value of warrants issued to the former note holders in connection with the amendment , payment to the note holders in the amount of interest payments due under the original agreement terms , the remaining debt discount , and legal fees incurred in connection with the amendment . gain on sale of investment we previously held an investment in a privately-held biotechnology company , which was valued at zero in our consolidated financial statements as of december 31 , 2012. in 2013 , we sold our investment in the entity and realized net proceeds of approximately $ 2.6 million , which was reflected as a gain on sale of investment during the fourth quarter of 2013 in our consolidated statement of operations . other income ( expense ) , net other income ( expense ) , net , increased $ 0.9 million during 2014 as compared to the prior year primarily due to the change in the market value of the derivative liability related to the 2012 convertible notes . the 2012 convertible notes were satisfied during the fourth quarter of 2014 and therefore , the related derivative liability was removed from the balance sheet during the fourth quarter of 2014 ( see note 6 to our consolidated financial statements for further details ) . other income ( expense ) , net , decreased $ 0.6 million during 2013 as compared to the prior year due to $ 0.3 million of expense associated with the change in the market value of the derivative liability related to the 2012 convertible notes ( see note 6 to our consolidated financial statements for further details ) as well as the absence of rental income in 2013 as compared to $ 0.4 million in 2012 . 37 liquidity , capital resources and financial condition we have experienced net losses and negative cash flows from operations each year since our inception . through december 31 , 2014 , we had an accumulated deficit of $ 289.9 million and recorded a net loss of approximately $ 21.8 million for the year ended december 31 , 2014 . we have been principally financed through the sale of our common stock and other equity securities , debt financing and up-front payments received from commercial partners for our products under development . funds raised in recent periods include approximately $ 15.8 million from our may 2013 follow-on public offering , approximately $ 3.7 million during 2014 from the sale of common stock from our committed equity financing facility with aspire capital ( see note 7 to our consolidated financial statements for further details ) and $ 2.2 million during 2014 from the sale of common stock via our “ at-the-market ” ( “ atm ” ) stock selling facility , which was terminated in august 2014. these and other cash-generating activities should not necessarily be considered an indication of our ability to raise additional funds in the future . in february 2015 , we entered into subscription agreements with certain purchasers pursuant to which we agreed to sell an aggregate of 6,043,955 shares of our common stock and issued warrants to purchase up to an additional 3,021,977 shares of our common stock . each share of common stock was priced at $ 1.82 per unit and included one-half of warrant to purchase a share of common stock .
| cash used in operating activities decreased by $ 2.6 million in 2012 as compared to 2011 due to a decrease in net loss from continuing operations of $ 7.5 million from 2011 to 2012 , adjusted for non-cash items including $ 8.3 million of impairment charges to goodwill and intangible assets , stock based compensation expense of $ 2.9 million as well as a $ 1.3 million deferred tax provision . the change in net operating assets resulted mainly from a decrease in prepaid expenses and other current assets offset by an increase in accounts payable . investing activities from continuing operations cash used in investing activities totaled $ 0.5 million in 2014 which included fixed asset purchases of $ 0.6 million offset by proceeds of $ 0.1 million from the recovery of loss on sale of subsidiary . cash provided by investing activities totaled $ 3.1 million in 2013 . we had proceeds of $ 3.7 million from the sale of our new jersey facility , offset by fixed asset purchases of $ 0.6 million and $ 0.3 million for the deposit of restricted cash . cash provided by investing activities totaled $ 1.4 million in 2012 primarily as a result of acquiring cash of $ 2.1 million in the acquisition of our former french subsidiaries , partially offset by purchases of $ 0.4 million in fixed assets . financing activities from continuing operations cash provided by financing activities totaled $ 7.9 million in 2014 . we received proceeds of approximately $ 5.9 million from the sale of common stock under our atm stock selling facility and our committed equity financing facility with aspire capital . we also had proceeds of $ 4.7 million from the issuance of notes payable in october 2014. offsetting these transactions was the repayment of $ 2.75 million in principal on our 2012 convertible notes ( see note 6 to our consolidated financial statements for further details on both debt-related activities ) . cash provided by financing activities totaled $ 16.6 million in 2013 . we received proceeds of
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we will adjust our business processes , as appropriate , to attempt to mitigate these risks to our business . we expect that our product pipeline investments and expanding commercial infrastructure will enable us to execute on our 2014 operating objectives . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > an unfavorable impact of $ 68.9 million on our european product sales in 2012 compared to 2011 . in light of the fiscal and debt crises experienced by several countries in the european union , several governments have announced or implemented measures to manage healthcare expenditures . although to date , we have paid rebates in countries outside the united states , payments made to foreign governments do not represent a significant portion of our government rebates and chargebacks or percentage of total product sales in foreign locations . however , we continue to experience pricing pressure , such as increases in the amount of discounts required on our products and delayed reimbursement which could negatively impact our future product sales and results of operations . we expect our total product sales to grow in 2014 , as we realize the full year impact of sales of sovaldi and continued uptake of our commercial products , primarily our single tablet regimens . we believe this growth could be tempered by pricing pressures in certain european territories , the impact of generic efavirenz , now available in canada and europe , potential volatility in foreign currency exchange rates and changes in the macroeconomic environment . government rebates and chargebacks u.s. government rebates and chargebacks deducted from gross product sales increased 19 % to $ 3.08 billion in 2013 from $ 2.59 billion in 2012 and increased 39 % from $ 1.86 billion in 2011 , representing 21 % of total gross product sales in both 2013 and 2012 and 17 % of total gross product sales in 2011 . in march 2010 , healthcare reform legislation was adopted in the united states that required further rebates or discounts on products reimbursed or paid for by various public payers , such as medicaid and other entities eligible to purchase discounted products . as a result of this legislation and the impact of the economic downturn , our total rebates and chargebacks have increased as we have experienced changes in our payer mix . specifically , we believe that certain patients previously covered by private insurance have moved to public reimbursement programs . as a result , we expect government rebates and chargebacks as a percentage of total gross product sales will continue to increase . 58 the following table summarizes the period over period changes in our product sales : replace_table_token_5_th antiviral products antiviral product sales increased by 15 % in 2013 compared to 2012 and 2012 compared to 2011 . atripla in 2013 , increases in atripla sales were driven primarily by an increase in the average net selling price . in 2012 , atripla sales were driven primarily by sales volume growth in the united states . atripla sales accounted for 39 % , 44 % and 46 % of our total antiviral product sales for 2013 , 2012 and 2011 , respectively . the efavirenz component of atripla , which has a gross margin of zero , comprised $ 1.40 billion , $ 1.34 billion and $ 1.21 billion of our atripla sales in 2013 , 2012 and 2011 , respectively . a generic version of bristol-myers squibb company 's sustiva ( efavirenz ) , a component of our atripla , was made available in canada and europe in 2013 and will be made available in the united states in 2015. as a result , we expect increased competitive pricing pressure on our future atripla sales . truvada in 2013 , decreases in truvada sales were due to a decrease in sales volume , partially offset by an increase in average net selling price . in 2012 , truvada sales were driven primarily by sales volume growth in the united states . truvada sales accounted for 34 % , 39 % and 41 % of our total antiviral product sales for 2013 , 2012 and 2011 , respectively . future sales of truvada could be impacted by patients switching to a different str regimen . complera/eviplera in 2013 , increases in complera/eviplera sales 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 . complera was approved in the united states in august 2011 , and eviplera was approved in the european union in november 2011. during 2013 , we estimate that complera became the number two most-prescribed regimen in treatment naïve hiv patients in the united states and the number one most-prescribed regimen in treatment naïve hiv patients in europe 's big 5 markets , the united kingdom , france , germany , italy and spain . stribild in 2013 and 2012 , increases in sales of stribild were driven primarily by sales volume growth in the united states . stribild was approved in the united states in august 2012 and in europe in may 2013. during 2013 , we estimate that stribild became the number one most-prescribed regimen in treatment naïve hiv patients in the united states . sovaldi in december 2013 , the fda approved sovaldi for the treatment of hcv . sovaldi sales totaled $ 139.4 million in 2013 , of which we estimate that approximately half related to initial inventory stocking by wholesalers and sub-wholesalers . 59 cardiovascular products our cardiovascular products , which include letairis and ranexa increased due primarily to sales volume growth . royalty revenues the following table summarizes the period over period changes in our royalty revenues : replace_table_token_6_th royalty revenues increased 32 % for 2013 compared to 2012 , due to higher royalty revenues from f. hoffmann-la roche ltd ( roche ) as a result of an increase in the number of patients treated for influenza with tamiflu . story_separator_special_tag royalty revenues increased 8 % for 2012 compared to 2011 , driven primarily by higher royalty revenues from glaxosmithkline , inc. , japan tobacco inc. and astellas us llc partially offset by lower tamiflu royalties from roche . tamiflu royalties from roche contributed $ 134.7 million , $ 43.7 million and $ 75.5 million to total royalty revenues in 2013 , 2012 and 2011 respectively . we recognize royalties on tamiflu sales by roche in the quarter following the quarter in which the corresponding 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_7_th our product gross margin for 2013 was consistent with our product gross margin for 2012 and 2011 . our product gross margin for the fourth quarter of 2013 was 71.8 % and included $ 58.3 million in amortization expense related to the transition of the in-process research and development ( ipr & d ) asset , from an indefinite-lived to finite-lived intangible asset upon the fda approval and commercial launch of sovaldi . in 2014 , we expect to recognize the full year impact of amortization of approximately $ 700.0 million related to sovaldi . research and development expenses the following table summarizes the period over period changes in r & d expenses : replace_table_token_8_th we do not track total r & d expenses by product candidate , therapeutic area or development phase . 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 product portfolio that we believe will best support the future growth of our business . r & d expenses summarized above consist primarily of clinical studies performed by contract research organizations ( cros ) , 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 . the following table provides a breakout of r & d expenses by major cost type : replace_table_token_9_th 60 in 2013 , r & d expenses increased $ 359.8 million or 20 % compared to 2012 , due primarily to a $ 318.9 million increase in clinical studies and a $ 27.9 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 $ 100.1 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 $ 258.0 million compared to 2011 due to progression and expansion of our phase 3 studies , particularly in liver diseases and oncology . additionally , personnel expenses increased $ 273.6 million due to higher headcount to support our product pipeline and study progression . during 2011 , we recorded $ 26.6 million of impairment charges related to certain ipr & d assets acquired from cgi pharmaceuticals , inc .. these impairment charges were a result of changes in the anticipated market share related to the spleen tyrosine kinase ( syk ) compound . in 2014 , we expect r & d expenses to increase over 2013 due primarily to continued investment in advancing our product pipeline , driven primarily by the progression of our clinical studies in oncology , liver diseases and hiv . selling , general and administrative expenses the following table summarizes the period over period changes in sg & a expenses : replace_table_token_10_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 2013 , sg & a expenses increased $ 238.4 million or 16 % compared to 2012 . the increase was due primarily to a $ 308.0 million increase in headcount-related and other expenses to support the ongoing growth of our business , legal expenses and pharmaceutical excise tax resulting from u.s. healthcare reform . this increase was partially offset by a $ 98.0 million decrease in stock-based compensation due to the acceleration of vested stock options related to our acquisition of pharmasset in january 2012. sequentially , sg & a expenses in the fourth quarter of 2013 increased $ 106.4 million or 26 % compared to the third quarter of 2013 due primarily to increased marketing activities related to the launch of sovaldi . in 2012 , sg & a expenses increased $ 219.1 million or 18 % compared to 2011 . the increase was due primarily to a $ 100.5 million increase in costs associated with the growth of our business which include personnel and headcount-related expenses , a $ 98.0 million increase in stock-based compensation expenses primarily resulting from the acquisition of pharmasset and an increase of $ 38.2 million in the pharmaceutical excise tax resulting from u.s. healthcare reform .
| royalty revenues represented 3 % of total revenues during 2013 , 2012 and 2011 . product sales total product sales were $ 10.80 billion in 2013 , an increase of 15 % over total product sales of $ 9.40 billion in 2012 , driven primarily by the continued uptake of our str products , primarily stribild and complera/eviplera . cardiovascular product sales consisting of letairis and ranexa , increased 24 % to $ 968.6 million in 2013 compared to $ 783.0 million in 2012 . total product sales were $ 9.40 billion in 2012 , an increase of 16 % over total product sales of $ 8.10 billion in 2011 , driven primarily by continued growth in sales of our antiviral products , including atripla , truvada and complera/eviplera . product sales in the united states increased 20 % for 2013 to $ 6.65 billion compared to $ 5.54 billion in 2012 , driven by sales growth of our str products , specifically stribild and complera as well as the launch of our newest product , sovaldi . 57 during the fourth quarters of 2013 and 2012 , we noted strong wholesaler and sub-wholesaler purchases in anticipation of price increases effective january 1. we estimate that during the fourth quarter of 2013 , sales exceeded demand by approximately $ 130 - $ 150 million and $ 80 - $ 100 million during the same period in 2012 . based on our observations during the first quarter of 2013 , this may result in inventory draw-downs during the first quarter of 2014. approximately 40 % of our product sales are generated outside the united states and as a result , we face exposure to adverse movements in foreign currency exchange rates , primarily in the euro . we used foreign currency exchange forward contracts to hedge a percentage of our foreign currency exposure . foreign currency exchange , net of hedges , had an unfavorable impact of $ 64.8 million on our 2013 revenues
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we believe the maturing cycle , combined with volatility in financial markets , inflation trends and rising interest rates have caused investors and lenders to assume more cautious underwriting assumptions resulting in a slowdown in sales . furthermore , many investors are still delaying transactions as they await additional clarity on how the new tax law , regulatory easing and economic initiatives will affect investments . we believe a boost to investor sentiment will likely emerge as clarity on government policies and growth initiatives comes forth . although the new tax law appears promising , many investors are still waiting for additional guidance from the irs and the u.s. treasury on how the new rules will be applied . we believe that these factors should continue to support long-term commercial real estate investor demand and , therefore , demand for our brokerage and financing services . capital markets credit and liquidity issues in the financial markets have a direct impact on the flow of capital to the commercial real estate market . real estate purchases are often financed with debt and , as a result , credit and liquidity impact transaction activity and prices . changes in interest rates , as well as steady and protracted movements of interest rates in one direction , whether increase or decrease , could adversely or positively affect the operations and income potential of commercial real estate properties . these changes also influence the demand of investors for commercial real estate investments . we believe indications from the u.s. federal reserve of future interest rate increases , a reduction of the federal reserve balance sheet , uncertainty as to the impact of new fiscal policies , stock market volatility and rising longer term interest rates remain a short-term headwind for real estate transactions . in addition , a change of the chairperson of the federal reserve could alter federal reserve policies and have a meaningful impact on interest rates and investor activity . we have continued to see disciplined underwriting from lenders as well as ample liquidity in the market . investor sentiment and investment activity we rely on investors to buy and sell properties in order to generate commissions . investors ' desires to engage in real estate transactions are dependent on many factors that are beyond our control . the economy , supply and demand for properly positioned properties , available credit and market events impact investor sentiment and , therefore , transaction velocity . in addition , our private clients are often motivated to buy , sell and or refinance properties due to personal circumstances such as death , divorce , partnership breakups and estate planning . we believe that we are in a maturing real estate cycle . during the last two years , the sales transaction market has continued to step-down from peak levels set in 2015. the combination of interest rate volatility 38 together with , regulatory easing and infrastructure initiatives have caused a portion of the active investors to assume a more wait-and-see attitude toward investment decisions . although a new tax law is effective , considerable uncertainty surrounding the rules and implementation of the new tax laws remains . as the irs and treasury department provide additional clarity , and investors digest the information and its application to their assets , we believe investors will begin to revive their activity levels . we believe that the healthy property fundamentals and lack of over-leveraging during the past several years support an active , but more tempered , market environment . seasonality our real estate brokerage commissions and financing fees have tended to be seasonal and , combined with other factors , can affect an investor 's ability to compare our financial condition and results of operations on a quarter-by-quarter basis . historically , this seasonality has generally caused our revenue , operating income , net income and cash flows from operating activities to be lower in the first half of the year and higher in the second half of the year , particularly in the fourth quarter . the concentration of earnings and cash flows in the last six months of the year , particularly in the fourth quarter , is due to an industry-wide focus of clients to complete transactions towards the end of the calendar year . this historical trend can be disrupted both positively and negatively by major economic or political events impacting investor sentiment for a particular property type or location , volatility in financial markets , current and future projections of interest rates , attractiveness of other asset classes , market liquidity and the extent of limitations or availability of capital allocations for larger property buyers , among others . private client investors may accelerate or delay transactions due to personal or business related reasons unrelated to economic events . in addition , our operating margins are typically lower during the second half of each year due to our commission structure for some of our senior investment sales and financing professionals . these senior investment sales and financing professionals are on a graduated commission schedule that resets annually in which higher commissions are paid for higher sales volumes . our historical pattern of seasonality may or may not continue to the same degree experienced in prior years . operating segments we follow the guidance for segment reporting , which requires reporting information on operating segments in interim and annual financial statements . substantially all of our operations involve the delivery of commercial real estate services to our customers including real estate investment sales , financing and consulting and advisory services . management makes operating decisions , assesses performance and allocates resources based on an ongoing review of these integrated operations , which constitute only one operating segment for financial reporting purposes . key financial measures and indicators revenues our revenues are primarily generated from our real estate investment sales business . in addition to real estate brokerage commissions , we generate revenues from financing fees and from other revenues , which are primarily comprised of consulting and advisory fees . story_separator_special_tag our business is transaction oriented and , as such , we rely on investment sales and financing professionals to continually develop leads , identify properties to sell , market those properties and close sales timely to generate a consistent flow of revenue . while our sales volume is impacted by seasonality factors , the timing of closings is also dependent on many market and personal factors unique to a particular client or transaction , particularly clients transacting in the $ 1- $ 10 million private client market segment . these factors can cause transactions to be accelerated or delayed beyond our control . further , commission rates earned are generally inversely related to the value of the property sold . as a result of our expansion into the middle and larger transaction market segments , we have seen our overall commission rates fluctuate from period-to-period as a result of changes in the relative 39 mix of the number and volume of transactions closed in the middle and larger transaction market segments as compared to the $ 1- $ 10 million private client market segment . these factors may result in period-to-period variations in our revenues that differ from historical patterns . a small percentage of our transactions include retainer fees and or breakage fees . retainer fees are credited against a success-based fee upon the closing of a transaction or a breakage fee . transactions that are terminated before completion will sometimes generate breakage fees , which are usually calculated as a set amount or a percentage of the fee we would have received had the transaction closed . real estate brokerage commissions we earn real estate brokerage commissions by acting as a broker for commercial real estate owners seeking to sell or investors seeking to buy properties . revenues from real estate brokerage commissions are typically recognized at the close of escrow . financing fees we earn financing fees by securing financing on purchase transactions or by securing refinancing of our clients ' existing mortgage debt . we recognize financing fee revenues at the time the loan closes and we have no remaining significant obligations for performance in connection with the transaction . to a lesser extent , we also earn ancillary fees associated with financing activities . other revenues other revenues include fees generated from consulting and advisory services performed by our investment sales professionals , as well as referral fees from other real estate brokers . revenues from these services are recognized as they are performed and completed . operating expenses our operating expenses consist of cost of services , selling , general and administrative expenses and depreciation and amortization . the significant components of our expenses are further described below . cost of services the majority of our cost of services expense is predominately variable commissions paid to our investment sales professionals and compensation-related costs related to our financing activities . commission expenses are directly attributable to providing services to our clients for investment sales and financing services . most of our investment sales and financing professionals are independent contractors and are paid commissions ; however , there are some who are initially paid a salary and certain of our financing professionals are employees and , as such , costs of services also include employee-related compensation , employer taxes and benefits for those employees . the commission rates we pay to our investment sales and financing professionals vary based on individual contracts negotiated and are generally higher for the more experienced professionals . some of our most senior investment sales and financing professionals also have the ability to earn additional commissions after meeting certain annual revenue thresholds . these additional commissions are recognized as cost of services in the period in which they are earned . payment of a portion of these additional commissions are generally deferred for a period of three years , at the company 's election , and paid at the beginning of the fourth calendar year . cost of services also includes referral fees paid to other real estate brokers where the company is the principal service provider . cost of services , therefore , can vary based on the commission structure of the independent contractors that closed transactions in any particular period . 40 selling , general and administrative expenses the largest expense component within selling , general and administrative expenses is personnel expenses for our management team and sales and support staff . in addition , these costs include facilities costs ( excluding depreciation and amortization ) , staff related expenses , sales , marketing , legal , telecommunication , network , data sources and other administrative expenses . also included in selling , general and administrative expenses is stock-based compensation to non-employee directors , employees and independent contractors ( i.e . investment sales and financing professionals ) under our 2013 omnibus equity incentive plan , as amended ( 2013 plan ) and the 2013 employee stock purchase plan ( 2013 espp plan ) . depreciation and amortization expense depreciation and amortization expense consists of depreciation and amortization recorded on our computer software and hardware and furniture , fixture and equipment . depreciation and amortization are provided over estimated useful lives ranging from three to seven years for owned assets or over the lesser of the asset estimated useful lives or the related lease term for leasehold improvements . other income ( expense ) , net other income ( expense ) , net primarily consists of net gains or losses on our deferred compensation plan assets , interest income and realized gains and losses on our marketable securities , available-for-sale , foreign currency gains and losses and other non-operating gains and losses . interest expense interest expense primarily consists of interest expense associated with the stock appreciation rights ( sars ) liability , notes payable to former stockholders and our credit agreement . provision for income taxes we are subject to u.s. and canadian federal taxes and individual state and local taxes based on the income generated in the jurisdictions in which we operate .
| revenues from real estate brokerage commissions decreased to $ 649.4 million in 2017 from $ 662.2 million in 2016 , a decrease of $ 12.8 million or 1.9 % . the decrease was driven by the decrease in sales volume ( 4.7 % ) . this decrease was partially offset by an increase in average commission rates ( 6 basis points ) primarily due to improved rates in the middle market transaction segment . financing fees . revenues from financing fees increased to $ 49.7 million in 2017 from $ 43.4 million in 2016 , an increase of $ 6.2 million or 14.3 % . the increase was driven by growth in sales volume ( 10.3 % ) primarily due to an increase in financing purchase transactions and an increase in average fee rates ( 3 basis points ) . 43 other revenues . other revenues increased to $ 20.7 million in 2017 from $ 11.8 million in 2016 , an increase of $ 8.9 million or 75.2 % . the increase was primarily driven by two large consulting and advisory services fees earned during 2017 with no such comparable fees during 2016. total operating expenses our total operating expenses were $ 623.6 million in 2017 compared to $ 610.9 million in 2016 , an increase of $ 12.6 million , or 2.1 % . the increase was primarily due to increases in selling , general and administrative costs , cost of services , which is predominantly variable commissions paid to our investment sales professionals and compensation-related costs related to our financing activities and , to a lesser extent , depreciation and amortization expense , as described below . cost of services . cost of services in 2017 increased $ 1.8 million , or 0.4 % , to $ 446.6 million from $ 444.8 million in 2016. the increase was primarily due to increased commission expenses driven by increased revenues noted above . cost of services as a percent of total revenues remained consistent at 62.0 % in 2017 and 2016. selling , general and administrative expense . selling ,
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the company 's results of operations are also affected by general economic conditions , changes in market interest rates , changes in asset quality , changes in asset values , actions of regulatory agencies and government policies . critical accounting policies , judgments and estimates the accounting and reporting policies of the company and lakeland conform with accounting principles generally accepted in the united states of america ( u.s . gaap ) and predominant practices within the banking industry . the preparation of financial statements 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 . these estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period . actual results could differ from these estimates . significant estimates implicit in these financial statements are as follows . for additional accounting policies and detail , refer to note 1 to the consolidated financial statements included in item 8 of this report . allowance for loan and lease losses . the allowance for loan and lease losses is established through a provision for loan and lease losses charged to expense . loan principal considered to be uncollectible by management is charged against the allowance for loan and lease losses . the allowance is an amount that management believes will be adequate to absorb losses on existing loans and leases that may become uncollectible based upon an evaluation of known and inherent risks in the loan and lease portfolio . the evaluation takes into consideration such factors as changes in the nature and size of the loan and lease portfolio , overall portfolio quality , specific problem loans and leases , and current economic conditions which may affect the borrowers ' ability to pay . the evaluation also analyzes historical losses by loan and lease category , and considers the resulting loss rates when determining the reserves on current loan and lease total amounts . loss estimates for specified problem loans and leases are also detailed . all of the factors considered in the analysis of the adequacy of the allowance for loan and lease losses may be subject to change . to the extent actual outcomes differ from management estimates , additional provisions for loan and lease losses may be required that would adversely impact earnings in future periods . the determination of the adequacy of the allowance for loan and lease losses and the periodic provisioning for estimated losses included in the consolidated financial statements is the responsibility of management and the board of directors . the evaluation process is undertaken on a quarterly basis . -27- methodology employed for assessing the adequacy of the allowance consists of the following criteria : the establishment of specific reserve amounts for all specifically identified classified loans and leases that have been designated as requiring attention by lakeland or lakeland 's external loan review consultants . the establishment of reserves for pools of homogeneous types of loans and leases not subject to specific review , including impaired commercial loans under $ 500,000 , leases , 1 4 family residential mortgages , and consumer loans . the establishment of reserve amounts for the non-classified loans and leases in each portfolio based upon the historical average loss experience for these portfolios and management 's evaluation of key environmental factors . lakeland also maintains an unallocated component in its allowance for loan and lease losses . management believes that the unallocated amount is warranted for inherent factors that can not be practically assigned to individual loss categories , such as the periodic updating of appraisals on impaired loans , as well as periodic updating of commercial loan credit risk ratings by loan officers and lakeland 's internal credit review process . consideration is given to the results of ongoing credit quality monitoring processes , the adequacy and expertise of lakeland 's lending staff , underwriting policies , loss histories , delinquency trends , and the cyclical nature of economic and business conditions . since many of lakeland 's loans depend on the sufficiency of collateral as a secondary source of repayment , any adverse trend in the real estate markets could affect underlying values available to protect lakeland from loss . a loan is reviewed for charge-off when it is placed on non-accrual status with a resulting charge-off if the loan is not secured by collateral having sufficient liquidation value to repay the loan and all accrued interest and the loan is not in the process of collection . charge-offs are recommended by the chief credit officer and approved by the board on a monthly basis . loans and leases are considered impaired when , based on current information and events , it is probable that lakeland will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement , including scheduled principal and interest payments . impairment is measured based on the present value of expected cash flows discounted at the loan 's effective interest rate , or as a practical expedient , lakeland may measure impairment based on a loan 's observable market price , or the fair value of the collateral if the loan is collateral-dependent . regardless of the measurement method , lakeland measures impairment based on the fair value of the collateral when it is determined that foreclosure is probable . most of lakeland 's impaired loans are collateral- dependent . lakeland groups impaired commercial loans under $ 500,000 into a homogeneous pool and collectively evaluates them . interest received on impaired loans and leases may be recorded as interest income . however , if management is not reasonably certain that an impaired loan and lease will be repaid in full , or if a specific time frame to resolve full collection can not yet be reasonably determined , all payments received are recorded as reductions of principal . fair value measurements and fair value of financial instruments . story_separator_special_tag fair values of financial instruments are volatile and may be influenced by a number of factors , including market interest rates , prepayment speeds , discount rates , credit ratings and yield curves . fair values for investment securities are based on quoted market prices , where available . if quoted market prices are not available , fair values are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the market place as a result of the illiquid market specific to the type of security . when the fair value of a security is below its amortized cost , and depending on the length of time the condition exists and the extent the fair value is below amortized cost , additional analysis is performed to -28- determine whether an other-than-temporary impairment condition exists . available-for-sale and held-to-maturity securities are analyzed quarterly for possible other-than-temporary impairment . the analysis considers ( i ) the length of time and the extent to which the fair value has been less than cost , ( ii ) the financial condition and near-term prospects of the issuer which may include projections of cash flows , and ( iii ) the intent and ability of the company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value . often , the information available to conduct these assessments is limited and rapidly changing , making estimates of fair value subject to judgment . if actual information or conditions are different than estimated , the extent of the impairment of the security may be different than previously estimated , which could have a material effect on the company 's results of operations and financial condition . income taxes . the company accounts for income taxes under the asset and liability method of accounting for income taxes . deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse . deferred tax expense is the result of changes in deferred tax assets and liabilities . the principal types of differences between assets and liabilities for financial statement and tax return purposes are allowance for loan and lease losses , core deposit intangible , deferred loan costs and deferred compensation . the company evaluates the realizability of its deferred tax assets by examining its earnings history and projected future earnings and by assessing whether it is more likely than not that carryforwards would not be realized . based upon the majority of the company 's deferred tax assets having no expiration date , the company 's earnings history , and the projections of future earnings , the company 's management believes that it is more likely than not that all of the company 's deferred tax assets as of december 31 , 2013 will be realized . the company evaluates tax positions that may be uncertain using a recognition threshold of more-likely-than-not , and a measurement attribute for all tax positions taken or expected to be taken on a tax return , in order for those tax positions to be recognized in the financial statements . additional information regarding the company 's uncertain tax positions is set forth in note 9 to the notes to the audited consolidated financial statements contained herein . goodwill and other identifiable intangible assets . the company reviews goodwill for impairment annually as of november 30 or when circumstances indicate a potential for impairment at the reporting unit level . u.s. gaap requires at least an annual review of the fair value of a reporting unit that has goodwill in order to determine if it is more likely than not ( that is , a likelihood of more than 50 % ) that the fair value of a reporting unit is less than its carrying amount , including goodwill . if this qualitative test determines it is unlikely ( less than 50 % probability ) the carrying value of the reporting unit is less than its fair value , then the company does not have to perform a step one impairment test . if the probability is greater than 50 % , a step one goodwill impairment test is required . the step one test compares the fair value of each reporting unit to the carrying value of its net assets , including goodwill . the company has determined that it has one reporting unit , community banking . the company performed a qualitative analysis to determine whether the weight of evidence , the significance of all identified events and circumstances indicated a greater than 50 % likelihood existed that the carrying value of the reporting unit exceeded its fair value and if a step one test would be required . the company identified nine qualitative assessments that are relative to the banking industry and to the company . these factors included macroeconomic factors , banking industry conditions , banking merger and acquisition trends , lakeland 's historical performance , the company 's stock price , the expected performance of lakeland , the change of control premium of the company versus its peers and other miscellaneous factors . after reviewing and weighting these factors , the company , as well as a third party adviser , determined as of november 30 , 2013 that there was a less than 50 % probability that the fair value of the company was less than its carrying amount . therefore , no step one test was required . use of non-gaap disclosures reported amounts are presented in accordance with u.s. gaap .
| non-performing assets declined $ 11.1 million , or 39 % , to $ 17.5 million at december 31 , 2013 compared to december 31 , 2012. the allowance for loan and lease losses at december 31 , 2013 was 176 % of non-accruing loans compared to 103 % at december 31 , 2012. as a result of improving loan quality , the provision for loan and lease losses was reduced from $ 14.9 million in 2012 to $ 9.3 million in 2013. the company 's net interest margin at 3.69 % for 2013 remained stable throughout the year and compared to 3.70 % in 2012. during 2013 , the company acquired and extinguished $ 9.0 million of lakeland bancorp capital trust i debentures and recorded a $ 1.2 million pre-tax gain on extinguishment of debt . net income net income for 2013 was $ 25.0 million compared to net income of $ 21.7 million in 2012. net income available to common shareholders in 2013 was $ 25.0 million or $ 0.75 per diluted share compared to $ 21.1 million or $ 0.76 per diluted share in 2012. net interest income net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets . the company 's net interest income is determined by : ( i ) the volume of interest-earning assets that it holds and the yields that it earns on those assets , and ( ii ) the volume of interest-bearing liabilities that it has assumed and the rates that it pays on those liabilities . net interest income for 2013 on a tax-equivalent basis was $ 105.5 million , representing an increase of $ 9.0 million , or 9 % , from the $ 96.5 million earned in 2012. the increase in net interest income primarily resulted from a 30 basis point decline in the cost of interest-bearing liabilities , partially offset by a 26 basis point decrease in the yield on interest-earning assets . the net interest spread as a result increased 4 basis points to 3.59 % . the -30- increase in net interest spread was augmented by an increase in income earned on free funds ( interest-earning assets funded by non-interest bearing liabilities ) resulting from an increase in average non-interest bearing deposits of $ 101.8 million . the components of net interest income will be discussed in greater detail
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our midstream energy operations include : natural gas gathering , treating , processing , transportation and storage ; ngl transportation , fractionation , storage , and import and export terminals ( including liquefied petroleum gas or “ lpg ” ) ; crude oil gathering , transportation , storage and terminals ; offshore production platforms ; petrochemical and refined products transportation and services ; and a marine transportation business that operates primarily on the u.s. inland and intracoastal waterway systems and in the gulf of mexico . our assets include approximately 51,000 miles of onshore and offshore pipelines ; 200 mmbbls of storage capacity for ngls , petrochemicals , refined products and crude oil ; and 14 bcf of natural gas storage capacity . in addition , our asset portfolio includes 24 natural gas processing plants , 22 ngl and propylene fractionators , six offshore hub platforms located in the gulf of mexico , a butane isomerization complex , ngl import and lpg export terminals , and octane enhancement and high-purity isobutylene production facilities . we conduct substantially all of our business through epo and are owned 100 % by our limited partners from an economic perspective . enterprise gp manages our partnership and owns a non-economic general partner interest in us . like many publicly traded partnerships , we have no employees . all of our management , administrative and operating functions are performed by employees of epco pursuant to an administrative services agreement or by other service providers . we have five reportable business segments : ( i ) ngl pipelines & services ; ( ii ) onshore natural gas pipelines & services ; ( iii ) onshore crude oil pipelines & services ; ( iv ) offshore pipelines & services ; and ( v ) petrochemical & refined products services . for information regarding our business segments , see note 13 of the notes to consolidated financial statements included under part ii , item 8 of this annual report . significant recent developments front range pipeline begins operations our front range pipeline commenced operations in february 2014. this 435-mile pipeline transports ngls originating from the denver-julesburg production basin in weld county , colorado to skellytown , texas in carson county . with connections to our mid-america pipeline system and texas express pipeline , the front range pipeline provides producers in the denver-julesburg basin with access to the gulf coast , which is the largest ngl market in the u.s. initial throughput capacity for the front range pipeline is 150 mbpd , which could be expanded to approximately 230 mbpd with certain system modifications . the front range pipeline is owned by front range pipeline llc , which is a joint venture among us and affiliates of dcp midstream partners lp ( “ dcp ” ) and anadarko petroleum corporation ( “ anadarko ” ) . we operate the front range pipeline and own a one-third member interest in front range pipeline llc . 67 appalachia-to-texas express ( “ atex express ” ) pipeline begins operations our atex express pipeline commenced operations in january 2014. the atex pipeline transports ethane in southbound service from ngl fractionation plants located in pennsylvania , west virginia and ohio to our mont belvieu storage complex . the ethane extracted by these fractionation facilities originates from the marcellus and utica shale production areas . in addition to newly constructed pipeline segments , significant portions of the atex express pipeline consist of segments that were formerly used in refined products transportation service by our te products pipeline . initial throughput capacity for the atex express pipeline is 125 mbpd , which could be expanded to approximately 265 mbpd with certain system modifications . atex express terminates at our mont belvieu storage complex , which includes approximately 110 mmbbls of ngl and petroleum liquid storage capacity and an extensive pipeline distribution system . with the addition of our aegis pipeline ( currently under construction ) , we will link marcellus and utica shale-produced ethane to existing ethylene production facilities along the u.s. gulf coast and provide supply security to support construction of new third-party ethylene plants currently planned at texas and louisiana petrochemical facilities . also , since our distribution system supports our lpg export terminal on the houston ship channel , ethane volumes delivered to mont belvieu via atex may enhance the prospects for u.s.-produced ethane being exported to international markets . expansion of houston ship channel lpg export terminal we provide customers with lpg export services at our marine terminal located on the houston ship channel . this terminal has the capability to load cargoes of fully refrigerated , low-ethane propane and or butane onto multiple tanker vessels simultaneously . in march 2013 , we completed an expansion project at this terminal that increased its loading capability from 4.0 mmbbls per month to 7.5 mmbbls per month . our lpg export services continue to benefit from increased ngl supplies produced from domestic shale plays such as the eagle ford shale and strong international demand for propane as a feedstock in ethylene plant operations and for power generation and heating purposes . in september 2013 , we announced an expansion project at this lpg export terminal that is expected to increase its ability to load cargoes from 7.5 mmbbls per month to approximately 9.0 mmbbls per month . this expansion project is expected to be completed in the first quarter of 2015. in january 2014 , we announced a further expansion of this lpg export terminal that is expected to increase its ability to load cargoes from approximately 9.0 mmbbls per month to in excess of 16.0 mmbbls per month . once this expansion project is completed , we expect our maximum loading capacity at this export terminal will be approximately 27,000 barrels per hour . this expansion project is supported by a 50-year service agreement with oiltanking partners , l.p. ( “ oiltanking ” ) , which has agreed to provide additional dock space and related services to us at the terminal site . story_separator_special_tag the expanded lpg export terminal is expected to be in service by the end of 2015 and is supported by long-term lpg export agreements . mid-america pipeline system 's rocky mountain expansion project begins operations in january 2014 , we announced the completion of an expansion project involving the rocky mountain pipeline of our mid-america pipeline system . this expansion project involved looping 265 miles of the rocky mountain pipeline , as well as related pump station modifications , which increased transportation capacity on the pipeline from approximately 275 mbpd to 350 mbpd ( after taking into account shipper commitments to the expansion project ) . this expansion project was built to accommodate growing natural gas and ngl production from major supply basins in colorado , new mexico , utah and wyoming . start-up of eighth ngl fractionator at our mont belvieu complex in november 2013 , we announced that the eighth ngl fractionator at our mont belvieu complex was placed in service . this new unit , which has the capacity to fractionate up to 85 mbpd of ngls , increases total ngl fractionation capacity at our mont belvieu complex to approximately 670 mbpd . this fractionator , along with a seventh unit placed into service in september 2013 , was built to handle increasing ngl production from 68 domestic shale plays , including the eagle ford shale in south texas and other supply basins in the rocky mountains and mid-continent regions . our seventh and eighth ngl fractionators are owned by a joint venture , formed in june 2013 , between us and western gas partners , lp ( “ western gas ” ) , which is an affiliate of anadarko . we own 75 % of the joint venture 's member interests , with western gas owning a 25 % noncontrolling interest in the joint venture . texas express pipeline and related gathering systems begin operations our texas express pipeline and two related ngl gathering systems commenced operations in november 2013. the texas express pipeline originates in skellytown , texas and extends approximately 580 miles to mont belvieu , texas . the texas express pipeline gives producers in west and central texas , the rocky mountains , southern oklahoma , the mid-continent and the denver-julesburg supply basin much needed takeaway capacity for growing ngl production volumes and improved access to mont belvieu , which is the primary industry hub for domestic ngl production . the texas express pipeline is owned by texas express pipeline llc , which is a joint venture among us and affiliates of enbridge energy partners , l.p. ( “ enbridge ” ) , anadarko and dcp . we operate the texas express pipeline and own a 35 % member interest in texas express pipeline llc . mixed ngl volumes from the rocky mountains , permian basin and mid-continent regions are transported to the texas express pipeline using our mid-america pipeline system . ngl volumes from the denver-julesburg supply basin are transported to the texas express pipeline using the front range pipeline . initial throughput capacity for the texas express pipeline is 280 mbpd , which could be expanded to approximately 400 mbpd with certain system modifications . in addition to the start of operations on the texas express pipeline , service also commenced on two mixed ngl gathering systems developed by texas express gathering llc , which is a second joint venture among enbridge , anadarko and us . we own a 45 % member interest in texas express gathering llc . enbridge serves as operator of the two gathering systems , which link natural gas processing plants in the anadarko/granite wash and central texas/barnett shale production areas to the texas express pipeline . expansion of eagle ford crude oil pipeline system in september 2013 , we , along with plains all american pipeline , l.p. ( “ plains ” ) , announced an expansion of our eagle ford crude oil pipeline system in south texas . the expansion is expected to increase the pipeline system 's capacity to transport light and medium grades of crude oil from 300 mbpd to 470 mbpd in order to accommodate expected volumes from plains ' cactus pipeline . as currently planned , the expansion of our eagle ford crude oil pipeline system would be completed in stages that include adding pumping capacity and looping certain segments of the existing system . the expansion also includes constructing an additional 2.3 mmbbls of operational storage capacity at gardendale , tilden and corpus christi , texas . we expect the expansion to be completed during the second quarter of 2015. plans to develop refined products export facilities on texas gulf coast in may 2013 , we announced the development of a refined products export facility in beaumont , texas to meet growing demand for additional refined products export capability on the u.s. gulf coast . export service at this marine terminal is expected to begin during the first quarter of 2014 and would accommodate panamax class vessels . panamax class vessels are medium-sized tanker ships designed to transit the existing lock chambers of the panama canal . this new export facility will complement our existing refined products pipelines , storage and terminal facilities in southeast texas and enable us to provide customers with improved access to international markets . in addition to the planned beaumont export facility , we are evaluating the potential for a second refined products export facility on the houston ship channel . 69 plans to expand crude oil storage and distribution infrastructure serving southeast texas historically , southeast texas refineries have been supplied primarily by waterborne imports of crude oil . with the increase in north american production , crude oil from the eagle ford , permian , mid-continent , bakken and canada are flowing into southeast texas and displacing waterborne crude oil imports . due to growing domestic production , we expect a significant increase in north american crude oil deliveries to the gulf coast market , which currently lacks sufficient storage capacity and has an inadequate distribution system for handling these varying grades of domestic crude oil .
| ( 3 ) polymer grade propylene prices represent average contract pricing for such product as reported by chemical market associates , inc. ( “ cmai ” ) . refinery grade propylene prices represent weighted-average spot prices for such product as reported by cmai . ( 4 ) crude oil prices are based on commercial index prices for wti as measured on the new york mercantile exchange ( “ nymex ” ) and for lls as reported by platts . period-to-period fluctuations in our consolidated revenues and cost of sales amounts are explained in large part by changes in energy commodity prices . energy commodity prices fluctuate for a variety of reasons , including supply and demand imbalances and geopolitical tensions . the following is a discussion of changes in key commodity prices affecting our results of operations during the year ended december 31 , 2013 : § the weighted-average indicative market price for ngls ( based on prices for such products at mont belvieu , texas , which is the primary industry hub for domestic ngl production ) was $ 1.02 per gallon for 2013 compared to $ 1.12 per gallon for 2012 – a 10 % year-to-year decrease . ethane accounts for the largest volume of ngls extracted from the natural gas stream . the price of ethane averaged $ 0.26 per gallon during 2013 compared to $ 0.40 per gallon during 2012. according to u.s. energy information administration statistics , ethane volumes account for approximately 35 % of ngls produced from natural gas processing activities . as a result of producers allocating more of their capital budgets to developing ngl-rich shale plays and their success in extracting such resources , ethane production has increased more rapidly than the ethylene industry 's current capability to consume the increase in supplies . this oversupply situation has contributed to a significant decrease in average ethane prices since the fourth quarter of 2011 . § the market price of natural gas ( as measured at the henry hub in louisiana ) averaged $ 3.65 per mmbtu for 2013 compared to $ 2.79
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the new business divisions include us markets , orion engineered systems and orion distribution services . during the second quarter of fiscal 2015 , we recorded a $ 12.1 million impairment charge related to our long-term inventory and investment in wireless controls products . as a result of recent changes in the business environment , primarily due to the increased velocity of the market acceptance of led lighting solutions , the performance improvements of led components which has led to reduced energy costs , the increasing contribution to our revenue from non-industrial markets where our wireless control products can not be utilized and a significant decline in wireless controls unit volume sales during the quarter ended september 30 , 2014 , we reviewed our carrying cost , asset carrying values and intangible assets related to our wireless controls product offering . additionally , we researched and evaluated opportunities for alternative markets into which to sell these products . as a result of these changing market conditions , the significant recent decline in wireless controls unit sales volume , our inability to find other alternative market uses for our controls products and recognition that further investment to keep the product 's software and firmware current was not a prudent investment , we recorded a non-cash impairment charge to our wireless controls inventory of $ 10.2 million and related non-cash asset impairment expense on development assets of $ 1.0 million for property and equipment , $ 0.1 million for intangible assets , and $ 0.8 million for prepaid licensing costs in other long-term assets . after these non-cash impairment charges , the carrying value of our wireless controls inventory was $ 0.5 million . during the fiscal 2015 fourth quarter , we entered into a new credit and security agreement with wells fargo bank , national association providing for a three-year revolving credit facility . the agreement provides for an initial credit limit of $ 15.0 million , net of a $ 5.0 million reserve and subject to a borrowing base requirement based on eligible receivables and inventory . borrowings under the agreement will bear interest at the daily three-month libor plus 3.0 % per annum . during the fiscal 2015 fourth quarter , we completed an underwritten public offering of 5.46 million shares of our common stock , at an offering price to the public of $ 3.50 per share . net proceeds of the offering approximated $ 17.5 million . fiscal 2014 developments in july 2013 , we completed the acquisition of the equity interests of harris manufacturing , inc. and harris led , llc , or collectively , harris . harris engineers , designs , sources and manufactures energy efficient lighting systems , including fluorescent and led lighting solutions , and day-lighting products . the harris acquisition has expanded our product lines , increased our sales force and provided growth opportunities into markets where we did not have a strong presence , specifically , new construction , retail store fronts , commercial office and government . the purchase price for the transaction was $ 10.8 million , after an adjustment of $ 0.2 million for excess net working capital over a targeted amount . we acquired certain led technologies through the acquisition of harris which complement our existing portfolio of led lighting products . in particular , harris ' led door retrofit , or ldr tm , product is designed to retrofit commercial office and retail space , a market in which we have historically recognized little revenue contribution . since the acquisition of harris , our engineering and design teams have worked to expand the ldr tm product line to include architectural , industrial and contractor product categories . during fiscal 2014 , we sold our leased corporate jet which resulted in a $ 1.4 million loss , including employee severance expenses , which resulted in approximately $ 1.5 million in annualized cost savings . additionally , during fiscal 2014 , we recorded a $ 2.3 million benefit against our valuation allowance to offset deferred tax liabilities acquired from harris . during fiscal 2014 , we actively expanded our in-market sales force . our in-market sales force is responsible for the development of indirect resellers within their territory , along with a continued focus on selling directly to end customers within their territory . overview we are a leading designer and manufacturer of high-performance , energy-efficient lighting platforms . we research , develop , design , manufacture , market , sell and implement energy management systems consisting primarily of high-performance , energy efficient commercial and industrial interior and exterior lighting systems and related services . our products are targeted for applications in three primary market segments : commercial office and retail , area lighting and industrial high bay , although we do sell and install products into other markets . virtually all of our sales occur within north america . we operate in three operating segments , which we refer to as u.s. markets , engineered systems and distribution services . our us markets division focuses on selling our lighting solutions into the wholesale markets with customers including domestic energy service companies , or escos , and electrical contractors . our orion engineered systems division focuses on selling lighting products and construction and engineering services direct to end users . orion engineered systems completes the construction management services related to existing contracted solar photovoltaic , or pv , projects . its customers include national accounts , government , municipal and schools . our orion distribution services division focuses on selling our lighting products internationally and is developing a network of broad line distributors . historically , sales of all of our lighting products and the related costs were combined through our energy management division and sales of all of our solar pv products and the related costs were combined through our engineered systems division . 26 our lighting products consist primarily of light emitting diode , or led , and our legacy high intensity fluorescent , or hif , lighting fixtures . story_separator_special_tag our principal customers include national accounts , energy service companies , electrical contractors and electrical distributors . currently , substantially all of our products are manufactured at our production facility location in wisconsin , although we are increasingly sourcing products and components from third parties as the led market continues to evolve in order to have versatility in our product development . we previously marketed and implemented renewable energy systems consisting primarily of solar generating photovoltaic , or pv , systems and wind turbines . during fiscal 2013 and fiscal 2014 , we experienced a significant reduction in new solar pv orders and did not sign any significant new solar contracts . we attribute this to the december 2011 expiration of federal cash grants available for solar projects , declining solar prices for panels , an unstable supply environment , including bankruptcy filings from several solar panel suppliers , and a decline in the value of state and utility incentives . during fiscal 2014 , we deemphasized our efforts to obtain new pv construction contracts and focused on the completion of previously received orders within our solar backlog , which has decreased from $ 36.1 million at the beginning of our fiscal 2013 to $ 0.2 million as of march 31 , 2015. we expect this trend to continue into the future , since we are not pursuing new pv orders . in response to this solar order decline and our decision not to pursue new pv orders , we redeployed personnel to focus on our opportunities within the led retrofit market . while we continue to provide solutions using our legacy hif technology , we believe the market for lighting products is currently in a significant technology shift to led lighting systems . compared to legacy lighting systems , we believe that led lighting technology allows for better optical performance , significantly reduced maintenance costs due to performance longevity and reduced energy consumption . due to their size and flexibility in application we also believe that led lighting systems can address opportunities for retrofit applications that can not be satisfied by fluorescent or other legacy technologies . we expect our led lighting technologies to become the primary component of our future revenue as we strive to be the leader in the industry transition to led lighting technology . based on a may 2013 united states department of energy report , we estimate the potential north american led retrofit market within our key product categories to be approximately 1.1 billion lighting fixtures . in fiscal 2014 , our led lighting sales totaled $ 4.8 million , or 7.2 % of our total lighting revenue , compared to $ 1.9 million , or 2.8 % of our total lighting revenue for fiscal 2013. for fiscal 2015 , our led lighting revenue totaled $ 30.8 million , or 43.5 % of our total lighting revenue , compared to $ 4.8 million , or 7.2 % of our total lighting revenue , for fiscal 2014. we plan to primarily focus our future efforts on developing and selling innovative led products while continuing to market and sell legacy hif solutions in circumstances in which led solutions may not be our customers ' best alternative . we typically generate virtually all of our revenue from sales of led and hif lighting systems and related services to commercial and industrial customers . we typically sell our led and hif lighting systems in replacement of our customers ' existing hid and hif fixtures . we call this replacement process a “ retrofit. ” we frequently engage our customer 's existing electrical contractor to provide installation and project management services . we also sell our led and hif lighting systems on a wholesale basis , principally to electrical contractors and energy service companies to sell to their own customer bases . we have sold and installed approximately 4.3 million of our led and hif lighting systems in more than 11,958 facilities from december 1 , 2001 through march 31 , 2015 . our top direct customers by revenue in fiscal 2015 included ford motor co. , dollar general corporation , sears holding corp , , coca-cola enterprises inc. , us foodservice , and usf holland inc. in response to potential constraints on our customers ' capital spending budgets , we promote the advantages to our customers of purchasing our energy management systems through our orion throughput agreement , or ota , financing program . our ota financing program provides for our customer 's purchase of our energy management systems without an up-front capital outlay . we have an arrangement with a national equipment finance company to provide immediate non-recourse and recourse funding of pre-credit approved ota finance contracts upon project completion and customer acceptance . virtually all of these sales occur on a non-recourse basis . during fiscal 2014 and fiscal 2015 , approximately 94.3 % and 91.4 % respectively , of our total completed ota contracts were financed directly through third party equipment finance companies . in the future , we intend to continue to utilize third party finance companies to fund virtually all of our ota contracts . the number of customers who choose to purchase our systems by using our ota financing program is dependent upon our relationships with third party equipment finance companies , the extent to which customers ' choose to use their own capital budgets and the extent to which customers ' choose to enter into finance contracts . despite recent economic challenges , we remain optimistic about our near-term and long-term financial performance . our near-term optimism is based upon our investments into our us markets sales force and the expansion of our reseller network , our intentions to continue to expand our sales force during fiscal 2016 , our cost containment initiatives and opportunities and the increasing volume of unit sales of our new products , specifically our led lighting fixtures .
| the decrease in service revenue for fiscal 2015 was a result of fewer solar projects which reduced service revenue by $ 8.9 million versus the prior year period and also due to the reduction in lighting revenue during the fiscal 2015 first half . cost of revenue and gross margin . cost of product revenue increased from $ 54.4 million for fiscal 2014 to $ 68.4 million for fiscal 2015 , an increase of $ 14.0 million , or 25.7 % . cost of service revenue decreased from $ 11.2 million for fiscal 2014 to $ 5.0 million for fiscal 2015 , a decrease of $ 6.2 million , or 55.8 % . total gross margin decreased from 25.9 % for fiscal 2014 to 32 ( 1.6 ) % for fiscal 2015. during the fiscal 2015 second quarter , we recorded a non-cash impairment charge of $ 12.1 million related to an assessment of the carrying cost of our long-term wireless control inventory and related development and intangible costs . the wireless controls inventory was deemed to be impaired based upon current market conditions , including a significant decline during the fiscal year in wireless controls unit volume sales , an increase in product sales in the commercial office and retail markets where the controls product offering is not saleable , limitations in alternative uses for the inventory and the increasing adoption of , and performance improvements in , led lighting products . total gross margin excluding the impairment charge decreased from 25.9 % for fiscal 2014 to 15.2 % for fiscal 2015. gross margin from our hif and led integrated systems revenue for fiscal 2014 was 26.0 % compared to 15.0 % , excluding the aforementioned wireless control impairment , for fiscal 2015. the decrease in our lighting gross margin percentage was impacted by ( i ) a product warranty charge of $ 0.6 million ; ( ii ) the increase in the relative sales volume of our lower margin led products ; ( iii ) higher than anticipated input material costs ; and ( iv ) the decrease in sales volumes of manufactured lighting products and the related under absorption of the fixed
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in february 2005 , we completed our initial public offering that raised net proceeds of $ 38.1 million , and in october 2005 , we completed an offering of common stock that raised net proceeds of $ 62.4 million . in august 2008 , we completed an offering of common stock and warrants that raised net proceeds of $ 16.8 million . in october 2009 , we completed an offering of common stock and warrants that raised net proceeds of $ 33.1 million . in march 2011 , we completed an offering of common stock and warrants that raised net proceeds of approximately $ 27.8 million , which includes underwriter discounts and offering costs . during the year ended december 31 , 2011 we raised net proceeds of $ 2.3 million through the sale of common stock pursuant to our at the market stock issuance facility . as of december 31 , 2011 we had cash , cash equivalents and marketable securities of $ 20.3 million . our net loss for the year ended december 31 , 2011 was $ 25.7 million and our cumulative net loss since our inception through december 31 , 2011 was $ 252.1 million . we expect to continue to devote substantial resources to research and development in future periods as we complete our current clinical trials , start additional clinical trials and continue our discovery efforts . research and development expenses are expected to increase in 2011 compared to 2010 due to the continued execution of existing clinical trials and beginning of new clinical trials . we believe that our cash , cash equivalents and marketable securities will be sufficient to fund our projected operating requirements for at least the next twelve months based upon current operating plans , milestone payment forecasts and spending assumptions . we expect that we will need to raise additional capital to in-license or otherwise acquire and develop additional products or programs . we intend to seek funds through additional arrangements with collaborators or others that may require us to relinquish rights to certain product candidates that we might otherwise seek to develop or commercialize independently . research and development expenses may fluctuate significantly from period to period as a result of the progress and results of our clinical trials . revenue we have not generated any revenue from the commercial sales of our product candidates since our inception and do not expect to generate any revenue from the commercial sales of our product candidates in the near term . in 2011 , we recognized $ 0.1 million in revenue in connection with our 2009 agreement with eleison pharmaceuticals ( eleison ) for the development of glufosfamide , which represents our 50 % share of an upfront payment from a sublicense by eleison . 47 from 2004 to 2008 , we recognized $ 5.0 million in revenue related to the upfront payment received in connection with a 2004 agreement with medibic for the development of glufosfamide in japan and several other asian countries . the payment was contingent upon the finalization of the clinical development plan , which occurred in july 2005. revenue has been recognized on a straight-line basis over the estimated development period , through december 31 , 2008. in 2009 , the company had no further responsibilities for development activities under this agreement and in may 2009 , the company dissolved the joint development committee ( jdc ) comprising medibic and us . no payments were made by either party as a result of the dissolution of the jdc . research and development expenses research and development expenses consist primarily of costs of conducting clinical trials , salaries and related costs for personnel including non-cash stock-based compensation , costs of clinical materials , costs for research projects and preclinical studies , costs related to regulatory filings , and facility costs . contracting and consulting expenses are a significant component of our research and development expenses as we rely on consultants and contractors in many of these areas . we recognize expenses as they are incurred . our accruals for expenses associated with preclinical and clinical studies and contracts associated with clinical materials are based upon the terms of the service contracts , the amount of services provided and the status of the activities . we expect annual research and development expenses will increase in the future as we progress with larger clinical trials . from inception through december 31 , 2011 , we incurred an aggregate of $ 203.0 million on research and development expenses , including non-cash stock-based compensation expense . general and administrative expenses general and administrative expenses consist primarily of salaries and related costs for our personnel in the executive , finance , patent , accounting and other administrative functions , including non-cash stock-based compensation , as well as consulting costs for functions for which we either do not staff or only partially staff , including public relations , market research and recruiting . other costs include professional fees for legal and accounting services , insurance and facility costs . from inception through december 31 , 2011 , we incurred an aggregate of $ 69.2 million on general and administrative expenses , including non-cash stock-based compensation expense . stock-based compensation we recognize stock-based compensation in accordance with the fair value provisions of accounting standard codification ( asc ) 718 , compensationstock compensation , using the modified prospective transition method , except for options granted prior to our initial public offering in february 2005 , for which the fair value was determined for disclosure purposes using the minimum value method . refer to the discussion of accounting treatment of stock based compensation below under critical accounting policies . results of operations for the years ended december 31 , 2011 and 2010 revenue for the year ended december 31 , 2011 , we recognized $ 0.1 million in revenue related to our 2009 agreement with eleison for the development of glufosfamide , which represents our 50 % share of an upfront payment from a sublicense by eleison . story_separator_special_tag for the year ended december 31 , 2010 , no revenue was recognized . we expect revenue to increase in 2012 compared to 2011 due to , in february 2012 , our entering into a global license and co-development agreement with merck kgaa , of darmstadt , germany , to co-develop and commercialize th-302 , our small molecule hypoxia-targeted drug . 48 research and development research and development expenses were $ 24.4 million for the year ended december 31 , 2011 , compared to $ 18.9 million for the year ended december 31 , 2010. the $ 5.5 million increase in expenses is due to a $ 4.8 million increase in clinical and development expenses , $ 0.4 million in higher staffing expenses and $ 0.4 million in higher consulting expenses . these increases were partially offset by a $ 0.2 million decrease in facilities expenses . in addition , stock-based compensation expense increased by $ 0.1 million . replace_table_token_5_th * we discontinued development activities for 2dg in 2009. research and development expenses associated with our internally discovered compound th-302 were $ 20.7 million for 2011 , $ 16.2 million for 2010 and $ 11.1 million for 2009. the increase of $ 4.5 in 2011was due primarily to an increase in $ 4.7 million in clinical and manufacturing costs , $ 0.3 million increase in consulting costs , partially offset by a decrease in employee related expenses of $ 0.5 million . the increase of $ 5.1 million in 2010 was primarily due to $ 3.8 million in clinical and manufacturing expenses , $ 1.0 million in employee related expenses and $ 0.3 million in consulting expenses . th-302 continues to progress through the 406 trial , the 404 trial and the 403 trial . the 403 and 404 trials were expanded and enrollment of patients was completed in the second quarter of 2011. in october 2011 , we reported updated top-line results for the 403 trial and we reported top-line results for the 404 trial in february 2012. enrollment in the 407 trial was completed in fourth quarter of 2011 , and top-line results were presented in the fourth quarter of 2011. discovery research and development expenses were $ 3.7 million in 2011 , $ 2.8 million for 2010 and $ 4.3 million for 2009. we continue to focus our efforts towards discovering and developing new drug candidates from our hypoxia activated prodrug platform . due to our exclusive licensing development and commercialization of glufosfamide to eleison pharmaceutical , inc. in october 2009 , we did not incur significant research and development expenses associated with glufosfamide since then . we incurred no significant expenses related to 2dg since 2009 as we are not currently planning or conducting further additional clinical trials of 2dg . we expect to continue to devote substantial resources to research and development in future periods as we complete our current clinical trials , start additional clinical trials and continue our discovery efforts . research and development expenses are expected to increase in 2012 compared to 2011 due to the continued execution of existing clinical trials and start of new clinical trials . story_separator_special_tag per share and , for a purchase price equal to $ 0.05 per share , warrants exercisable for a total of 5,725,227 shares of our common stock for aggregate gross proceeds equal to $ 30.1 million in connection with the offering . the warrants have an exercise price equal to $ 2.46 per share . net proceeds generated from the offering were approximately $ 27.8 million , which includes underwriter discounts and offering costs . we had cash , cash equivalents and marketable securities of $ 20.3 million and $ 14.7 million at december 31 , 2011 and 2010 , respectively , available to fund operations . net cash used in operating activities for the year ended december 31 , 2011 , 2010 and 2009 was $ 23.9 million , $ 22.4 million and 17.8 million respectively . the increase of $ 1.5 million in cash used in operations in 2011 compared to 2010 was primarily attributable to an increase in research and development spending associated with th-302 . the increase of $ 4.6 million in cash used in operations in 2010 compared to 2009 was primarily attributable to an increase in research and development spending associated with th-302 . net cash used in investing activities during the year ended december 31 , 2011 was $ 9.2 million , primarily due to purchases of marketable securities of $ 28.2 million , offset by maturities of investments of $ 19.5 million . net cash provided by investing activities for the year ended december 31 , 2010 was $ 22.1 million , primarily due to proceeds from sales and maturities of marketable securities of $ 37.4 million , offset by purchases of investments of $ 15.2 million . net cash used in investing activities for the year ended december 31 , 2009 was $ 21.5 million , primarily due to purchases of marketable securities of $ 35.0 million , offset by proceeds from sales and maturities of investments of $ 13.5 million . 51 net cash provided by financing activities for year ended december 31 , 2011 was $ 30.2 million and primarily due to the approximately $ 27.8 million of net proceeds from our march 2011 registered direct offering and $ 2.3 million net proceeds from equity issuances pursuant to our at the market stock issuance facility . net cash provided by financing activities was $ 6,000 for the year ended december 31 , 2010 , due to proceeds from the sale of stock under our equity incentive plans , partially offset by deferred offering costs . net cash provided by financing activities was $ 32.7 million for the year ended december 31 , 2009 , reflecting the $ 33.1 million net proceeds from the sale of our common stock in october 2009 , offset by repayments of notes payable totaling $ 0.3 for the year .
| research and development research and development expenses were $ 18.9 million for the year ended december 31 , 2010 , compared to $ 15.8 million for the year ended december 31 , 2009. the $ 3.1 million increase in expenses is due to a $ 3.6 million increase in clinical and development expenses , $ 0.6 million in higher staffing expenses and $ 0.1 million in higher consulting expenses . these increases were partially offset by a $ 0.5 million cash grant and a $ 0.2 million decrease in facilities expenses . in addition , stock-based compensation expense decreased by $ 0.6 million primarily due to lower valuations for 2010 stock option grants resulting from a lower stock price . research and development expenses associated with our internally discovered compound th-302 were $ 16.2 million for 2010 and $ 11.1 million for 2009. the increase of $ 5.1 million was primarily due to $ 3.8 million in clinical and manufacturing expenses , $ 1.0 million in employee related expenses and $ 0.3 million in consulting expenses . th-302 continues to progress through the 401 trial , the 402 trial and the 403 trial . enrollment in the 401 and the 402 trials was completed in the second quarter of 2010. the 403 trial was expanded and is expected to continue to enroll patients . in addition , in june 2010 the company initiated a phase 2b randomized controlled combination therapy clinical trial in patients with first-line pancreatic cancer and a phase 1 monotherapy clinical trial in patients with advanced leukemias . discovery research and development expenses were $ 2.8 million for 2010 compared to $ 4.3 million for 2009. we continue to focus our efforts towards discovering and developing new drug candidates from our hypoxia activated prodrug platform . due to our exclusive licensing development and commercialization of glufosfamide to eleison pharmaceutical , inc. in october 2009 , we did not incur significant research and development expenses associated with glufosfamide for 2010. we incurred no significant expenses related to 2dg for the 2010 as we are not currently planning or conducting further additional clinical trials of 2dg . general and administrative general and administrative expenses were $ 5.0 million for
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pdi was merged into first insurance . see note 3 – acquisitions in the notes to the financial statements . first defiance risk management is a wholly-owned insurance company subsidiary of the company to insure the company and its subsidiaries against certain risks unique to the operations of the company and for which insurance may not be currently available or economically feasible in today 's insurance marketplace . first defiance risk management pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves . first defiance risk management was incorporated on december 20 , 2012 . - 33 - recent developments impact of legislation - over the last four-and-a-half years , congress and the u.s. department of the treasury have enacted legislation and taken actions to address the disruptions in the financial system , declines in the housing market , and the overall regulation of financial institutions and the financial system . in this regard , the 2010 dodd-frank wall street reform and consumer protection act ( “ dodd-frank act ” ) , includes provisions affecting large and small financial institutions alike , including several provisions that profoundly affect the regulation of community banks , thrifts , and bank and thrift holding companies , such as first defiance . also , the dodd-frank act abolished the office of thrift supervision effective july 21 , 2011 and transferred its functions to the office of the comptroller of the currency ( “ occ ” ) , fdic , and federal reserve . the dodd-frank act relaxed rules regarding interstate branching , allows financial institutions to pay interest on business checking accounts , changed the scope of federal deposit insurance coverage , imposed new capital requirements on bank and thrift holding companies , and imposed limits on debit card interchange fees charged by issuer banks ( commonly known as the durbin amendment ) . the dodd-frank act also established the consumer financial protection bureau ( “ cfpb ” ) as an independent bureau within the federal reserve , which has broad authority to regulate consumer financial products and services and entities offering such products and services , including banks . many of the consumer financial protection functions formerly assigned to the federal banking and other designated agencies are now performed by the cfpb . the cfpb has broad rulemaking authority over providers of credit , savings , and payment services and products . in this regard , the cfpb has the authority to implement regulations under federal consumer protection laws and enforce those laws against , and examine , financial institutions . state officials also will be authorized to enforce consumer protection rules issued by the cfpb . this bureau also is authorized to collect fines and provide consumer restitution in the event of violations , engage in consumer financial education , track consumer complaints , request data , and promote the availability of financial services to underserved consumers and communities . the cfpb also is directed to prevent “ unfair , deceptive or abusive practices ” and ensure that all consumers have access to markets for consumer financial products and services , and that such markets are fair , transparent , and competitive . although the cfpb has begun to implement its regulatory , supervisory , examination , and enforcement authority , there continues to be significant uncertainty as to how the agency 's strategies and priorities will impact first defiance . the cfpb has indicated that mortgage lending is an area of supervisory focus and that it will concentrate its examination and rulemaking efforts on the variety of mortgage-related topics required under the dodd-frank act , including steering consumers to less-favorable products , discrimination , abusive or unfair lending practices , predatory lending , origination disclosures , minimum mortgage underwriting standards , mortgage loan originator compensation , and servicing practices . the cfpb recently published several final regulations impacting the mortgage industry , including rules related to ability-to-pay , mortgage servicing , and mortgage loan originator compensation . the ability-to-repay rule makes lenders liable if they fail to assess ability to repay under a prescribed test , but also creates a safe harbor for so called “ qualified mortgages. ” the “ qualified mortgages ” standards include a tiered cap structure that places limits on the total amount of certain fees that can be charged on a loan , a 43 % cap on debt-to-income ( i.e. , total monthly payments on debt to monthly gross income ) , exclusion of interest-only products , and other requirements . the 43 % debt-to-income cap does not apply for the first seven years the rule is in effect for loans that are eligible for sale to fannie mae or freddie mac or eligible for government guarantee through the fha or the veterans administration . failure to comply with the ability-to-repay rule may result in possible cfpb enforcement action and special statutory damages plus actual , class action , and attorney fees damages , all of which a borrower may claim in defense of a foreclosure action at any time . first defiance 's management team is currently assessing the impact of these requirements on our mortgage lending business . in addition , the federal reserve and other federal bank regulatory agencies have issued a proposed rule under the dodd-frank act that would exempt “ qualified residential mortgages ” from the securitization risk retention requirements of the dodd-frank act . the final definition of what constitutes a “ qualified residential mortgage ” may impact the pricing and depth of the secondary market into which the company may sell mortgages it originates . at this time , first defiance can not predict the content of the final cfpb and other federal agency regulations or the impact they might have on first defiance 's financial results . the cfpb 's authority over mortgage lending , and its authority to change regulations adopted in the past by other regulators , or to rescind or ignore past regulatory guidance , could increase first defiance 's compliance costs and litigation exposure . story_separator_special_tag - 34 - first defiance 's management team continues to actively monitor the implementation of the dodd-frank act and the regulations promulgated thereunder and assess its probable impact on the business , financial condition , and results of operations of first defiance . however , the ultimate effect of the dodd-frank act on the financial services industry in general , and first defiance in particular , continues to be uncertain . new proposed capital rules - on june 7 , 2012 , the federal reserve approved proposed rules that would substantially amend the regulatory risk-based capital rules applicable to first defiance and first federal . the fdic and the occ subsequently approved these proposed rules on june 12 , 2012. the proposed rules implement the “ basel iii ” regulatory capital reforms and changes required by the dodd-frank act . “ basel iii ” refers to two consultative documents released by the basel committee on banking supervision in december 2009 , the rules text released in december 2010 , and loss absorbency rules issued in january 2011 , which include significant changes to bank capital , leverage and liquidity requirements . the proposed rules received extensive comments during a comment period that ran through october 2012. further guidance from the bank regulatory agencies is expected in early 2013. the proposed rules include new risk-based capital and leverage ratios , which would be phased in from 2013 to 2019 , and would refine the definition of what constitutes “ capital ” for purposes of calculating those ratios . the proposed new minimum capital level requirements applicable to first defiance and first federal under the proposals would be : ( i ) a new common equity tier 1 capital ratio of 4.5 % ; ( ii ) a tier 1 capital ratio of 6 % ( increased from 4 % ) ; ( iii ) a total capital ratio of 8 % ( unchanged from current rules ) ; and ( iv ) a tier 1 leverage ratio of 4 % for all institutions . the proposed rules would also establish a “ capital conservation buffer ” of 2.5 % above the new regulatory minimum capital requirements , which must consist entirely of common equity tier 1 capital and would result in the following minimum ratios : ( i ) a common equity tier 1 capital ratio of 7.0 % , ( ii ) a tier 1 capital ratio of 8.5 % , and ( iii ) a total capital ratio of 10.5 % . the new capital conservation buffer requirement would be phased in beginning in january 2016 at 0.625 % of risk-weighted assets and would increase by that amount each year until fully implemented in january 2019. the federal bank regulatory agencies also proposed revisions to the prompt corrective action framework , which is designed to place restrictions on insured depository institutions , including first federal , if their capital levels begin to show signs of weakness . these revisions would take effect january 1 , 2015. under the prompt corrective action requirements , which are designed to complement the capital conservation buffer , insured depository institutions would be required to meet the following increased capital level requirements in order to qualify as “ well capitalized : ” ( i ) a new common equity tier 1 capital ratio of 6.5 % ; ( ii ) a tier 1 capital ratio of 8 % ( increased from 6 % ) ; ( iii ) a total capital ratio of 10 % ( unchanged from current rules ) ; and ( iv ) a tier 1 leverage ratio of 5 % ( increased from 4 % ) . the proposed rules set forth certain changes for the calculation of risk-weighted assets , which we would be required to utilize beginning january 1 , 2015. the standardized approach proposed rule utilizes an increased number of credit risk exposure categories and risk weights , and also addresses : ( i ) a proposed alternative standard of creditworthiness consistent with section 939a of the dodd-frank act ; ( ii ) revisions to recognition of credit risk mitigation ; ( iii ) rules for risk weighting of equity exposures and past due loans ; ( iv ) revised capital treatment for derivatives and repo-style transactions ; and ( v ) disclosure requirements for top-tier banking organizations with $ 50 billion or more in total assets that are not subject to the “ advance approach rules ” that apply to banks with greater than $ 250 billion in consolidated assets . based on our current capital composition and levels , management believes it would be in compliance with the requirements as set forth in the proposed rules if they were presently in effect . - 35 - business strategy first defiance 's primary objective is to be a high performing community banking organization , well regarded in its market areas . first defiance accomplishes this through emphasis on local decision making and empowering its employees with tools and knowledge to serve its customers ' needs . first defiance believes in a “ customer first ” philosophy that is strengthened by its trusted advisor initiative . first defiance also has a tagline of “ bank with the people you know and trust ” as an indication of its commitment to local , responsive , personalized service . first defiance believes this strategy results in greater customer loyalty and profitability through core relationships . first defiance is focused on diversification of revenue sources and increased market penetration in areas where the growth potential exists for a balance between acquisition and organic growth . the primary elements of first defiance 's business strategy are commercial banking , consumer banking , including the origination and sale of single family residential loans , enhancement of fee income , wealth management and insurance sales , each united by a strong customer service culture throughout the organization . commercial and commercial real estate lending - commercial and commercial real estate lending have been an ongoing focus and a major component of first federal 's success .
| net interest income was $ 69.0 million for the year ended december 31 , 2012 compared to $ 69.9 million and $ 70.2 million for the years ended december 31 , 2011 and 2010 , respectively . the tax-equivalent net interest margin was 3.81 % , 3.88 % and 3.89 % for the years ended december 31 , 2012 , 2011 and 2010 , respectively . the margin was down slightly between 2011 and 2012. interest-earning asset yields decreased 36 basis points ( to 4.44 % in 2012 from 4.80 % in 2011 ) and the cost of interest bearing liabilities between the two periods decreased 33 basis points ( to 0.79 % in 2012 from 1.12 % in 2011 ) . total interest income decreased by $ 6.1 million or 7.0 % to $ 80.9 million for the year ended december 31 , 2012 from $ 87.1 million for the year ended december 31 , 2011. the decrease in interest income was due to a decline in asset yields , mainly as a result of a drop in yields on loans receivable which declined 57 basis points to 4.92 % at december 31 , 2012. interest income from loans decreased to $ 72.6 million for 2012 compared to $ 78.6 million in 2011 which represents a decline of 7.7 % . during the same period the average balance of investment securities increased to $ 247.4 million for 2012 from $ 205.6 million for the year ended december 31 , 2011. interest income from the investment portfolio remained flat at $ 7.1 million from 2011 to 2012. the tax-equivalent yield on the investment portfolio was 3.63 % in 2012 compared to 4.19 % in 2011. the overall duration of investments decreased to 3.5 years at december 31 , 2012 from 3.7 years at december 31 , 2011. interest expense decreased by $ 5.3 million in 2012 compared to 2011 , to $ 11.9 million from $ 17.2 million . this decrease was due to a 33 basis point decline in the average cost of interest-bearing liabilities in 2012. interest expense related to interest-bearing deposits was $ 8.2 million in 2012 and $ 12.2 million
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our net operating revenues for the year ended december 31 , 2014 , increased approximately $ 5.8 billion to approximately $ 18.6 billion compared to approximately $ 12.8 billion for the year ended december 31 , 2013. we had income from continuing operations before noncontrolling interests of $ 260 million during the year ended december 31 , 2014 , compared to income from continuing operations before noncontrolling interests of $ 242 million for the year ended december 31 , 2013. income from continuing operations before noncontrolling interests for the year ended december 31 , 2014 included an after-tax charge of $ 45 million for loss from early extinguishment of debt , $ 43 million after-tax expense for acquisition and integration expenses from the hma merger , an after-tax charge of $ 47 million for the acceleration of amortization on software to be abandoned , an after-tax charge of $ 25 million for impairment of long-lived assets related to internal-use software and to reduce the carrying value of certain long-lived assets at three of our smaller hospitals to their estimated fair value and an after-tax charge of $ 64 million primarily for the government settlement and related costs in connection with the agreement in principle to settle claims at our new mexico hospitals . these after-tax charges were partially offset by income of $ 3 million from fair value adjustments , net of legal expenses , related to the hma legal proceedings underlying the cvr agreement . included in income from continuing operations for the year ended december 31 , 2013 , was a $ 63 million after-tax charge for the government settlement and related costs attributable to the department of justice investigation into short stay admissions through emergency departments at certain of our affiliated hospitals , a $ 5 million after-tax impairment charge for long-lived assets , an $ 8 million after-tax charge for hma acquisition-related expenses and less than $ 1 million after-tax loss from early extinguishment of debt . consolidated inpatient admissions for the year ended december 31 , 2014 , increased 43.7 % , compared to the year ended december 31 , 2013 , and consolidated adjusted admissions for the year ended december 31 , 2014 increased 47.3 % , compared to the year ended december 31 , 2013. these increases were primarily due to the hma merger during 2014. same-store inpatient admissions for the year ended december 31 , 2014 , decreased 4.2 % , compared to the year ended december 31 , 2013 , and same-store adjusted admissions for the year ended december 31 , 2014 decreased 0.9 % , compared to the year ended december 31 , 2013. self-pay revenues represented approximately 13.0 % of our net operating revenues , net of contractual allowances and discounts ( but before provision for bad debts ) , in 2014 compared to 13.6 % in 2013. during 2014 , we experienced a decline in self-pay admissions and adjusted admissions resulting in a corresponding decline in self-pay revenues as a percentage of total net operating revenues . this decrease is reflective of an increase in medicaid admissions and revenues , primarily in expansion states , as a result of the implementation of the reform legislation . the reduction in self-pay admissions and revenues was also experienced in non-expansion states , although to a lesser degree . the amount of foregone revenue related to providing charity care services as a percentage of net operating revenues was approximately 3.0 % and 5.3 % in 2014 and 2013 , respectively . direct and indirect costs incurred in providing charity care services were approximately 0.5 % and 0.9 % of net operating revenues in 2014 and 2013 , respectively . the u.s. congress and certain state legislatures have introduced and passed a large number of proposals and legislation designed to make major changes in the healthcare system , including changes that increased access to 60 health insurance . the reform legislation mandates that substantially all u.s. citizens maintain medical insurance coverage and expands health insurance coverage through a combination of public program expansion and private sector health insurance reforms . based on projections issued by the cbo , in january 2015 , the incremental insurance coverage due to the reform legislation could result in 27 million formerly uninsured americans gaining coverage by the end of 2025. as the number of persons with access to health insurance in the u.s. increases , there may be a resulting increase in the number of patients using our facilities who have health insurance coverage . we operate hospitals in nine of the 10 states that , prior to enactment of the reform legislation , had the highest percentage of nonelderly uninsured people from among the state 's nonelderly population . more broadly , the 28 states in which we operate hospitals that are included in continuing operations include 25 of the 30 states with the highest percentage of nonelderly uninsured people from among the state 's nonelderly population . states may opt out of the medicaid coverage expansion provisions of the reform legislation without losing existing federal medicaid funding . a number of states have opted out of the medicaid coverage expansion provisions , but could ultimately decide to expand their programs at a later date . at our hospitals in these states , the number of uninsured patients will likely decline by a smaller margin than we initially expected when the reform legislation was first adopted . of the 28 states in which we operate hospitals that are included in continuing operations , 13 states are expanding their medicaid programs . at this time , the other 15 states are not , including florida , tennessee and texas , where we operated a significant number of hospitals as of december 31 , 2014. some states that have opted out are evaluating options such as waiver plans to operate an alternative medicaid expansion plan . our hospitals are well positioned to participate in the provider networks of various qhps offering plan options on the health insurance exchanges created pursuant to the reform legislation . story_separator_special_tag for the 2015 plan year , all of our hospitals in continuing operations have arrangements to participate in at least one health insurance exchange agreement , approximately 90 % of our hospitals participate in two or more contracts , approximately 90 % of our hospitals participate in the first or second lowest cost bronze plan networks ( qhps with a 60 % actuarial value ) and approximately 90 % of our hospitals participate in the first or second lowest cost silver plan networks ( qhps with a 70 % actuarial value ) . the reform legislation also makes a number of changes to medicare and medicaid , such as reductions to the medicare annual market basket update for federal fiscal years 2010 through 2019 , a productivity offset to the medicare market basket update , and a reduction to the medicare and medicaid disproportionate share payments , each of which could adversely impact the reimbursement received under these programs . also included in the reform legislation are provisions aimed at reducing fraud , waste and abuse in the healthcare industry . these provisions allocate significant additional resources to federal enforcement agencies and expand the use of private contractors to recover potentially inappropriate medicare and medicaid payments . the reform legislation amends several existing federal laws , including the federal anti-kickback statute and the fca making it easier for government agencies and private plaintiffs to prevail in lawsuits brought against healthcare providers . these amendments also make it easier for potentially severe fines and penalties to be imposed on healthcare providers that violate applicable laws and regulations . we believe the expansion of private sector health insurance and medicaid coverage will , over time , increase our reimbursement related to providing services to individuals who were previously uninsured , which should reduce our expense from uncollectible accounts receivable . the various provisions in the reform legislation that directly or indirectly affect reimbursement take effect over a number of years . in addition , we believe that the reform legislation had a positive impact on net operating revenues during 2014 as the result of the expansion of private sector and medicaid coverage that has already occurred from the reform legislation and we believe the impact on our net operating revenues will continue to be positive . other provisions of the reform legislation , such as requirements related to employee health insurance coverage , have increased and will continue to increase our operating costs . 61 the reform legislation , however , remains subject to legislative efforts to repeal or modify the law and a number of court challenges to its constitutionality and interpretation . for example , the u.s. supreme court will hear king v. burwell during the 2015 session , which challenges the extension of premium subsidies to health insurance policies purchased through federally-operated health insurance exchanges . if decided in favor of the plaintiffs , who contend that subsidies must be limited to state-operated health insurance exchanges , the case could make it more difficult for uninsured individuals in states that do not operate an exchange to purchase coverage and otherwise significantly affect implementation of the reform legislation , in a manner that results in less than projected numbers of newly insured individuals . because of the many variables involved , including clarifications and modifications resulting from the rule-making process , legislative efforts to repeal or modify the law , court challenges , the development of agency guidance and future judicial interpretations , whether and how many states ultimately decide to expand medicaid coverage , the number of uninsured who elect to purchase health insurance coverage , budgetary issues at federal and state levels , and the potential for delays in the implementation of the reform legislation , we may not be able to fully realize the positive impact the reform legislation may otherwise have on our business , results of operations , cash flow , capital resources and liquidity . furthermore , we can not predict whether we will be able to modify certain aspects of our operations to offset any potential adverse consequences from the reform legislation . the federal government has implemented a number of regulations and programs designed to promote the use of electronic health records , or ehr , technology and pursuant to the health information technology for economic and clinical health act , or hitech , established requirements for a medicare and medicaid incentive payments program for eligible hospitals and professionals that adopt and meaningfully use certified ehr technology . these payments are intended to incentivize the meaningful use of ehr . our hospital facilities have been implementing ehr technology on a facility-by-facility basis since 2011. we recognize incentive reimbursement related to the medicare or medicaid incentives as we are able to implement the certified ehr technology and meet the defined meaningful use criteria , and information from completed cost report periods is available from which to calculate the incentive reimbursement . the timing of recognizing incentive reimbursement will not correlate with the timing of recognizing operating expenses and incurring capital costs in connection with the implementation of ehr technology which may result in material period-to-period changes in our future results of operations . beginning in 2015 , eligible hospitals and professionals that have not demonstrated meaningful use of certified ehr technology and have not applied and qualified for a hardship exception are subject to penalties . eligible hospitals are subject to a reduced market basket update to the inpatient prospective payment system standardized amount in 2015 and each subsequent fiscal year . eligible professionals are subject to a 1 % per year cumulative reduction applied to the medicare physician fee schedule amount for covered professional services , subject to a cap of 5 % . although we believe that our hospital facilities will be in compliance with the meaningful use standards in 2015 , there can be no assurance that all of our facilities will remain in compliance and therefore not subject to the hitech penalty provisions .
| replace_table_token_16_th replace_table_token_17_th ( a ) we have restated our prior period financial statements and statistical results to reflect the reclassification as discontinued operations for the hospitals held for sale at december 31 , 2014 and the one hospital sold during the year ended december 31 , 2014 . ( b ) operating expenses include salaries and benefits , supplies , other operating expenses , government settlement and related costs , electronic health records incentive reimbursement and rent . ( c ) adjusted admissions is a general measure of combined inpatient and outpatient volume . we computed adjusted admissions by multiplying admissions by gross patient revenues and then dividing that number by gross inpatient revenues . ( d ) includes loss from discontinued operations . ( e ) includes former hma hospitals for the months of february through december 2014 and 2013. for all hospitals owned throughout both periods , the same-store operating results and statistical data reflects the indicated periods . in addition , same-store comparisons exclude our hospitals that have previously been classified as discontinued operations for accounting purposes . 66 year ended december 31 , 2014 compared to year ended december 31 , 2013 net operating revenues increased by 45.4 % to approximately $ 18.6 billion in 2014 , from approximately $ 12.8 billion in 2013. the $ 5.8 billion increase in net operating revenues consisted of net operating revenues of $ 5.7 billion from hospitals acquired in 2014 primarily as the result of the hma merger and $ 0.1 billion from hospitals owned throughout both periods . on a same-store basis , net operating revenues increased 1.2 % during the year ended december 31 , 2014. the increase in same-store net operating revenues was attributable to favorable changes in payor mix with corresponding reductions in charity care and self-pay discounts as a percentage of revenue , partially offset by the decline in same-store inpatient admissions . on a consolidated basis , inpatient admissions increased by 43.7 % and adjusted admissions increased by 47.3 % during the year ended december 31 , 2014. these increases were primarily due to the hma merger during 2014. on a same-store
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because the convert study met the primary endpoint of culture conversion at month six based on the top-line results , we plan to submit an nda for alis to the fda by the end of march 2018 pursuant to subpart h , which permits the fda to approve a product candidate based on a surrogate or intermediate endpoint subject to the requirement that we conduct post-approval studies to verify and describe the clinical benefit of the product . we expect to receive a six-month priority review from the fda . we believe that efficacy data from the convert study at month six will be sufficient to support the accelerated approval of alis . we expect that full approval would be contingent on fda review of , among other things , the final analyses of durability of culture conversion for converters . convert top-line safety and tolerability data approximately 98 % of patients in the alis plus gbt arm of the convert study experienced at least one treatment-emergent adverse event ( teae ) , compared to 91 % of patients in the gbt-only arm , with most events being mild or moderate in severity . a greater percentage of patients in the alis plus gbt arm than in the gbt-only arm experienced teaes involving dysphonia , cough , haemoptysis , dyspnoea , oropharyngeal pain , diarrhea , nausea , and fatigue . based on our review of the top‑line study safety data , the incidence of dysphonia , cough and dyspnoea among patients in the alis plus gbt arm generally decreased after the second study month . approximately 20 % and 18 % of patients in the alis plus gbt arm and gbt-only arm of the study , respectively , experienced at least one serious treatment emergent adverse event ( steae ) . the table below provides additional information regarding certain steaes experienced by patients in the convert study . replace_table_token_6_th there were no distinctions between treatment arms for adverse events of hearing loss or renal impairment , side effects commonly associated with the intravenous use of amikacin . as of september 2017 , the overall dropout rate in the convert study was 16.1 % , with an 8.9 % dropout rate in the gbt-only arm and a 19.6 % dropout rate in the alis plus gbt arm . as of december 2017 , the overall dropout rate in the convert study was 18 % ( n=60/336 ) . convert long-term durability data we also recently announced interim data on the durability of culture conversion , as defined by patients that have completed treatment and continued in the convert study off all therapy for three months , which we expect will be the endpoint necessary to support full regulatory approval in the us . the following data are interim results observed through december 2017 , and have not been further analyzed . as of december 2017 , of the 75 patients achieving culture conversion in the convert study , 53 of these patients were evaluable for durability of culture conversion three months after the completion of treatment . interim data for durability of culture conversion as of december 2017 on these 53 patients are detailed below : 61 replace_table_token_7_th * evaluable number of patients includes all patients who reached three months post-treatment and all patients who discontinued prior to three months post-treatment . 312 study all non-converters in the convert study , as determined at the month eight visit , may be eligible to enter the 312 study , which is a separate 12-month , single-arm , open-label study . the purpose of the 312 study is to evaluate the safety and tolerability of longer-term treatment with alis added to gbt . the secondary endpoints of the 312 study include evaluating the proportion of patients achieving culture conversion ( three consecutive monthly negative sputum cultures ) by month six and the proportion of patients achieving culture conversion by month 12 ( end of treatment ) . 312 study interim efficacy data we recently announced interim data for the 312 study , which enrolled 163 adult patients with ntm lung disease caused by mac who completed six months of treatment in the convert study , but did not demonstrate culture conversion by month 6. the following data are interim results observed through december 2017 , and have not been further analyzed . patients in the alis plus gbt arm of the convert study and patients in the gbt-only arm of the convert study who did not achieve culture conversion by month 6 had the option to enroll in the 312 study at month 8. under the study protocol , patients from both arms of the convert study will receive 12 months of alis plus gbt in the 312 study . we will also use the data from this trial to further assess the impact of the addition of alis to background gbt on sputum culture conversion , by month 6. as of december 2017 , of the 163 patients enrolled in the 312 study , 124 patients were evaluable for culture conversion . descriptive interim culture conversion data as of december 2017 for these 124 patients are detailed below . the interim culture conversion data has not been statistically analyzed . number of patients completing six months of treatment in the 312 study as of december 2017 * * percent achieving sputum culture conversion by month 6 in the 312 study patients who received gbt only in the 212 study and crossed over to receive six months of treatment with alis + gbt ( n=90 ) 67 28.4 % ( 19/67 ) patients who received alis + gbt in the 212 study and crossed over to continue treatment in the 312 study , to receive a combined total of 14 months of alis + gbt treatment in both studies ( n=73 ) 57 12.3 % ( 7/57 ) * * includes all patients completing six months of treatment , all patients who discontinued prior to six months and for all ongoing patients prior to six months who completed two months of treatment . story_separator_special_tag 312 study interim safety and tolerability data we have not yet performed a final analysis of any safety data for the 312 study . however , based on an interim review of data available from the 312 study , we believe that steaes were similar to the steaes we reported in september 2017 as part of our top-line data results for the 212 study . as of december 2017 , the overall dropout rate in the 312 study was 24 % ( n=39/163 ) . 62 further research and lifecycle management for alis we are currently exploring and supporting research and lifecycle management programs for alis beyond refractory ntm lung infections caused by mac . specifically , we are evaluating future study designs focusing on the mac disease treatment pathway , including front-line treatment and monotherapy maintenance to prevent recurrence ( defined as true relapse or reinfection ) of ntm lung disease . in addition , we are evaluating non-mac ntm species , such as m. abscessus . if the data from the convert study are sufficient to support our maas and regulatory bodies approve alis , such lifecycle management studies could enable us to reach more potential patients . these initiatives may include new clinical studies sponsored by us or investigator-initiated studies , which are clinical studies initiated and sponsored by physicians or research institutions with funding from us . ins1007 ins1007 is a small molecule , oral , reversible inhibitor of dpp1 , which we in-licensed from astrazeneca in october 2016. dpp1 is an enzyme responsible for activating neutrophil serine proteases in neutrophils when they are formed in the bone marrow . neutrophils are the most common type of white blood cell and play an essential role in pathogen destruction and inflammatory mediation . neutrophils contain the neutrophil serine proteases , neutrophil elastase , proteinase 3 , and cathepsin g , that have been implicated in a variety of inflammatory diseases . in chronic inflammatory lung diseases , neutrophils accumulate in the airways and release active neutrophil serine proteases in excess that cause lung destruction and inflammation . ins1007 may decrease the damaging effects of inflammatory diseases , such as non-cf bronchiectasis , by inhibiting dpp1 and its activation of neutrophil serine proteases . non-cf bronchiectasis is a progressive pulmonary disorder in which the bronchi become permanently dilated due to chronic inflammation and infection . currently , there is no cure , and we are not aware of any fda-approved therapies specifically indicated for non-cf bronchiectasis . the willow study the willow study , a global phase 2 , randomized , double-blind , placebo-controlled , parallel group , multi-center clinical study to assess the efficacy , safety and tolerability , and pharmacokinetics of ins1007 administered once daily for 24 weeks in subjects with non-cf bronchiectasis . we commenced enrollment in the willow study in december 2017. in addition , we are exploring the potential of ins1007 in various neutrophil-driven inflammatory conditions . ins1009 ins1009 is an investigational sustained-release inhaled treprostinil prodrug nanoparticle formulation that has the potential to address certain of the current limitations of existing prostanoid therapies . we believe that ins1009 prolongs duration of effect and may provide pah patients with greater consistency in pulmonary arterial pressure reduction over time . current inhaled prostanoid therapies must be dosed four to nine times per day for the treatment of pah . reducing dose frequency has the potential to ease patient burden and improve compliance . additionally , we believe that ins1009 may be associated with fewer side effects , including elevated heart rate , low blood pressure , and severity and or frequency of cough , associated with high initial drug levels and local upper airway exposure when using current inhaled prostanoid therapies . we believe ins1009 may offer a differentiated product profile for rare pulmonary disorders , including pah , and we are currently evaluating our options to advance its development , including exploring its use as an inhaled dry powder formulation . other development activities our earlier-stage pipeline includes preclinical compounds that we are evaluating in multiple rare diseases of unmet medical need , including methicillin-resistant staph aureus ( mrsa ) and ntm . to complement our internal research and development , we actively evaluate in-licensing and acquisition opportunities for a broad range of rare diseases . key components of our results of operations research and development ( r & d ) expenses r & d expenses consist of salaries , benefits and other related costs , including stock-based compensation , for personnel serving in our research and development functions , including medical affairs . expenses also include other internal operating expenses , the cost of manufacturing our drug candidate ( s ) for clinical study , the cost of conducting clinical studies , and the cost of conducting preclinical and research activities . in addition , our r & d expenses include payments to third parties for the license rights to products in development ( prior to marketing approval ) , such as for ins1007 . our expenses related to 63 manufacturing our drug candidate ( s ) for clinical study are primarily related to activities at cmos that manufacture our product candidates for our use , including purchases of active pharmaceutical ingredients . our expenses related to clinical trials are primarily related to activities at contract research organizations that conduct and manage clinical trials on our behalf . since 2011 , we have focused our development activities principally on our proprietary , advanced liposomal technology designed specifically for inhalation lung delivery . in 2015 , we commenced the convert study for alis for adult patients with treatment refractory ntm lung disease . in 2015 , we also completed an open-label extension study in which cf patients that completed our phase 3 trial received alis for a period of two years . the majority of our research and development expenses have been for our alis development programs . our development efforts in 2017 and 2016 principally related to the development of alis in the ntm lung disease indication described above .
| million increase in raw materials purchases and expenses related to the willow trial for ins1007 and a $ 5.7 million increase in compensation and related expenses , including stock-based compensation , due to an increase in headcount . there was also an increase of $ 3.2 million due to increased regulatory , quality assurance and medical affairs consulting expenses and medical grants . general and administrative expenses general and administrative expenses for the year ended december 31 , 2017 and 2016 were comprised of the following ( in thousands ) : replace_table_token_9_th general and administrative expenses increased to $ 79.2 million during the year ended december 31 , 2017 from $ 50.7 million in the same period in 2016 . the $ 28.5 million increase was primarily due to an increase of $ 12.8 million in consulting fees relating to pre-commercial planning activities , an increase of $ 7.7 million due to higher compensation costs related to an increase in headcount , and a one-time payment in october 2017 related to the buy-down of future royalties payable to pari on the global net sales of alis , if approved . interest expense interest expense was $ 5.9 million during the year ended december 31 , 2017 as compared to $ 3.5 million in the same period in 2016 . the $ 2.4 million increase in interest expense in 2017 relates primarily to an increase in our borrowings from hercules in september and october of 2016. we entered into an amended and restated loan agreement ( a & r loan agreement ) with hercules which increased our borrowing capacity by an additional $ 30.0 million to an aggregate total of $ 55.0 million . the increase in borrowings under the a & r loan agreement was used to fund the upfront payment owed under the az license agreement for the exclusive global rights to ins1007 . income tax ( benefit ) provision the income tax ( benefit ) provision
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recurring costs relating to supply contracts are recognized ratably over the term of the contract . non-recurring fees , deferred revenue . non-recurring fees for data connectivity typically take the form of one-time , non-refundable provisioning fees established pursuant to service contracts . the amount of the provisioning fee included in each contract is generally determined by marking up or passing through the corresponding charge from the company 's supplier , imposed pursuant to the company 's purchase agreement . non-recurring revenue earned for providing provisioning services in connection with the delivery of recurring communications services is recognized ratably over the contractual term of the recurring service starting upon commencement of the service contract term . fees recorded or billed from these provisioning services are initially recorded as deferred revenue then recognized ratably over the contractual term of the recurring service . installation costs related to provisioning incurred by the company from independent third-party suppliers , directly attributable and necessary to fulfill a particular service contract , and which costs would not have been incurred but for the occurrence of that service contract , are recorded as deferred contract costs and expensed proportionally over the contractual term of service in the same manner as the deferred revenue arising from that contract . deferred costs do not exceed deferred upfront fees . the company believes the initial contractual term is the best estimate of the period of earnings . other revenue . from time to time , the company recognizes revenue in the form of fixed or determinable cancellation ( pre-installation ) or termination ( post-installation ) charges imposed pursuant to the service contract . this revenue is earned when a customer cancels or terminates a service agreement prior to the end of its committed term . this revenue is recognized when billed if collectability is reasonably assured . in addition , the company from time to time sells equipment in connection with data networking applications . the company recognizes revenue from the sale of equipment at the contracted selling price when title to the equipment passes to the customer ( generally f.o.b . origin ) and when collectability is reasonably assured . estimating allowances and accrued liabilities the company employs the “ allowance for bad debts ” method to account for bad debts . the company states its accounts receivable balances at amounts due from the customer net of an allowance for doubtful accounts . the company determines this allowance by considering a number of factors , including the length of time receivables are past due , previous loss history , and the customer 's current ability to pay . in the normal course of business from time to time , the company identifies errors by suppliers with respect to the billing of services . the company performs bill verification procedures to attempt to ensure that errors in its suppliers ' billed invoices are identified and resolved . the bill verification procedures include the examination of bills , comparison of billed rates to rates shown on the actual contract documentation and logged in the company 's operating systems , comparison of circuits billed to the company 's database of active circuits , and evaluation of the trend of invoiced amounts by suppliers , including the types of charges being assessed . if the company concludes by reference to such objective factors that it has been billed inaccurately , the company will record a liability for the amount that it believes is owed with reference to the applicable contractual rate and , in the instances where the billed amount exceeds the applicable contractual rate , the likelihood of prevailing with respect to any dispute . these disputes with suppliers generally fall into four categories : pricing errors , network design , start of service date or disconnection errors , and taxation and regulatory surcharge errors . in the instances where the billed amount exceeds the applicable contractual rate the company does not accrue the full face amount of obvious billing errors in accounts payable because to do so would present a misleading and confusing picture of the company 's current liabilities by accounting for liabilities that are erroneous based upon a detailed review of objective evidence . if the company ultimately pays less than the corresponding accrual in resolution of an erroneously over-billed amount , the company recognizes the resultant decrease in cost of revenue in the period in which the resolution is reached . if the company ultimately pays more than the corresponding accrual in resolution of an erroneously billed amount , the company recognizes the resultant cost of revenue increase in the period in which the resolution is reached and during which period the company makes payment to resolve such account . 18 although the company disputes erroneously billed amounts in good faith and historically has prevailed in most cases , it recognizes that it may not prevail in all cases ( or in full ) with a particular supplier with respect to such billing errors or it may choose to settle the matter because of the quality of the supplier relationship or the cost and time associated with continuing the dispute . careful judgment is required in estimating the ultimate outcome of disputing each error , and each reserve is based upon a specific evaluation by management of the merits of each billing error ( based upon the bill verification process ) and the potential for loss with respect to that billing error . in making such a case-by-case evaluation , the company considers , among other things , the documentation available to support its assertions with respect to the billing errors , its past experience with the supplier in question , and its past experience with similar errors and disputes . as of december 31 , 2013 , the company had $ 7.3 million in disputed billings from suppliers . story_separator_special_tag in instances where the company has been billed less than the applicable contractual rate , the accruals remain on the company 's consolidated financial statements until the vendor invoices for the under-billed amount or until such time as the obligations related to the under-billed amounts , based upon applicable contract terms and relevant statutory periods in accordance with the company 's internal policy , have passed . if the company ultimately determines it has no further obligation related to the under-billed amounts , the company recognizes a decrease in expense in the period in which the determination is made . goodwill and intangible assets goodwill is the excess purchase price paid over identified intangible and tangible net assets of acquired companies . goodwill is not amortized , and is tested for impairment at the reporting unit level annually or when there are any indications of impairment , as required by the financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) topic 350 , intangibles - goodwill and other . asc topic 350 provides guidance on financial accounting and reporting related to goodwill and other intangibles , other than the accounting at acquisition for goodwill and other intangibles . a reporting unit is an operating segment , or component of an operating segment , for which discrete financial information is available and is regularly reviewed by management . we have one reporting unit to which goodwill is assigned . in september 2011 , the fasb issued asu no . 2011-08 , intangibles - goodwill and other ( topic 350 ) : testing goodwill for impairment . asu 2011-08 is intended to simplify how entities , both public and nonpublic , test goodwill for impairment . asu 2011-08 permits an entity 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 the two-step goodwill impairment test described in topic 350 , intangibles - goodwill and other . the first step tests for impairment by applying fair value-based tests . the second step , if deemed necessary , measures the impairment by applying fair value-based tests to specific assets and liabilities . application of the goodwill impairment test requires significant judgments including estimation of future cash flows , which is dependent on internal forecasts , estimation of the long-term rate of growth for the company , the useful life over which cash flows will occur , and determination of the company 's cost of capital . changes in these estimates and assumptions could materially affect the determination of fair value and conclusions on goodwill impairment . the company performs its annual goodwill impairment testing in the third quarter of each year , or more frequently if events or changes in circumstances indicate that goodwill may be impaired . the company tested its goodwill during the third quarter of 2013 and 2012 and concluded that no impairment existed . intangible assets are assets that lack physical substance , and are accounted for in accordance with asc topic 350 and asc topic 360-10-35 , impairment or disposal of long-lived assets . asc topic 360-10-35 provides guidance for recognition and measurement of the impairment of long-lived assets to be held , used and disposed of by sale . intangible assets arose from business combinations and consist of customer contracts , acquired technology and restrictive covenants related to employment agreements that are amortized , on a straight-line basis , over periods of up to five years . intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable . during the third quarter of 2013 and 2012 , the company performed a qualitative assessment and concluded that no impairment existed . income taxes the company accounts for income taxes in accordance with asc topic 740 , income taxes . under asc topic 740 , deferred tax assets are recognized for future deductible temporary differences and for tax net operating loss and tax credit carry-forwards , and deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years . deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled . a valuation allowance is provided to offset the net deferred tax asset if , based upon the available evidence , management determines that it is more likely than not that some or all of the deferred tax asset will not be realized . 19 in june 2006 , the fasb issued interpretation no . 48 , accounting for uncertainty in income taxes ( “ fin 48 ” ) . fin 48 was codified into asc topic 740 , which clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements , and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . asc topic 740 also provides guidance on de-recognition , classification , interest and penalties , accounting in interim periods , disclosure and transition . the adoption of fasb asc topic 740 did not have a material effect on the company 's consolidated financial statements . we may from time to time be assessed interest and or penalties by taxing jurisdictions , although any such assessments historically have been minimal and immaterial to our financial results . the company 's federal , state and international tax returns for 2010 , 2011 and 2012 are still open . in the event we have received an assessment for interest and or penalties , it has been classified in the statement of operations as other general and administrative costs .
| restructuring costs increased by $ 7.0 million for the year ended december 31 , 2013 compared to the year ended december 31 , 2012 . the increase primarily reflects the additional costs associated with the acquisition of tinet for severance and other employee termination related costs , professional fees , network integration , and travel expenses . depreciation and amortization . depreciation and amortization expense increased $ 9.9 million to $ 17.2 million for the year ended december 31 , 2013 , compared to the year ended december 31 , 2012 . the increase was due primarily to the depreciation and amortization of the global ip and ethernet network assets and intangible assets , primarily customer relationships , obtained in the tinet acquisition . interest expense . interest expense increased $ 3.7 million , or 79.4 % , to $ 8.4 million for the year ended december 31 , 2013 , compared to the year ended december 31 , 2012 . the increase was due to the additional debt incurred in connection with the tinet acquisition . other expense . other expense increased $ 10.7 million to $ 11.7 million for the year ended december 31 , 2013 , compared to the year ended december 31 , 2012 . the increase is due to the warrant liability of $ 8.7 million that was marked to market in 2013 as well as the $ 2.0 million change in fair value of the earn-out related to the nlayer acquisition on april 30 , 2012. liquidity and capital resources december 31 , 2013 december 31 , 2012 cash and cash equivalents and short-term investments $ 5,785 $ 4,726 debt $ 92,460 $ 42,829 management monitors cash flow and liquidity requirements . based on the company 's cash , debt , and analysis of the anticipated working capital requirements , management believes the company has sufficient liquidity to fund the business and meet its contractual obligations for 2014 . the company 's current planned cash requirements for 2014 are based upon certain assumptions , including its ability to manage expenses and the growth of revenue from service
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the allowance is maintained at a level that management believes is appropriate to provide for incurred loan and lease losses as of the date of the consolidated balance sheet and we have established methodologies for the determination of its adequacy . the methodologies are set forth in a formal policy and take into consideration the need for an overall general allowance as well as specific allowances that are determined on an individual loan basis for impaired loans . we increase our allowance by charging provisions for losses against our income and decreased by charge‑offs , net of recoveries . the evaluation is inherently subjective , as it requires estimates that are susceptible to significant revision as more information becomes available . while management uses available information to recognize losses on loans and leases , changes in economic or other conditions may necessitate revision of the estimate in future periods . the allowance is maintained at a level sufficient to provide for probable losses based upon an ongoing review of the originated loan and lease portfolios by portfolio category , which include consideration of actual loss experience , peer loss experience , changes in the size and risk profile of the portfolio , identification of individual problem loan and lease situations which may affect a borrower ' s ability to repay , and evaluation of prevailing economic conditions . results of operations – years ended december 31 , 2018 and 2017 overview our reported net income for the year ended december 31 , 2018 , was $ 8.2 million compared to $ 3.0 million for the same period in 2017. net income available to common shareholders was $ 8.2 million or $ 1.27 per diluted common share for the year ended december 31 , 2018 and $ 1.9 million or $ 0.49 per diluted common share for the same period in 2017. the $ 5.1 million increase in net income was attributable to a $ 3.7 million increase net interest income , a decrease of $ 401 thousand 38 in net non-interest expense ( non-interest expense less non-interest income ) , a decrease in the provision for loan losses of $ 584 thousand , and a decrease in income tax expense of $ 427 thousand . net interest income our earnings are derived predominantly from net interest income , which is our interest income less interest expense . changes in our balance sheet composition , including interest-earning assets , deposits , and borrowings , combined with changes in market interest rates , impact our net interest income . net interest margin is net interest income divided by average interest-earning assets . we manage our interest-earning assets and funding sources , including non-interest and interest-bearing liabilities , in order to maximize this margin . net interest income increased by $ 3.7 million , or 12.9 % , to $ 32.7 million for the year ended december 31 , 2018 from $ 28.9 million for the same period in 2017. our net interest margin was 3.80 % on a tax equivalent yield basis ( “ tey ” ) for the year ended december 31 , 2018 as compared to 3.93 % for the same period in 2017. the decrease in net interest margin , year-over-year , reflects the pressure from rising cost of funds , which outpaced the favorable trend in yield on earning assets . average balance sheet , interest and yield/rate analysis . the following table presents average balance sheet information , interest income , interest expense and the corresponding average yield earned , on a tax equivalent basis , and rates paid for the years ended december 31 , 2018 and 2017. the average balances are principally daily averages and , for loans , include both performing and nonperforming loans . replace_table_token_2_th ( 1 ) yields and net interest income are reflected on a tax-equivalent basis . 39 rate/volume analysis during 2018 , net interest income increased $ 3.7 million or 12.6 % on a tax equivalent basis . as shown in the following rate/volume analysis table , this increase was primarily attributable to volume changes . volume related changes contributed $ 5.9 million towards interest income which was partially offset by unfavorable changes in rate of $ 2.3 million . the favorable change in net interest income due to volume changes was driven largely from growth in total loans , which increased $ 121.9 million on average . this increase contributed $ 6.5 million to interest income . total investment securities , cash and cash equivalents increased $ 4.7 million on average combined , contributing $ 125 thousand to interest income . on the funding side , interest checking and money market accounts together rose $ 50.4 million on average during the year , reducing net interest income by $ 417 thousand . time deposits increased $ 61.9 million on average year over year , causing an unfavorable change of $ 879 thousand to net interest income . average borrowings decreased $ 20.1 million and had a favorable impact of $ 341 thousand on net interest income , while moderately lower levels of subordinated debt contributed $ 286 thousand favorably to net interest income . the unfavorable change in net interest income due to rate changes was driven largely from the increase in cost of funds , particularly from wholesale funding such as borrowings and time deposits , which rose 88 and 61 basis points , respectively . cost of funds for core deposits , such as interest checking and money market accounts , rose 63 and 53 basis points , respectively . these unfavorable rate changes reduced net interest income $ 3.9 million , but were partially offset by favorable rate changes in interest-earning assets which increased net interest income $ 1.7 million . story_separator_special_tag the favorable change due to rate earned on loans was $ 1.5 million resulting from a 23 basis point increase on average for the total portfolio . the favorable change due to rate earned on cash and investments was $ 133 thousand , resulting from a 15 basis point increase in the yields . the following table sets forth , among other things , the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense for the periods noted ( tax-exempt yields have been adjusted to a tax equivalent basis using a 22 % tax rate ) . for each category of interest-earning assets and interest-bearing liabilities , information is provided with respect to changes attributable to ( i ) changes in rate ( change in rate multiplied by old volume ) and ( ii ) changes in volume ( change in volume multiplied by new rate ) . the 40 net change attributable to the combined impact of rate and volume has been allocated proportionately to the change due to rate and the change due to volume . replace_table_token_3_th ( 1 ) yields and net interest income are reflected on a tax-equivalent basis . provision for loan losses we recorded a provision for loan losses of $ 1.6 million for the year ended december 31 , 2018 , down $ 584 thousand from $ 2.2 million for the same period in 2017. the decreased provision for 2018 is due to continued strong asset quality and lower levels of net charge-offs which were down $ 644 thousand , year-over-year . non-interest income non-interest income decreased $ 4.3 million , or 11.8 % , to $ 32.4 million for the year ended december 31 , 2018 compared to $ 36.7 million for the prior year . the decrease was mostly attributable to a $ 6.6 million decrease in mortgage banking income caused by lower levels of mortgage originations and lower margins . this decline in revenue was partially offset by an increase of $ 1.1 million in wealth management income , as meridian wealth partners was included in our results for a full year in 2018 after the acquisition of hj wealth in the second quarter of 2017. the decline in mortgage banking revenue was also offset somewhat by realized gains on derivatives related to mortgage banking , included in other non- 41 interest income , which increased $ 1.4 million for the twelve months ended december 31 , 2018 to $ 627 thousand , compared to a loss of $ 724 thousand for the same period in 2017. replace_table_token_4_th non-interest expense non-interest expenses decreased $ 4.7 million , or 8.2 % , to $ 52.9 million for the year ended december 31 , 2018 from $ 57.7 million in 2017. this decrease was mainly attributable to a reduction in salaries and employee benefit expense , as full-time equivalent employees , particularly in the mortgage division were reduced . also as a result of a decline in mortgage loan originations , variable loan expenses decreased over the prior year . these declines were partially offset by higher costs relative to professional fees , data processing , business development and other expenses related to growth . replace_table_token_5_th income tax expense income tax expense for the year ended december 31 , 2018 was $ 2.3 million as compared to $ 2.8 million for the same period in 2017. the effective tax rates for the twelve-month periods ended december 31 , 2018 and 2017 were 22.1 % and 47.6 % , respectively . the decrease in rate from 47.6 % to 22.1 % between 2017 and 2018 was directly related to the enactment of the tax cuts and jobs act ( “ 2017 tax reform ” ) on december 22 , 2017. the 2017 tax reform lowered the top federal corporate rate from 35 % to 21 % . in accordance with gaap , this required the re-measurement , in the period including the enactment , of the corporation 's net deferred tax asset to reflect the rate at which they will be recognized in future periods . the result was a $ 737 thousand one-time charge to income tax expense in 2017. for more information related to income taxes , refer to footnote 15 in the notes to consolidated financial statements . 42 story_separator_special_tag style= '' display : inline ; '' > asset quality summary as of december 31 , 2018 , total nonperforming loans and leases increased by $ 774 thousand to $ 3.9 million , representing 0.47 % of loans and leases held-for-investment , compared to $ 3.2 million , or 0.45 % of loans and leases held-for-investment as of december 31 , 2017. the increase to nonperforming loans resulted from an increase of $ 810 thousand in commercial mortgage loans , an increase of $ 1.1 million in residential loans , offset partially by a decrease of $ 849 thousand in commercial loans and a decline of $ 185 thousand in construction loans from december 31 , 2017 to december 31 , 2018 . 45 as of december 31 , 2018 , the allowance of $ 8.1 million represented 0.97 % of loans and leases held-for-investment ( excluding loans at fair value ) , compared to 0.98 % as of december 31 , 2017. the allowance to non-performing loans decreased from 212.5 % as of december 31 , 2017 to 204.9 % as of december 31 , 2018. during 2017 one commercial real estate loan was foreclosed on and the property was recorded within other real estate owned ( “ oreo ” ) in the balance sheet at the lower of cost or fair value less cost to sell of $ 437 thousand .
| loans held for investment increased $ 143.5 million , or 20.7 % , for the year ended december 31 , 2018. the following table presents the balance ( net of deferred loan origination fees ) and associated percentage of each major category in our loan portfolios as of december 31 , 2018 and 2017. replace_table_token_6_th commercial loans , commercial construction loans and commercial real estate loans increased a combined $ 124.0 million , or 21.4 % , for the year ended december 31 , 2018. the growth in the commercial portfolios continues to reflect the work of our strategically expanded lending team as well as strong local market conditions . commercial real estate loans . our commercial real estate loans are secured by real estate that is both owner-occupied and investor owned . owner-occupied commercial real estate loans generally involve less risk than an investment property and are distinctly reported from non-owner occupied commercial real estate loans for measuring loan concentrations for regulatory purposes . our owner-occupied commercial real estate loans are originated and managed within our commercial loan department and comprised 39 % of our total commercial real estate loan portfolio at december 31 , 2018. the 43 remaining commercial real estate loans are managed by our commercial real estate department which offer the following commercial real estate products : · permanent – investor real estate loans o purchase and refinance loan opportunities for a number of product types , including single-family rentals , multi-family residential as well as tenanted income producing properties in a variety of real estate types , including office , retail , industrial , and flex space · construction loans o residential construction loans to finance new construction and renovation of single and 1‑4 family homes located within our market area o commercial construction loans for investment properties , generally with semi-permanent attributes o construction loans for new , expanded or renovated operations for our owner occupied business clients · land development loans o meridian considers a limited number of strictly land development oriented loans based upon the risk , merit of the future project and strength of the borrower/guarantor relationship our commercial real estate loans
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the property is a 5,600 square foot 100 % leased free-standing building that was significantly renovated during 2012 to accommodate a starbucks coffeehouse and a verizon wireless store . the starbucks coffeehouse occupies approximately 2,165 square feet of the building under a 10 year , 5 month lease expiring in 2023 with three renewal options . the verizon wireless store occupies approximately 3,435 square feet of the building under a 10 year lease expiring in 2022 with three renewal options available . the property is subject to a 10 year ground lease with fairfield shopping center , a related party , expiring in 2022. on december 17 , 2013 , we acquired jenks plaza , a 7,800 square foot shopping center located in jenks , oklahoma for a purchase price of approximately $ 1.75 million . the property is 100 % occupied by 5 primarily retail and restaurant tenants , under leases expiring through october 2017. on december 19 , 2013 , we acquired winslow plaza , a 40,695 square foot shopping center located in sicklerville , new jersey for a purchase price of approximately $ 6.61 million . the property is 94.1 % occupied by 15 primarily retail and restaurant tenants , and is anchored by king 's liquors , which is leased through october 2017. on december 23 , 2013 , we acquired clover plaza , st. george square , south square , waterway plaza and westland square ( collectively the sc food lions ) for an aggregate purchase price of approximately $ 15.85 million . collectively , the sc food lions total 261,689 square feet in leaseable space , and are 91.27 % occupied by 34 primarily retail and restaurant tenants , and each center is anchored by a food lion grocery store . financing activities the riversedge north loan matured on april 16 , 2013 , and was subsequently extended to january 16 , 2014. on january 16 , 2014 , we renewed the loan until january 16 , 2019. the loan requires monthly principal and interest payments based on a 15 year amortization with a fixed interest rate of 6.00 % . on march 11 , 2013 , we entered into a promissory note for $ 4.0 million to refinance the shoppes at eagle harbor loan that matured in february 2013. the new loan matures on march 11 , 2018 and requires monthly principal and interest payments based on a 20 year amortization and a 4.34 % interest rate . on april 19 , 2013 , we entered in a promissory note for $ 6.5 million to refinance the shoppes at tj maxx loan that matured on that date . the new loan matures on may 1 , 2020 and requires monthly principal and interest payments based on a 25 year amortization and a 3.88 % fixed interest rate . on june 3 , 2013 , we entered into a promissory note ( the note ) with monarch bank for a $ 2.0 million line of credit . the note matures on may 12 , 2014 , provides for an interest rate of 4.5 % per annum and is guaranteed by a deed of trust and assignment of rents on real property . certain debt agreements into which we have entered have covenants with which we must comply . as of december 31 , 2013 , we believe we are in compliance with the applicable covenants . on december 16 , 2013 , we completed a $ 10.0 million private placement transaction with eight accredited investors ( the buyers ) . pursuant to the securities purchase agreement , dated as of december 16 , 2013 ( the december 2013 securities purchase agreement ) , we sold convertible and nonconvertible 9 % senior notes and warrants to purchase shares of our common stock totaling $ 10.0 million dollars . we completed the financings in two concurrent tranches . the first tranche consisted of $ 6.0 million in convertible senior notes due december 15 , 2018. during the first two years , the convertible notes will only be available for conversion upon the completion of a secondary offering of common stock in excess of $ 20 million at a conversion rate of the lesser of 95 % of the secondary offering 's per share price or $ 5.50. after two years , holders of the convertible notes can convert at their discretion at a conversion rate of the lesser of 90 % of the market price of our common stock or $ 5.50. the maximum number of shares of stock issuable upon conversion of the convertible notes is 1,417,079 shares . the second tranche consisted of $ 4.0 million in nonconvertible senior notes due december 15 , 2015. in addition to the non-convertible notes , we issued 421,053 warrants with an exercise price of $ 4.75. the warrants are not exercisable unless we obtain shareholder approval for the transaction and the issuance of the common stock underlying the warrants . in connection with the private placement transaction , we and the buyers entered into a registration rights agreement , dated as of december 16 , 2013 ( the december 2013 registration rights agreement ) . pursuant to the december 2013 registration rights agreement , we agreed to file and maintain a registration statement with the securities and exchange commission for the resale of the shares of common stock underlying the convertible notes and the warrants . interest on the convertible and nonconvertible senior notes of 9 % per annum will be payable monthly . 38 pursuant to a first amendment to the december 2013 securities purchase agreement , dated as of january 31 , 2014 ( the first amendment ) , we and the initial investors amended the december 2013 securities purchase agreement solely to increase the maximum size of the offering to an aggregate of $ 12.16 million . story_separator_special_tag in accordance with the terms of the december 2013 securities purchase agreement , as amended by the first amendment , as of january 31 , 2014 , we completed a second closing ( the second closing ) consisting of the private placement of $ 2.160 million of non-convertible notes and warrants to purchase shares of our common stock with fourteen accredited investors ( the secondary investors ) . the non-convertible senior notes have an interest rate of 9.0 % ( which will be paid monthly ) and mature on january 31 , 2016. the warrants issued permit the secondary investors to purchase an aggregate 227,372 shares of our common stock , have an exercise price of $ 4.75 per share , expire on january 31 , 2019 and are not exercisable unless we obtain shareholder approval for this transaction and the issuance of the common stock underlying the warrants . new leases , leasing renewals and expirations new leases during the year ended december 31 , 2013 were comprised of nine deals totaling 18,932 square feet with a weighted average rate of $ 7.63 per square foot . the commission rate per square foot equated to $ 3.48. one new lease included tenant improvement concessions of $ 8.50 per square foot and another new lease included tenant improvement concessions of $ 8.00 per square foot . renewals during the year ended december 31 , 2013 were comprised of nineteen deals totaling 152,774 square feet with a weighted average increase of $ 0.06 per square foot . one renewal included tenant improvement concessions of $ 8.57 per square foot , and the commission rate per square foot equated to $ 1.19. the rates on negotiated renewals resulted in a weighted average increase of $ 0.79 per square foot on five renewals and a $ 1.29 per square foot decrease on one renewal . thirteen of these renewals represented options being exercised . we entered into a relocation and expansion agreement with one tenant that resulted in a $ 1.76 decrease in their per square foot rent , but will result in annual rental income at the center increasing approximately $ 17,000 due to increased square footage leased . this expansion included a $ 0.54 per square foot tenant improvement concession and a $ 4.18 per square foot commission rate . we also had two lease assignments for a 3,696 square foot space with all lease terms remaining the same . there were no leases that expired during the period that were not renewed by the tenant . approximately 4.56 % of our gross leasable area is subject to leases that expire during the twelve months ending december 31 , 2014 that have not already been renewed . based on recent market trends , we believe that these leases will be renewed at amounts and terms comparable to existing lease agreements . funds from operations we use funds from operations ( ffo ) as an alternative measure of our operating performance , specifically as it relates to results of operations and liquidity . we compute ffo in accordance with standards established by the board of governors of the national association of real estate investment trusts ( nareit ) in its march 1995 white paper ( as amended in november 1999 and april 2002 ) . as defined by nareit , ffo represents net income ( computed in accordance with accounting principles generally accepted in the united states , or gaap ) , excluding gains ( or losses ) from sales of property , plus real estate related depreciation and amortization ( excluding amortization of loan origination costs ) and after adjustments for unconsolidated partnerships and joint ventures . most industry analysts and equity reits , including us , consider ffo to be an appropriate supplemental measure of operating performance because , by excluding gains or losses on dispositions and excluding depreciation , ffo is a helpful tool that can assist in the comparison of the operating performance of a company 's real estate between periods , or as compared to different companies . management uses ffo as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using gaap net income alone as the primary measure of our operating performance . historical cost accounting for real estate assets in accordance with gaap implicitly assumes that the value of real estate assets diminishes predictably over time , while historically real estate values have risen or fallen with market conditions . accordingly , we believe ffo provides a valuable alternative measurement tool to gaap when presenting our operating results . critical accounting policies the following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this form 10-k , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses . on an on-going basis , we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . 39 the critical accounting policies summarized in this section are discussed in further detail in the notes to the financial statements appearing elsewhere in this form 10-k. management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our operating results and financial condition . revenue recognition principal components of our total revenues include base and percentage rents and tenant reimbursements . we accrue minimum ( base ) rent on a straight-line basis over the terms of the respective leases which results in an unbilled rent asset or deferred rent liability being recorded on the balance sheet .
| square ( acquired december 23 , 2013 ) same store and new store operating income the following table provides same store and new store financial information . replace_table_token_43_th property revenues total same store property revenues for the year ended december 31 , 2013 were $ 1,988,710 , compared to $ 2,008,460 for the year ended december 31 , 2012 , representing a decrease of $ 19,750 , or 0.98 % . same store revenues fluctuated primarily due to the amount and timing of prior year tenant reimbursement reconciliation adjustments , contractual rent adjustments , and a nominal reduction in occupancy due to a 1,286 square foot vacancy arising at one of our centers . four of the five centers representing same stores are 100 % leased and the fifth center is 94.48 % leased , resulting in nominal fluctuations in revenues at these centers . the year ended december 31 , 2013 represents a full year of operations reported for the properties acquired as part of the our november 2012 formation and those acquired during december 2012 , and a partial year of operations for the twelve acquisitions made in 2013. the 2013 acquisitions contributed $ 6.7 million in revenues for the year ended december 31 , 2013. going forward we believe these properties will generate a significant amount of revenue for our company and we will benefit from future contractual rent increases . 44 property expenses total same store operating expenses for the year ended december 31 , 2013 were $ 419,101 , compared to $ 425,660 for the year ended december 31 , 2012 , respectively . the decrease was primarily due to decreases in repairs and maintenance and utility expenses which typically fluctuate from period to period depending on timing and weather . three of the five same store centers are free-standing buildings , with the other two consisting of a center built in 2009 and a center that was significantly renovated during 2008. accordingly , those centers require minimal maintenance . additionally , two of the free-standing buildings have triple-net leases in which the
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hearings on the base rate proceeding are expected during the third quarter of 2005 and a final decision is expected by the end of 2005. replace_table_token_5_th for the year ended december 31 , 2004 , the decrease in retail base revenues was primarily due to a decrease in usage per retail customer , partially offset by a 2.6 % increase in the average number of customer accounts . a 2.7 % decrease in usage per retail customer resulted in a decrease in revenues from retail base operations of approximately $ 100 million , primarily due to milder weather and customer service interruptions during the three hurricanes that struck fpl 's service territory . the increase in the average number of customer accounts , as well as other factors , increased revenues from retail base operations by $ 84 million . the increase in retail base revenues in 2003 was primarily due to an increase in customer accounts and an increase in usage per retail customer . the increase in 2003 was partially offset by the effect of the 7 % base rate reduction , or $ 62 million , pursuant to the rate agreement that was effective in mid-april 2002. a 2.4 % increase in the number of retail customer accounts increased revenues by $ 85 million , while the balance of the increase , or $ 54 million , was primarily due to a 1.7 % increase in electricity usage per retail customer . revenues from cost recovery clauses and other pass-through costs , such as franchise fees and revenue taxes , do not significantly affect net income ; however , under- or over-recovery of such costs can significantly affect fpl group 's and fpl 's operating cash flows . fluctuations in these revenues , as well as in fuel , purchased power and interchange expense are primarily driven by changes in energy sales , fuel prices and capacity charges . ordinarily , the fuel charge is set annually based on estimated fuel costs and estimated customer usage , plus or minus a true-up for prior period estimates . effective january 1 , 2003 , the fpsc approved a risk management fuel procurement program , which is intended to reduce the risk of unexpected fuel price volatility by locking in fuel prices for a portion of fpl 's fuel requirements . the results of the program are reviewed by the fpsc as part of the annual review of fuel costs . the increase in revenues from cost recovery clauses and other pass-through costs for the years ended december 31 , 2004 and 2003 reflect higher fuel charges to customers primarily to recover previously underrecovered fuel-related costs resulting from higher than projected fuel costs . fpl 's o & m expenses decreased $ 22 million in 2004 reflecting the receipt of approximately $ 21 million associated with the settlement of the shareholder litigation . the settlement was offset by higher nuclear maintenance costs of $ 10 million , higher insurance costs of $ 8 million and an increase in the provision for uncollectible accounts receivable of $ 8 million in connection with the hurricanes . the remainder of the fluctuation in the 2004 o & m expenses was primarily due to the absence of certain legal expenses recorded in 2003. management expects to see a continued upward trend in nuclear maintenance , insurance and employee-related costs for 2005 , as well as an increase in maintenance costs for fossil generation plants as major overhauls are planned for a number of older units . in conjunction with an nrc order , fpl has performed visual and volumetric inspections of its nuclear units ' reactor vessel heads during their scheduled refueling outages since october 2002. the inspections at st. lucie unit no . 2 revealed crdm nozzles with cracks , which were repaired during the outages . during the fall of 2004 , fpl replaced the reactor vessel head at turkey point unit no . 3. fpl anticipates replacing the reactor vessel heads at turkey point unit no . 4 and st. lucie unit no . 1 during their next scheduled refueling outage . in january 2005 , fpl received permission from the nrc to plug up to 30 % of st. lucie unit no . 2 's steam generator tubes . to date , 18.9 % of these tubes have been plugged . it is possible that during st. lucie no . 2 's next scheduled refueling outage in the spring of 2006 the 30 % tube plugging limit could be exceeded . management is currently evaluating various options , including sleeving degraded tubes , to stay within the tube plugging limit . fpl has requested nrc approval to sleeve degraded tubes as an alternative to plugging . management intends to replace the reactor vessel head and steam generators at st. lucie unit no . 2 during its fall 2007 scheduled refueling outage . the replacement cost of the reactor vessel heads and steam generators is expected to be $ 558 million and is included in fpl 's estimated capital expenditures . see note 16 - commitments . the cost of performing inspections and any necessary repairs until the reactor vessel heads are replaced is being recognized as expense on a levelized basis over a five-year period beginning in 2002 , as authorized by the fpsc , and amounted to approximately $ 11 million in 2004 , $ 13 million in 2003 and $ 13 million in 2002. pursuant to a 2003 nrc bulletin , fpl has performed inspections of the bottom mounted instrumentation penetrations at both of its turkey point units and to date , no evidence of leakage from these penetrations has been noted . st. lucie units nos . 1 and 2 do not have bottom mounted instrumentation penetrations . in conjunction with a 2004 nrc bulletin , fpl must perform inspections of all alloy 600 and weld materials in pressurizer locations and connected steam space piping . to date , no leaks have been identified based on inspections at st. lucie units nos . story_separator_special_tag 1 and 2. due to the amount of time and cost associated with correcting potential leaks , fpl has decided to replace st. lucie unit no . 1 's pressurizer during its next scheduled refueling and reactor vessel head replacement outage . the estimated cost for the pressurizer is included in estimated capital expenditures . see note 16 - commitments . fpl has decided to repair st. lucie unit no . 2 's pressurizer heater sleeve penetrations during its scheduled refueling and steam generator and reactor vessel head replacement outage in the fall of 2007. the estimated cost of this repair is approximately $ 12 million , which will be charged to o & m expense . all pressurizer penetrations and welds at turkey point units nos . 3 and 4 utilize a different material . see item 1 - fpl operations - nuclear operations for further discussion of the above nuclear plant related matters . in 2003 , o & m expenses reflected increases in nuclear maintenance expenses discussed above of $ 29 million , employee benefit costs , primarily medical-related , of $ 17 million and property and liability insurance costs of $ 17 million due to higher insurance premiums combined with lower refunds under nuclear insurance policies . the 2003 cost increases were partially offset by the absence of a one-time storm fund accrual of $ 35 million recorded in 2002 , as well as productivity improvements in other areas . for the year ended december 31 , 2004 , depreciation and amortization expense increased by $ 17 million , reflecting continued growth of electric utility plant in service . depreciation expense will continue to grow as fpl continues to invest in generation and distribution expansion to support customer growth and demand . the latter half of 2005 will see the introduction of approximately 1,900 mw of natural gas combined-cycle generation at its martin and manatee sites . also , fpl plans to build a 1,150 mw natural gas-fired plant with a planned in-service date of mid-2007 as discussed below . depreciation and amortization expense increased in 2003 by $ 67 million primarily due to fpl 's investment in generation and distribution expansion to support customer growth and demand which included the completion of the fort myers and sanford repowering projects . fpl has received 20 year operating license extensions for its four nuclear units . the original license expiration dates for turkey point units nos . 3 and 4 and for st. lucie units nos . 1 and 2 are 2012 , 2013 , 2016 and 2023 , respectively . fpl has not yet decided to operate past the original license expiration dates , although fpl is continuing to take actions to ensure the long-term viability of the units in order to preserve this option . the decision will be made for turkey point units nos . 3 and 4 by 2007 and for st. lucie units nos . 1 and 2 by 2011. any adjustment to depreciation and decommissioning rates would require fpsc approval . interest charges for 2004 increased primarily due to an increase of 40 basis points in average interest rates as compared to 2003 , higher average debt balances used to fund increased investment in generation , transmission and distribution expansion and to pay for storm restoration costs . interest charges for 2003 increased primarily due to higher average debt balances used to fund increased investment in generation , transmission and distribution expansion and under-recovery of fuel costs . this increase was partially offset by a decline in average interest rates of approximately 80 basis points in 2003 as compared to 2002. fpl currently faces competition from other suppliers of electrical energy to wholesale customers and from alternative energy sources and self-generation for other customer groups , primarily industrial customers . in 2004 , operating revenues from wholesale and industrial customers combined represented approximately 4 % of fpl 's total operating revenues . various states , other than florida , have enacted legislation or have state commissions that have issued orders designed to allow retail customers to choose their electricity supplier . this regulatory restructuring is expected to result in a shift from cost-based rates to market-based rates for energy production and other services provided to retail customers . although the legislation and initiatives vary substantially , common areas of focus include when market-based pricing will be available for wholesale and retail customers , what existing prudently incurred costs in excess of the market-based price will be recoverable and whether generating assets should be separated from transmission , distribution and other assets . it is generally believed that transmission and distribution activities would remain regulated . within the last few years , these state restructuring efforts have diminished , and several states have delayed the implementation or reversed previously approved restructuring legislation and rules . management believes it is unlikely there will be any state actions to restructure the electric industry in florida in the near future . the fpsc promotes competition for building major new steam generating capacity by requiring investor-owned electric utilities , such as fpl , to issue an rfp . the rfp process allows independent power producers and others to bid to supply the needed generating capacity . if a bidder has the most cost-effective alternative , meets other criteria such as financial viability and demonstrates adequate expertise and experience in building and or operating generation capacity of the type proposed , the investor-owned electric utility would seek to negotiate a power purchase agreement with the selected bidder and request that the fpsc authorize the construction of the bidder 's generation capacity under the terms of the power purchase agreement .
| in addition , 2003 results at the corporate and other segment benefited from the absence of certain impairment and other charges , net of income tax settlements , recorded in 2002 which reduced 2002 results by $ 64 million ( $ 152 million pretax ) . in addition , fpl energy 's net income for 2003 reflects unrealized gains from non-qualifying hedges of $ 22 million compared to $ 1 million in 2002. fpl group 's 2004 net income also benefited from certain state tax benefits resulting from fpl energy 's growth throughout the united states , as well as the resolution of other tax issues . fpl group 's effective tax rate for all periods presented reflect production tax credits for wind projects at fpl energy . the effective tax rate for the year ended december 31 , 2002 was further reduced by a gain from the resolution of an income tax matter . fpl group and its subsidiaries segregate unrealized mark-to-market gains and losses on derivative transactions into two categories . the first category , referred to as trading and managed hedge activities , represents the net unrealized effect of actively traded positions entered into to take advantage of market price movements and to optimize the value of generation assets and related contracts . the second category , referred to as non-qualifying hedges , represents the net unrealized effect of derivative transactions entered into as economic hedges ( but which do not qualify for hedge accounting under fas 133 , `` accounting for derivative instruments and hedging activities , '' as amended ) and the ineffective portion of transactions accounted for as cash flow hedges . these transactions have been entered into to reduce fpl group 's aggregate risk . fpl group 's management uses earnings excluding certain items ( adjusted earnings ) , which in 2004 were the mark-to-market effect of non-qualifying hedges , internally for financial planning , for reporting of results to the board of directors and for fpl group 's employee incentive compensation plan . fpl
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challenges : our success in this market will depend on the number of service providers and enterprise customers we are able to attract , and on the volume of usage and dolby conference phones that we are able to sell . revenue from significant customers in fiscal 2016 , we did not have any individual customers whose revenue exceeded 10 % of our total revenue . in fiscal 2015 and 2014 , revenue from samsung represented approximately 12 % and 11 % of our total revenue , respectively , and consisted primarily of licensing revenue from our mobile and broadcast markets . 30 critical accounting policies and estimates our consolidated financial statements and accompanying notes are prepared in accordance with u.s. gaap , and pursuant to sec rules and regulations . the preparation of these financial statements requires us to establish accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities , revenue and expenses . the sec considers an accounting policy and estimate to be critical if it is both important to a company 's financial condition or results of operations , and requires significant judgment by management in its application . if actual results or events differ materially from our judgments and estimates , our reported financial condition and results of operation for future periods could be materially affected . historically , actual results have not differed significantly from our estimates and assumptions . on a regular basis , we evaluate our assumptions , judgments , and estimates and these have not changed notably in recent years nor do we anticipate them to change notably in the future . we have reviewed the selection and development of the critical accounting policies and estimates discussed below with the audit committee of our board of directors . revenue recognition 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 probable . determining whether and when these criteria have been satisfied may involve assumptions and judgments that can have a significant impact on the timing and amount of revenue we report . revenue recognition for transactions may include multiple elements such as hardware and accompanying software , upgrade rights , support , maintenance and extended warranty services , and rights to receive commissioning services in connection with certain digital servers . for these transactions , we may also have to exercise judgment in performing the following : identifying the significant deliverables within the arrangements and determining whether the significant deliverables constitute separate units of accounting . we evaluate each element in a multiple-element arrangement to determine whether it represents a separate unit of accounting . an element constitutes a separate unit of accounting when it has standalone value and delivery of an undelivered element is both probable and within our control . when these criteria are not met , the delivered and undelivered elements are combined and the arrangement fees are allocated to this combined single unit ; assessing inputs used to determine selling price ( whether vsoe , tpe , or esp ) for the significant deliverables . we determine our esp for an individual element within a me revenue arrangement using the same methods used to determine the selling price of an element sold on a standalone basis . if we sell the element on a standalone basis , we estimate the selling price by considering actual sales prices . otherwise , we estimate the selling price by considering internal factors such as pricing practices and margin objectives . consideration is also given to market conditions such as competitor pricing strategies , customer demands and industry technology lifecycles . management applies judgment to establish margin objectives , pricing strategies and technology lifecycles ; estimating , as necessary , the period of time over which customers receive certain elements of the arrangement following initial delivery so as to assess the period over which revenue should be recognized . goodwill , intangible assets , and long-lived assets as part of our annual goodwill impairment test , we first evaluate goodwill to determine if it is more likely than not that the occurrence of an event or change in circumstances has reduced the fair value of a reporting unit below its carrying value . this qualitative assessment requires that we consider events or circumstances that may include macroeconomic conditions , industry and market considerations , cost factors , overall financial performance , changes in management or key personnel , changes in strategy and changes in customers . if the qualitative assessment indicates that the two-step quantitative analysis should be performed , we exercise judgment at various steps , including the identification of reporting units , assignment of goodwill to reporting units , and determination of the fair value of each reporting unit . we assess the fair value of each reporting unit using expected cash flows that reflect our best estimate of future revenue using our historical information , third-party industry data , and review of our internal operations . we also estimate operating costs using these sources . we adjust expected future cash flows by discount rates based on our weighted average cost of capital and related considerations . the estimates used to calculate the fair value of a reporting unit may change from year to year based on operating results , market conditions , and other factors . changes in these estimates and assumptions could materially affect the determination of fair value and goodwill impairment , if any , for each reporting unit . 31 intangible assets and long-lived assets subject to amortization and depreciation , respectively , are only evaluated for impairment upon a significant change in the operating or macroeconomic environment . if an asset 's undiscounted future cash flows are lower than its carrying value , the asset is written down to its estimated fair value , which is based on its discounted future cash flows . story_separator_special_tag assessing discounted future cash flows requires management to make assumptions and exercise judgment in forecasting revenues , operating costs , and the useful lives of assets , as well as selecting the discount rate that reflects the risk inherent in our future cash flows . stock-based compensation to determine the fair value of a stock-based award using the black-scholes option pricing model , we make assumptions regarding the expected term of the award , the expected future volatility of our stock price over the expected term of the award , the risk-free interest rate over the expected term of the award and the anticipated dividend payout over the expected term of the award . we estimate the expected term of our stock-based awards by evaluating historical exercise patterns of our employees . we use a blend of the historical volatility of our common stock and the implied volatility of our traded options as an estimate of the expected volatility of our stock price over the expected term of the awards . we use an average interest rate based on u.s. treasury instruments with terms consistent with the expected term of our awards to estimate the risk-free interest rate . we reduce the stock-based compensation expense for estimated forfeitures based on our historical experience . we are required to estimate forfeitures at the time of the grant and revise our estimate , if necessary , in subsequent periods if actual forfeitures differ from our estimate . income taxes we make estimates and judgments that affect our accounting for income taxes . this includes estimating temporary differences from differing treatment of items for tax and accounting purposes , future taxable income and actual tax exposure , possible or likely changes in current tax laws , and uncertainties in tax positions . these differences result in deferred tax assets and liabilities which are included in our consolidated balance sheets . we recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities , based on the technical merits of the position . the tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement . we also assess the likelihood that our deferred tax assets will be recovered from future taxable income , and to the extent that we believe that recovery is not likely , we establish a valuation allowance . lastly , we are subject to the review of our income tax returns by the irs and other tax authorities here in the u.s. and abroad . we periodically assess the likelihood of adverse outcomes from these examinations to determine the adequacy of our provision for income taxes . 32 results of operations for each line item included on our consolidated statements of operations described and analyzed below , the significant factors identified as the leading drivers contributing to the overall fluctuation are presented in descending order according to the quantitative magnitude of their impact on the overall change ( from an absolute value perspective ) . note that recovery payments received from licensees either in the form of back payments or settlements are collectively referred to as `` recoveries . '' our annual fiscal reporting periods generally consist of 52 weeks . however , our fiscal year ended september 30 , 2016 consisted of 53 weeks . the occurrence of an additional week during the current fiscal period results in proportionately higher operating expenses related to compensation , depreciation and amortization that are not entirely offset by incremental revenue that may have been earned during the additional week . revenue and gross margin licensing licensing revenue consists of fees earned from licensing our technologies and ip to customers who incorporate them into their products and services to enable and enhance audio , imaging and communications capabilities . the technologies and ip that we license are either internally developed , acquired , or licensed from third parties . our cost of licensing consists mainly of amortization of purchased intangible assets and intangible assets acquired in business combinations , third party royalty obligations paid to license ip and certain legal costs . replace_table_token_9_th 2016 vs. 2015 factor revenue gross margin broadcast á higher revenue from recoveries , patent licensing , and higher volume of tvs , partially offset by lower volume of stbs â increase in cost of licensing primarily due to amortization on newly-acquired assets other á higher revenue from dolby cinema and administrative fees from via licensing patent pools ce á higher volume of dmas and patent licensing , partially offset by lower volume of dvds , htibs and blu-ray and to a lesser extent , lower recoveries mobile â decrease due to timing of revenue under contractual arrangements , partially offset by higher penetration into mobile platforms pc ßà increase due to timing of revenue under contractual arrangements , offset by declines in pc market volumes and lower recoveries 2015 vs. 2014 factor revenue gross margin pc â lower asps from product mix as fewer pcs included optical disc drives , and lower shipments , partially offset by an increase in recoveries ßà no significant fluctuations other á higher automotive dvd shipments and recovery activity , new revenue from dolby voice , and higher shipments of gaming consoles ce â lower shipments of dvds , avrs , htibs and blu-ray discs , partially offset by higher shipments of soundbars and an increase in recoveries broadcast á increase in patent licensing and higher shipments of stbs , partially offset by lower recoveries as fiscal 2014 included a payment of $ 24.7 million from a large licensee mobile ßà no significant fluctuations 33 products products revenue is generated from the sale of audio and imaging products for the cinema , broadcast , and communications industries .
| over the last fiscal year , we have added approximately 30 dolby cinema locations , with just over 40 operating today . the majority of these are with our largest exhibitor partner , amc , with whom we have plans to open 160 dolby cinema at amc sites by the end of calendar 2018. our second largest exhibitor partner , wanda , has now opened four dolby cinema locations in china , and plans to open 100 locations . just a few months ago , jackie chan cinemas opened its first dolby cinema at the highest grossing complex in china . jackie chan cinemas plans on opening ten more dolby cinema sites within the next two years . in total , we have about 300 dolby cinema locations open or committed around the world with our current exhibitor partners . dolby cinema has also attracted strong support from the creative community as every major studio has announced their support for dolby cinema . in just over a year , there are over 50 theatrical titles with dolby 29 vision and dolby atmos announced or released , and in the past two fiscal quarters , the first chinese movies optimized for dolby cinema were released . challenges : although the premium large format sector of the cinema industry is currently growing , dolby cinema is in competition with other existing solutions . our success with this initiative depends on our ability to differentiate our offering , deploy new sites in accordance with plans , and attract and retain a global viewing audience . dolby vision highlights : by partnering with key players in the market , dolby vision tvs are now available globally . lg , the world 's second largest tv manufacturer , includes dolby vision on their full 2016 lineup of oled and super uhd lcd tvs ; vizio , the second largest tv manufacturer in the u.s. , includes dolby vision on their r , p , and m series ; and tcl , the
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hdd on the delmarva peninsula in 2009 increased by 298 , or seven percent , compared to 2008 , and by 267 , or six percent , compared to normal . we estimate that colder weather contributed approximately $ 679,000 and $ 1.6 million in additional gross margin for our delmarva natural gas and propane distribution operations in 2010 and 2009 , respectively , compared to the respective prior year . we also estimate that the effect of the colder-than-normal temperatures on the delmarva peninsula in 2010 was increased gross margin of $ 1.6 million for our delmarva natural gas and propane distribution operations . chesapeake utilities corporation 2010 form 10-k page 32 management 's discussion and analysis the colder temperatures in 2010 in florida produced average hdd that were 590 , or 65 percent , higher than 2009 and 582 , or 63 percent , higher than normal . the average hdd in 2009 and 2008 were fairly consistent and did not fluctuate significantly from the normal weather . the warmer temperatures in the summer of 2010 also produced average cdd for the year that were 89 , or three percent , higher than the prior year and 141 , or five percent , higher than normal . we estimate that colder weather in the winter months and warmer weather in the summer months contributed approximately $ 1.4 million in additional gross margin for our florida natural gas and electric distribution operations in 2010 , compared to 2009. growth . despite the continued slowdown in growth and overall economic conditions on the delmarva peninsula , our delmarva natural gas distribution operations achieved two percent growth in average residential customers in both 2010 and 2009 , compared to the respective prior year . these growth rates exceeded the industry 's growth rates . in addition to the residential growth , in 2010 , our delmarva natural gas distribution operations added 10 large commercial and industrial customers with total expected annual margin of $ 748,000 , as they were able to convert these customers to natural gas from other energy sources due to the pricing advantage of natural gas and its environmentally-friendly features . in total , customer growth for the delmarva natural gas distribution operations generated additional margin of $ 1.1 million and $ 1.2 million in 2010 and 2009 , respectively , compared to the respective prior year . the addition of certain industrial customers in 2010 also positioned us to further extend our natural gas distribution and transmission infrastructure in southern delaware to serve other potential customers in the same area . esng continued to expand its infrastructure and add new transportation services . the additional margin generated from the continued expansions and new services , net of the expired services , was $ 1.1 million and $ 1.8 million in 2010 and 2009 , respectively , compared to the respective prior year . although not affecting our results in 2010 , esng completed the eight-mile mainline extension in december 2010 to interconnect with the tetlp pipeline . esng commenced its new transportation services to chesapeake 's delaware and maryland divisions in january 2011. the new transportation services have a three-year phase-in from 19,324 mcfs per day to 38,647 mcfs per day , providing estimated annualized margin of $ 2.4 million in 2011 , $ 3.9 million in 2012 and $ 4.3 million thereafter . fpu 's natural gas distribution operation experienced growth in commercial and industrial customers in 2010 , which contributed $ 196,000 in additional margin in 2010. chesapeake 's florida natural gas distribution division experienced a slight growth in customers in 2010 after experiencing a net customer loss in 2009 , including a loss of three large industrial customers , in florida in late 2008 and 2009 , which decreased its margin by $ 190,000 in 2009 compared to 2008. customer growth in the florida electric and propane distribution operations was flat . rates and regulatory matters . on january 14 , 2010 , new rates for chesapeake 's florida natural gas distribution division became effective . the new rates for chesapeake 's florida natural gas distribution division represented an annual rate increase of approximately $ 2.5 million and generated $ 2.3 million in increased margin in 2010 , net of the impact from the interim rates in 2009 , compared to 2009. an annual rate increase of approximately $ 8.0 million for fpu 's natural gas distribution operation pursuant to the settlement agreement also became effective on january 14 , 2010. the florida psc previously issued an order in may 2009 , approving a rate increase for fpu 's natural gas distribution operation . the subsequent protest by the office of public counsel of florida led to this settlement agreement between the office of public counsel and fpu , which the florida psc approved in december 2009. chesapeake utilities corporation 2010 form 10-k page 33 management 's discussion and analysis the merger with fpu and the purchase of the operating assets of igc resulted in approximately $ 34.9 million in purchase premium , which we intend to seek the recovery through rates . we also intend to seek the recovery of approximately $ 2.2 million in merger-related costs attributed to the natural gas operations . our florida natural gas distribution operations are required to submit to the florida psc by april 29 , 2011 data that details benefits , synergies , cost savings and cost increases resulting from the merger . we are currently in the process of discussing with the office of public counsel and the florida psc staff the benefits and cost savings resulted from the merger , current and expected operating results of the regulated operations in florida , and recovery of the purchase premium and merger-related costs . our results in 2010 reflect an accrual of $ 750,000 by fpu 's natural gas distribution operation for the regulatory risk associated with its earnings , merger benefits and recovery of purchase premium and merger-related costs . story_separator_special_tag also reflected in our 2010 results were approximately $ 75,000 of the costs associated with these discussions , which were expensed in 2010. although not affecting our results in 2010 , esng filed a proposed rate increase with the ferc on december 30 , 2010. esng expects this base rate proceeding to be completed in 2011. esng expensed approximately $ 147,000 in costs associated with this filing in 2010. propane prices . a sharp decline in propane prices in the winter months when our propane inventory is at its highest level exposes us to inventory valuation risk as gaap requires us to re-value the propane inventory using the lower-of-cost-or-market approach . we have implemented various propane supply and inventory strategies to hedge such risk . in late 2008 , a sharp decline in propane prices resulted in inventory and swap valuation adjustments of $ 1.8 million in 2008 , which lowered the propane inventory cost of our delmarva propane distribution operation during the first half of 2009. the absence of similar inventory valuation adjustments in 2009 and increased margin generated from the low propane cost during the first half of 2009 , coupled with sustained retail prices , contributed to increased gross margin of $ 3.5 million in 2009 compared to 2008 for the delmarva propane distribution operation . retail margins returned to more normal levels in 2010. continued lack of volatility in wholesale propane prices reduced the opportunities for our propane wholesale marketing subsidiary , xeron , and decreased its trading volume by 13 percent and 57 percent in 2010 and 2009 , respectively , compared to the respective prior year . the lower volumes reduced gross margin by approximately $ 441,000 and $ 1.0 million for 2010 and 2009 , respectively , over the prior year . natural gas spot sale opportunities . our unregulated natural gas marketing subsidiary , pesco , entered into spot sales in 2009 with a refinery on the delmarva peninsula , which contributed significantly to pesco 's gross margin increase of $ 1.0 million in 2009. the absence of spot sales opportunities to the same customer in 2010 reduced pesco 's margin in 2010 , compared to 2010. spot sales are not predictable , and , therefore , are not included in our long-term financial plans or forecasts . interest rates . we continued to experience low short-term interest rates throughout 2010 and 2009 as our short-term weighted average interest rate approximated 1.77 percent in 2010 , 1.28 percent in 2009 , and 2.79 percent in 2008. the level of our short-term borrowings in 2010 increased over 2009 as we used a new short-term term loan facility to finance the redemption of $ 29.1 million of fpu 's 6.85 percent and 4.90 percent secured first mortgage bonds prior to their respective maturities . the level of our short-term borrowings in 2009 was reduced by the placement of $ 30.0 million of 5.93 percent unsecured senior notes in october 2008 and a decline in working capital requirements due to lower commodity prices , lower trading volume by the propane wholesale marketing subsidiary , lower income tax payments from bonus depreciation and the timing of our capital expenditures . chesapeake utilities corporation 2010 form 10-k page 34 management 's discussion and analysis advanced information services . our advanced information services subsidiary , bravepoint , generated $ 759,000 in operating income in 2010 , compared to an operating loss of $ 229,000 in 2009. increased billable consulting hours in 2010 and cost containment actions implemented throughout 2009 contributed to the increased operating results . ( c ) critical accounting policies we prepare our financial statements in accordance with gaap . application of these accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets , liabilities , revenues and expenses , and related disclosures of contingencies during the reporting period . we base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . since most of our businesses are regulated and the accounting methods used by these businesses must comply with the requirements of the regulatory bodies , the choices available are limited by these regulatory requirements . in the normal course of business , estimated amounts are subsequently adjusted to actual results that may differ from estimates . management believes that the following policies require significant estimates or other judgments of matters that are inherently uncertain . these policies and their application have been discussed with our audit committee . regulatory assets and liabilities as a result of the ratemaking process , we record certain assets and liabilities in accordance with financial accounting standards board ( fasb ) accounting standards codification ( asc ) topic 980 , regulated operations , consequently , the accounting principles applied by our regulated energy businesses differ in certain respects from those applied by the unregulated businesses . costs are deferred when there is a probable expectation that they will be recovered in future revenues as a result of the regulatory process . as more fully described in item 8 under the heading notes to the consolidated financial statements note a , summary of accounting policies , we have recorded regulatory assets of $ 23.9 million and regulatory liabilities of $ 47.8 million , at december 31 , 2010. if we were required to terminate application of this topic , we would be required to recognize all such deferred amounts as a charge or a credit to earnings , net of applicable income taxes . such an adjustment could have a material effect on our results of operations .
| fpu 's results , which have been included in our consolidated results since the completion of the merger on october 28 , 2009 , added $ 7.5 million to our consolidated net income in 2010 , which generated an increase of $ 0.22 per share ( diluted ) in 2010. a decrease in fpu merger-related costs also added $ 0.12 per share ( diluted ) to the increase in 2010. the following table illustrates the effect of the merger on our results for the year ended december 31 , 2010 and december 31 , 2009. replace_table_token_19_th ( 1 ) fpu operating results are for the period from the merger closing ( october 28 , 2009 ) to december 31 , 2009 2009 compared to 2008 our net income increased by approximately $ 2.3 million , or $ 0.17 per share ( diluted ) , in 2009 , compared to 2008. excluding fpu 's results and the merger-related costs , chesapeake 's legacy businesses generated an increase in net income of $ 1.0 million , or $ 0.12 per share ( diluted ) in 2009. this increase in the diluted earnings per share , which is calculated based on weighted average common shares outstanding , exclusive of the shares issued in the fpu merger , represents five-percent growth in 2009. continued growth and expansions in our natural gas distribution and transmission businesses on the delmarva peninsula , and increased retail margins in the propane distribution business , favorable weather impact and spot sale opportunities by our natural gas marketing business contributed to this increase . fpu 's net income included in our consolidated results in 2009 , which represents its net income since the completion of the merger , was $ 1.8 million , generating an additional $ 0.12 per share ( diluted ) . chesapeake utilities corporation 2010 form 10-k page 39 management 's discussion and analysis the following table illustrates the effect of the merger on our results for the year ended december 31 , 2009 and the results in 2008. replace_table_token_20_th ( 1 ) fpu operating results are for the period from the merger closing ( october 28 , 2009 ) to december 31 , 2009 chesapeake utilities corporation 2010 form 10-k page 40 management 's discussion and analysis regulated energy replace_table_token_21_th weather and customer analysis replace_table_token_22_th ( 1 ) average number of residential customers for fpu are included in 2010 and 2009 . 2010 compared to 2009 operating income for the regulated energy segment increased by approximately $ 16.6 million , or 62 percent , in 2010 , compared to 2009 , which was generated from a gross margin increase of $ 51.4 million , offset partially by an operating expense increase of $ 34.8 million . our 2010 results include
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our t ransition to profitability is dependent upon , among other things , the successful development and commercialization of our product candidates and the achievement of a level of revenues adequate to support our existing cost st ructure . we may never achieve profitability or generate positive cash flows , and unless and until we do , we will continue to need to raise additional cash . management intends to fund future operations through additional private and or public offerings of debt or equity securities . in addition , management may seek additional capital through arrangements with strategic partners or from other sources , it may seek to restructure our secured debt with triplepoint and it will continue to address the company 's cost structure . notwithstanding , there can be no assurance that we will be able to raise additional funds , or achieve or sustain profitability or positive cash flows from operations . based on our operating plan , existing working capital at december 31 , 2013 was not sufficient to meet the cash requirements to fund planned operations through december 31 , 2014 without additional sources of cash . these conditions raise substantial doubt about our ability to continue as a going concern . agri-energy in september 2010 , we acquired the agri-energy facility which we have retrofitted for the production of isobutanol . as of december 31 , 2013 , we have incurred capital costs of approximately $ 65.7 million on the retrofit of the agri-energy facility . the retrofit of the agri-energy facility includes a number of additional capital costs that are unique to the design of the facility , including additional equipment that we believe will allow us to switch between ethanol and isobutanol production , or produce both products simultaneously , modifications to increase the potential production capacity of gift ® at the agri-energy facility and the establishment of an enhanced yeast seed train to accelerate the adoption of improved yeast at the agri-energy facility and at future plants . capital expenditures at the agri-energy facility also include upfront design and engineering costs , plant modifications identified as necessary during initial startup operations for the production of isobutanol as well as capitalized interest . in may 2012 , we commenced initial startup operations for the production of isobutanol at the agri-energy facility . in september 2012 , as a result of a lower than planned production rate of isobutanol we made the strategic decision to pause isobutanol production at the agri-energy facility at the conclusion of startup operations to focus on optimizing specific parts of the process to further enhance isobutanol production rates . in 2013 , we modified our agri-energy facility which we believe will allow us to increase the production rate . in 2013 , we modified our agri-energy facility which we believe will allow us to increase the production rate . in june 2013 , we resumed the limited production of isobutanol operating one fermenter and one gift ® separation system in order to ( i ) verify that the modifications had significantly reduced the previously identified infections , ( ii ) demonstrate that our biocatalyst performs in the one million liter fermenters at the agri-energy facility , and ( iii ) confirm gift ® efficacy at commercial scale at the agri-energy facility . in august 2013 , we expanded production capacity at the agri-energy facility by adding a second fermenter and second gift ® system to further verify our results with a second configuration of equipment . for these initial production runs , we demonstrated fermentation operations at commercial scale combined with the use of our gift ® separation system using a dextrose ( sugar ) feedstock . based on the results of these initial production runs , in october 2013 we began commissioning the agri-energy facility on corn mash to test isobutanol production run rates and to optimize biocatalyst production , fermentation separation and water management systems . in march 2014 , we decided to leverage the flexibility of our gift® technology and modify the agri-energy facility which we believe will enable the simultaneous production of isobutanol and ethanol . in line with our strategy to maximize asset utilization and site cash flows , this configuration of the plant should allow us to continue to optimize our isobutanol technology at a commercial scale , while taking advantage of the strong ethanol margins currently available in the marketplace . as of december 31 , 2013 , we have incurred capital expenditures of approximately $ 65.7 million on the retrofit of the agri-energy facility . capital expenditures at the agri-energy facility include upfront design and engineering expenses , plant modifications identified as necessary during initial startup operations for the production of isobutanol as well as capitalized interest . the retrofit of the agri-energy facility also includes a number of additional capital costs that are unique to the design of the facility , including additional equipment that we believe will allow us to switch between ethanol and isobutanol production , modifications to increase the potential production capacity of gift ® at the agri-energy facility and the establishment of an enhanced yeast seed train to accelerate the adoption of improved yeast strains at the agri-energy facility and at future plants . until may 2012 , when we commenced initial retrofit startup operations for the production of isobutanol at the agri-energy facility , we derived revenue from the sale of ethanol , distiller 's grains and other related products produced as part of the ethanol production process at the agri-energy facility . continued ethanol production during the retrofit process allowed us to retain local staff for the future operation of the plant , maintain the equipment and generate cash flow . however , the continued production of ethanol alone is not our intended business and our future return on invested capital depends on our ability to produce and market 66 isobutanol and products derived from isobutanol . story_separator_special_tag we believe that we will be able to transition back to the production and sale of ethanol and related products at the agri-energy facility , in whole or in part , if we were to project positive cash flows from ethanol operations versus maintaining the facility at idle , including any costs related to the transition , but there is no guarantee that this will be the case . during 2013 , we did not transition back to ethanol production because we were engaged in activities at the agri-energy facility to optimize specific parts of our technology to further enhance isobutanol production rates . following the commencement of full-scale commercial production of isobutanol , we do not expect to generate significant future revenues from the sale of ethanol produced at the agri-energy facility . accordingly , the historical operating results of our subsidiary , agri-energy , and the operating results reported during the retrofit to isobutanol production may not be indicative of future operating results for agri-energy or gevo once full-scale commercial production of isobutanol commences at the agri-energy facility . revenues , cost of goods sold and operating expenses revenues during 2013 , we generated revenue primarily from : ( i ) hydrocarbon sales consisting primarily of the sale of biojet fuel derived from our isobutanol for purposes of certification and testing ; ( ii ) revenue from government grants and research and development programs ; and ( iii ) sales of excess corn inventory . during the years ended december 31 , 2012 and 2011 , we derived revenue primarily from the sale of ethanol and from grants , research and development programs . substantially all ethanol sold through agri-energy from the date of acquisition through december 31 , 2012 was sold to c & n pursuant to an ethanol purchase and marketing agreement . cost of goods sold and gross ( loss ) margin our cost of goods sold during the years ended december 31 , 2013 and 2012 primarily includes costs : ( i ) incurred in conjunction with the initial operations for the production of isobutanol at the agri-energy facility ; ( ii ) associated with the production of ethanol ; and ( iii ) associated with the sale of excess corn inventory . costs associated with the initial operations for the production of isobutanol include costs for direct materials , direct labor , plant utilities , including natural gas , and plant depreciation . direct materials consist of dextrose for initial production of isobutanol , corn feedstock , denaturant and process chemicals . direct labor includes compensation of personnel directly involved in production operations at the agri-energy facility . our cost of goods sold during the year ended december 31 , 2011 primarily includes costs associated with the production of ethanol . we periodically enter into forward purchase contracts and exchange-traded futures contracts associated with corn . accordingly , our cost of goods sold also includes gains or losses and or changes in fair value from our forward purchase contracts and exchange-traded futures contracts . our gross ( loss ) margin is defined as our total revenues less our cost of goods sold . research and development our research and development costs consist of expenses incurred to identify , develop and test our technologies for the production of isobutanol and the development of downstream applications thereof . research and development expenses include personnel costs ( including stock-based compensati on ) , consultants and related contract research , facility costs , supplies , depreciation and amortization expense on property , plant and equipment used in product development , license fees paid to third parties for use of their intellectual property and patent rights and other overhead expenses incurred to support our research and development programs . research and development expenses also include upfront fees and milestone payments made under licensing agreements and payments for sponsored research and university research gifts to support research at academic institutions . selling , general and administrative selling , general and administrative expenses consist of personnel costs ( including stock-based compensation ) , consulting and service provider expenses ( including patent counsel-related costs ) , legal fees , marketing costs , corporate insurance costs , occupancy-related costs , depreciation and amortization expenses on property , plant and equipment not used in our product development programs or recorded in cost of goods sold , travel and relocation and hiring expenses . we also record selling , general and administrative expenses for the operations of the agri-energy facility that include administrative and oversight expenses , certain personnel-related expenses , insurance and other operating expenses . critical accounting policies and estimates the preparation of financial statements in conformity with accounting policies generally accepted in the united states of america ( “ gaap ” ) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 67 at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period . manag ement bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . management evaluates such estimates and judgments on an on-going basis and makes adjustments as deemed necessary . actual results could differ if different estimates and assumptions are used , or if conditions are significantly different in the future . while our significant accounting policies are more fully described in note 1 to our consolidated financial statements included in this report , we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our reported financial results and reflect the more significant judgments and estimates that we use in the preparation of our consolidated financial statements . accounting for convertible debt and embedded derivatives in july 2012 , we sold $ 45.0 million in aggregate principal amount of convertible notes .
| we also incurred $ 6.6 million of startup costs related to isobutanol production at our agri-energy facility . research and development . research and development expenses increased during the year ended december 31 , 2013 primarily due to a $ 4.4 million increase in costs at the demonstration plant located at south hampton 's facility that were incurred to increase our biojet fuel processing capability , costs for the production of test quantities of biojet fuel for the u.s. air force , u.s. army and u.s. navy and the cost to establish a bio-px demonstration plant under our agreement with toray industries . this was partially offset by the following decreases : ( i ) $ 1.5 million in costs associated with laboratory consultants and supplies ; ( ii ) $ 1.4 million in salary and other compensation-related expenses ; and ( iii ) $ 0.5 million associated with a license fee to cargill that was incurred in 2012. selling , general , administrative and other . the decrease in selling , general , administrative and other expenses during the year ended december 31 , 2013 primarily resulted from the following decreases : ( i ) $ 9.4 million in salary and compensation-related expenses , including $ 4.5 million associated with stock-based compensation ; ( ii ) $ 6.2 million in legal-related expenses including expenses in support of our ongoing litigation with butamax ; ( iii ) $ 2.4 million in other general and administrative costs , including consulting , marketing and website advertising ; and ( iv ) $ 0.8 million in travel-related expenses . this was partially offset by an increase of $ 0.7 million in public company-related expenses . salary and compensation-related expenses for the year ended december 31 , 2012 included severance related payments of $ 1.6 million and a $ 2.6 million expense resulting from the accelerated vesting of warrants due to the departure of three of our executive vice presidents . interest expense . interest expense increased during the year ended december 31 , 2013 primarily resulting from increases of
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f- 7 loss per share – the computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with asc topic no . 260 , “ earnings per share . ” allowance for doubtful accounts - the company establishes an allowance for doubtful accounts to ensure accounts receivables are not overstated due to uncollectibility . bad debt reserves are maintained based on a variety of factors , including the length of time receivables are past due and a detailed review of certain individual customer accounts . if circumstances related to customers change , estimates of the recoverability of receivables would be further adjusted . the allowance for doubtful accounts at december 31 , 2011 and 2010 is $ 4,884 and $ 0 , respectively . long-lived and intangible assets – long-lived assets and certain identifiable definite life intangibles to be held and used by the company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . the story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the consolidated financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material affect on our financial statements . recent acquisition of sumner and la mancha on december 31 , 2011 , we acquired 100 % of the outstanding capital stock of sumner & lawrence limited ( dba sumner associates , inc. ) ( `` sumner '' ) and la mancha company . we paid an aggregate of $ 350,000 for sumner and la mancha , through the issuance of an aggregate of 35,000,000 shares of our common stock to the five former stockholders of such corporations . the results of sumner 's and la mancha 's operations during fiscal 2011 have not been included in the company 's consolidated results of operations . story_separator_special_tag we continue to grow our business . we also expect our expenses to increase substantially on a consolidated basis in 2012 as a result of our acquisition on december 31 , 2011 of sumner and la mancha . our net loss for fiscal 2011 increased overall and totaled $ 910,129 , as compared to $ 421,946 for fiscal 2010. this increase in fiscal 2011 is primarily the result of the increased payroll expenses and non-cash compensation expenses related to our increased operations . for example , the company incurred $ 219,500 of non-cash stock compensation expenses in fiscal 2011 , as compared to no such expenses in fiscal 2010 . 28 liquidity and capital resources as of december 31 , 2011 , we had $ 653,113 in cash and a working capital surplus of $ 770,579 , as compared with $ 226,268 in cash and a working capital surplus of $ 362,497 as of december 31 , 2010. b6 sigma was formed february 5 , 2010 and had not yet generated revenue from services rendered or from other sources from that date through the end of the first quarter of 2011. effective april 15 , 2011 , in a private placement offering with accredited investors , we sold an aggregate of 55,875,000 shares of our common stock , for aggregate net proceeds of $ 1,011,765. we plan to obtain additional funding through private sales of equity and or debt securities . we plan to generate revenues primarily by marketing and selling our manufacturing and materials technologies . however , for the period from our inception through fiscal 2011 , we generated revenues and financed our operations primarily from engineering consulting services we provided during this period and through private sales of our common stock . our continued development in fiscal 2011 of our ipqa ® and munitions technologies will enable us to commercialize these technologies in the remainder of 2012. we will continue to refine those and our other technologies , including our dental implant biomedical prosthetics technology , for commercialization during fiscal 2012. however , until commercialization of such technologies , we plan to fund our development activities and operating expenses by providing consulting services concerning our areas of expertise , i.e. , materials and manufacturing quality technologies , and through the use of proceeds from sales of our securities . we also expect our revenues to increase on a consolidated basis as a result of consulting contracts that we and sumner have . as of march 31 , 2012 , b6 sigma has two active consulting contracts with respect to which we expect to perform and generate up to $ 158,227 in revenues in fiscal 2012. as of march 31 , 2012 , sumner has three active consulting contracts , which sumner expects to perform and generate up to $ 580,100 of revenues in fiscal 2012. la mancha has no active consulting contracts . some of these consulting contracts are fixed price contracts , for which we will receive a specified fee regardless of our cost to perform under such contract . in connection with entering into these fixed-contract consulting arrangements , we are required to estimate our costs of performance . to actually earn a profit on these contracts , we must accurately estimate costs involved and assess the probability of meeting the specified objectives , realizing the expected units of work or completing individual transactions , within the contracted time period . accordingly , if we under-estimate the cost to story_separator_special_tag f- 7 loss per share – the computation of loss per share is based on the weighted average number of shares outstanding during the period in accordance with asc topic no . 260 , “ earnings per share . ” allowance for doubtful accounts - the company establishes an allowance for doubtful accounts to ensure accounts receivables are not overstated due to uncollectibility . bad debt reserves are maintained based on a variety of factors , including the length of time receivables are past due and a detailed review of certain individual customer accounts . if circumstances related to customers change , estimates of the recoverability of receivables would be further adjusted . the allowance for doubtful accounts at december 31 , 2011 and 2010 is $ 4,884 and $ 0 , respectively . long-lived and intangible assets – long-lived assets and certain identifiable definite life intangibles to be held and used by the company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . the story_separator_special_tag critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the reported assets , liabilities , sales and expenses in the accompanying financial statements . critical accounting policies are those that require the most subjective and complex judgments , often employing the use of estimates about the effect of matters that are inherently uncertain . such critical accounting policies , including the assumptions and judgments underlying them , are disclosed in note 1 to the consolidated financial statements included in this annual report . however , we do not believe that there are any alternative methods of accounting for our operations that would have a material affect on our financial statements . recent acquisition of sumner and la mancha on december 31 , 2011 , we acquired 100 % of the outstanding capital stock of sumner & lawrence limited ( dba sumner associates , inc. ) ( `` sumner '' ) and la mancha company . we paid an aggregate of $ 350,000 for sumner and la mancha , through the issuance of an aggregate of 35,000,000 shares of our common stock to the five former stockholders of such corporations . the results of sumner 's and la mancha 's operations during fiscal 2011 have not been included in the company 's consolidated results of operations . story_separator_special_tag we continue to grow our business . we also expect our expenses to increase substantially on a consolidated basis in 2012 as a result of our acquisition on december 31 , 2011 of sumner and la mancha . our net loss for fiscal 2011 increased overall and totaled $ 910,129 , as compared to $ 421,946 for fiscal 2010. this increase in fiscal 2011 is primarily the result of the increased payroll expenses and non-cash compensation expenses related to our increased operations . for example , the company incurred $ 219,500 of non-cash stock compensation expenses in fiscal 2011 , as compared to no such expenses in fiscal 2010 . 28 liquidity and capital resources as of december 31 , 2011 , we had $ 653,113 in cash and a working capital surplus of $ 770,579 , as compared with $ 226,268 in cash and a working capital surplus of $ 362,497 as of december 31 , 2010. b6 sigma was formed february 5 , 2010 and had not yet generated revenue from services rendered or from other sources from that date through the end of the first quarter of 2011. effective april 15 , 2011 , in a private placement offering with accredited investors , we sold an aggregate of 55,875,000 shares of our common stock , for aggregate net proceeds of $ 1,011,765. we plan to obtain additional funding through private sales of equity and or debt securities . we plan to generate revenues primarily by marketing and selling our manufacturing and materials technologies . however , for the period from our inception through fiscal 2011 , we generated revenues and financed our operations primarily from engineering consulting services we provided during this period and through private sales of our common stock . our continued development in fiscal 2011 of our ipqa ® and munitions technologies will enable us to commercialize these technologies in the remainder of 2012. we will continue to refine those and our other technologies , including our dental implant biomedical prosthetics technology , for commercialization during fiscal 2012. however , until commercialization of such technologies , we plan to fund our development activities and operating expenses by providing consulting services concerning our areas of expertise , i.e. , materials and manufacturing quality technologies , and through the use of proceeds from sales of our securities . we also expect our revenues to increase on a consolidated basis as a result of consulting contracts that we and sumner have . as of march 31 , 2012 , b6 sigma has two active consulting contracts with respect to which we expect to perform and generate up to $ 158,227 in revenues in fiscal 2012. as of march 31 , 2012 , sumner has three active consulting contracts , which sumner expects to perform and generate up to $ 580,100 of revenues in fiscal 2012. la mancha has no active consulting contracts . some of these consulting contracts are fixed price contracts , for which we will receive a specified fee regardless of our cost to perform under such contract . in connection with entering into these fixed-contract consulting arrangements , we are required to estimate our costs of performance . to actually earn a profit on these contracts , we must accurately estimate costs involved and assess the probability of meeting the specified objectives , realizing the expected units of work or completing individual transactions , within the contracted time period . accordingly , if we under-estimate the cost to
| technology for oil and gas materials ; · $ 99,487 in revenues in connection with a contract with aerojet , a gencorp inc. ( nyse : gy ) company to supply reactive materials for development testing of munition case liners for the us army ; · $ 75,311 in revenues in connection with a consulting contract with los alamos national laboratory to supply upgraded machine controls technology for packaging of nuclear materials for long-term storage and disposition ; · $ 7,820 in revenues in connection with a contract with messier-bugatti-dowty concerning the application of our ipqa technology for next-generation landing gear materials joining ; · $ 26,404 in revenues in connection with a contract with manufacturing technologies , inc. concerning application of machine health monitoring for a rotary friction welding ; and · $ 50,850 in revenue in connection with a contract with pratt & whitney concerning application of our ipqa technology for development of next-generation joining technology for aero-engine components . our general and administrative expenses for fiscal 2011 were $ 426,519 , as compared to $ 407,358 in fiscal 2010. our payroll expenses for fiscal 2011 were $ 650,181 , as compared to $ 394,029 for fiscal 2010. our expenses relating to non-cash compensation for fiscal 2011 were $ 219,500 , as compared to $ 0 for fiscal 2010. general and administrative expenses principally include organizational expenses and outside services fees , the largest component of which consists of services in connection with our obligations as an sec reporting company , in addition to other legal and accounting fees . the net increase in general and administrative expenses , payroll expenses and non-cash compensation expenses in fiscal 2011 as compared to fiscal 2010 is principally the result of increased outside services costs , payroll obligations and incentive compensation associated with our growing operations , and for the purpose of expanding the same . the company incurred $ 105,000 of non-cash compensation expenses during
| 15,070 |
in general , the discounted mortgage loans are non-performing and there is a significant amount of uncertainty surrounding the timing and amount of cash flows to be received by the company . accordingly , the company records its investment in the discounted mortgage loans at its original purchase price adjusted for any principal receipts received . real estate held-for-investment is stated at cost less accumulated depreciation . depreciation is computed on a straight-line-basis for financial reporting purposes using estimated useful lives of 3 to 30 years . the company periodically reviews its real estate held-for-investment for impairment and test for recoverability whenever events or changes in circumstances indicate the carrying value may not be recoverable . real estate for which the company commits to a plan to sell within one year and actively markets in its current condition , for a reasonable price , in comparison to its estimated fair value , is classified as held-for-sale . real estate held-for-sale is stated at lower of depreciated cost or estimated fair value less expected disposition costs and is not depreciated . notes receivable are reported at their unpaid principal balances , adjusted for valuation allowances . valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected . interest accruals are analyzed based on the likelihood of repayment . the company does not utilize a specified number of days delinquent to cause an automatic non-accrual status . the company 's trading securities and equity securities are carried at fair value with unrealized gains and losses reported in income in the consolidated statements of operations . fair value is the price that the company would expect to receive upon sale of the asset in an orderly transaction . while the available-for-sale securities are generally expected to be held to maturity , they are classified as available-for-sale and are sold periodically to manage risk . although a majority of the investment portfolio is classified as available-for-sale , the company has the ability and intent to hold the securities until maturity . see note 2 – investments in the notes to the consolidated financial statements for detailed disclosures regarding the company 's investment portfolio . impairment of investments – the company continually monitors the investment portfolio for investments that have become impaired in value ; where fair value has declined below carrying value . while the value of the investments in the company 's portfolio continuously fluctuate due to market conditions , an other-than-temporary impairment charge is recorded only when a security has experienced a decline in fair market value which is deemed to be other than temporary . the policies and procedures the company uses to evaluate and account for impairments of investments are disclosed in note 1 – summary of significant accounting policies and note 2 – investments in the notes to the consolidated financial statements . the company makes every effort to appropriately assess the status and value of the securities with the information available regarding an other-than-temporary impairment . however , it is difficult to predict the future prospects of a distressed or impaired security . deferred income taxes – the provision for deferred income taxes is based on the asset and liability method of accounting for income taxes . under this method , deferred income taxes are recognized by applying enacted statutory tax rates to temporary differences between amounts reported in the consolidated financial statements and the tax basis of existing assets and liabilities . a valuation allowance is recognized for the portion of deferred tax assets that , in management 's judgment , is not likely to be realized . story_separator_special_tag estate . the company sold real estate located in tennessee that produced a realized gain of approximately $ 1.1 million and represented approximately 28 % of the net investment gains from real estate . realized gains and losses from equity securities represent the difference between the fair value at the beginning of the reporting period and the fair value at the time of sale . the company reported net realized losses of approximately $ ( 406,000 ) in 2020 from the sales of equity securities . during 2020 , the company sold seven equity securities that produced gross realized gains of approximately $ 2.6 million . the gross gains were offset by the sale of three equity securities that produced gross realized losses of approximately $ 3 million . the sale of three equity securities represents approximately $ 2.5 million of the gross realized investment gains from equity securities during 2020. the sale of these securities was first disclosed in the md & a of the company 's form 10-k filing for the year ended december 31 , 2019. the company disclosed that we received an offer to purchase investments in certain music royalties held in the form of equity securities . we continued to report on these transactions in md & a of company 's 2020 quarterly form 10-q filings . the reported gain changed throughout 2020 as additional proceeds were received . the sales agreements contained holdback provisions for a portion of the sales price . under the terms of the holdback , certain performance results must be achieved during 2020 to release additional sales proceeds to the sellers . at the time of closing , it was determined it was more likely than not that the royalty interests would not perform at the levels necessary to receive the holdback funds . performance was reviewed throughout the year , and was better than anticipated , resulting in the holdback proceeds being released to the seller . a portion of this transaction flows through change in the fair value of equity securities and will be further discussed below . the sale of one common stock represented almost 100 % of the realized losses on equity securities . story_separator_special_tag the company sold 10,000 shares of this common stock holding that is associated with the oil and gas industry . while this security produced a current period realized loss , overall , the sale of this security produced a significant gain for the company over the period it was held . the other component of this transaction flows through the change in the fair value of equity securities and will be further discussed below . during 2019 , the company sold three equity securities that produced gross realized gains of approximately $ 3.5 million . one of those equity securities represented 86 % or approximately $ 3 million of the gross realized gains from equity securities . the company sold 14,000 shares of this common stock holding that is associated with the oil and gas industry . the company sold one equity security in 2019 that produced an immaterial loss . the company reported a change in fair value of equity securities of approximately $ 6.2 million and $ 18.6 million for the years ended december 31 , 2020 and 2019 , respectively . this line item is material to the results reported in the consolidated statements of operations . this line item can also be extremely volatile , reflecting changes in the stock market . while both 2019 and 2020 reflected positive results , 2020 results were only 1/3 of that of 2019. with the onset of the pandemic in march 2020 , the stock market took a major downward swing . at march 31 , 2020 , the company reflected a loss on this line of approximately $ ( 18 ) million . from that point forward , we have seen a recovery in the market sufficient to move this number to a $ 6 million positive by year end . while these results can be material and volatile , most of the equity holdings of the company were acquired with a long-term view , thus making these intermediate changes in value of less concern to management . management monitors its equity holdings looking more at the specific entity and market it is in relative to performance and less to changes due to general market swings that occur over the holding period of the investment . while the company has seen significant positive results on its equity investments in the last two years , a pull back or downward market adjustment could slow these gains or even result in losses in future periods . management believes its current equity investments continue to be solid investments for the company and have further growth potential ; however , changes in market conditions could cause volatility in market prices . in summary , the company 's basis for future revenue is expected to come from the following primary sources : conservation of business currently in-force , the maximization of investment earnings and the acquisition of other companies or policy blocks in the life insurance business . management has placed a significant emphasis on the development of these revenue sources to enhance these opportunities . expenses the company reported total benefits and other expenses of approximately $ 24.7 million and $ 24 million for the years ended december 31 , 2020 and 2019 , respectively . benefits , claims and settlement expenses represented approximately 66 % and 64 % of the company 's total expenses for 2020 and 2019 , respectively . the other major expense category of the company is operating expenses , which represented 32 % and 33 % of the company 's total expenses for 2020 and 2019 , respectively . benefits , claims and settlement expenses , net of reinsurance benefits , were up approximately 6 % or $ 859,000 when comparing 2020 and 2019 results . policy claims vary from year to year and therefore , fluctuations in mortality are to be expected and are not considered unusual by management . early in the covid-19 pandemic , the company implemented a process to monitor death claims resulting from covid-19 . during 2020 , the company incurred total death benefits of approximately $ 844,000 with covid-19 listed as the cause of death . the average death benefit of these policies was $ 9,500. the company will continue to monitor covid-19 death claims . changes in policyholder reserves , or future policy benefits , also impact this line item . reserves are calculated on an individual policy basis and generally increase over the life of the policy as a result of additional premium payments and acknowledgment of increased risk as the insured continues to age . the short-term impact of policy surrenders is negligible since a reserve for future policy benefits payable is held which is , at a minimum , equal to and generally greater than the cash surrender value of a policy . the benefit of fewer policy surrenders is primarily received over a longer time period through the retention of the company 's asset base . the surrender process has been impacted by temporary state rulings that have been implemented as a result of covid-19 and in some cases will not allow life insurance companies to lapse policies temporarily . operating expenses decreased approximately 2 % in 2020 compared to that of the same period in 2019. expenses were comparable in all of the major categories for 2020 and 2019. effective january 1 , 2017 , the company and fsnb began sharing certain services . the shared services focuses on departments commonly utilized by both organizations such as financial accounting , human resources and information technology . the shared services did not initially make a noticeable difference in operating expenses , but provides a larger team , which enhances capabilities and quality . as mentioned above in the overview section of the management discussion and analysis , utg has a strong philanthropic program .
| total benefits and other expenses paid in 2020 were approximately $ 24.7 million compared to $ 24 million in 2019. revenues premiums and policy fee revenues , net of reinsurance premiums and policy fees , declined approximately 8 % when comparing 2020 to 2019. the company writes very little new business . unless the company acquires a new company or a block of in-force business , management expects premium revenue to continue to decline on the existing block of business at a rate consistent with prior experience . the company 's average persistency rate for all policies in-force for 2020 and 2019 was approximately 98 % and 96.6 % , respectively . persistency is a measure of insurance in-force retained in relation to the previous year . the following table summarizes the company 's investment performance for the years ended december 31 : replace_table_token_1_th the following table reflects net investment income of the company for the years ended december 31 : replace_table_token_2_th net investment income represented approximately 35 % and 25 % of the company 's total revenues as of december 31 , 2020 and 2019 , respectively . when comparing current and prior year results , net investment income was comparable in a majority of the investment categories . investment income earned by the fixed maturities , equity securities , and real estate investment portfolios represented approximately 77 % and 78 % of the total consolidated investment income for the years ended december 31 , 2020 and 2019 , respectively . in march 2020 , with the onset of the pandemic in america , financial markets became jittery experiencing a significant drop in the major market indices . in response , the federal reserve dropped interest rates to near zero . this action resulted in a drop in all other interest rates in the marketplace . while this increased the fair value of the company 's current fixed income holdings , it made finding investments to acquire with any type of historic yield
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, compared to $ 3.4 million for 2017 ; ● since december 31 , 2017 , aggregate lease adjusted indebtedness ( which includes the present value of off-balance sheet lease obligations ) , net of cash , increased by $ 35.5 million to $ 255.7 million ; and ● stockholders ' equity at december 31 , 2018 was $ 343.1 million , and tangible book value was $ 269.0 million , or $ 14.65 per basic share . 37 in addition to operating ratio , we use `` adjusted operating ratio '' as a key measure of profitability . adjusted operating ratio means operating expenses , net of fuel surcharge revenue and intangibles , expressed as a percentage of revenue , excluding fuel surcharge revenue . adjusted operating ratio is not a substitute for operating ratio measured in accordance with gaap . there are limitations to using non-gaap financial measures . we believe the use of adjusted operating ratio allows us to more effectively compare periods , while excluding the potentially volatile effect of changes in fuel prices . our board and management focus on our adjusted operating ratio as an indicator of our performance from period to period . we believe our presentation of adjusted operating ratio is useful because it provides investors and securities analysts the same information that we use internally to assess our core operating performance . although we believe that adjusted operating ratio improves comparability in analyzing our period-to-period performance , it could limit comparability to other companies in our industry , if those companies define adjusted operating ratio differently . because of these limitations , adjusted operating ratio should not be considered a measure of income generated by our business or discretionary cash available to us to invest in the growth of our business . management compensates for these limitations by primarily relying on gaap results and using non-gaap financial measures on a supplemental basis . operating ratio operating ratio ( “ or ” ) from 2016 to 2018 replace_table_token_3_th outlook our earnings outlook for 2019 is positive . we expect to deliver earnings improvement for the first quarter of 2019 as compared to the first quarter of 2018. for the full year , we expect adjusted earnings per diluted share to increase modestly over 2018 , based on the favorable impact of a full year of earnings contribution from landair 's service offerings , partially offset by investment in growing the managed freight segment . from a balance sheet perspective , with net capital expenditures scheduled at normal replacement cycle , along with positive operating cash flows , we expect to reduce combined balance sheet and off-balance sheet debt over the course of fiscal 2019. our outlook is based on our expectation of a relatively balanced freight environment measured over the entire 2019 year , with the potential for intra-period volatility in response to national and global events . we believe these conditions are consistent with u.s. economic growth of 2.0 % to 2.5 % , modestly growing industrial production , balanced inventories , and mid-single digit percentage increases in revenue per total mile across our truckload business . the freight market in january has thus far been consistent with our expectations , but not as strong as january 2018 , nor the majority of 2018. beyond the general freight environment , we believe company-specific improvement opportunities exist as we continue to execute on our strategic direction to grow our contract logistics service offerings including dedicated contract truckload , warehousing and transportation management services ( “ tms ” ) . we expect that the growth of our dedicated contract truckload service offering will come somewhat from a re-allocation of capital from our transactional otr truckload service offering , most specifically from the less profitable solo-driven refrigerated otr service . in addition , we expect to continue to invest in the organic growth of our freight brokerage services , which could pressure managed freight profit margins until revenue growth catches up with the investments . even with these changes , attracting and retaining highly qualified , professional truck drivers will remain a significant challenge , and we will continue to work actively with our customers to improve driver compensation , efficiency , and working conditions while providing a high level of service . in the aggregate , the goals of our capital allocation strategy are to become increasingly embedded in our customers ' supply chains , to reduce the cyclicality and seasonality of our business and financial results , and to enhance our long-term earnings power and return on invested capital . 38 story_separator_special_tag roman ' , times , serif ; text-align : justify ; margin-left : 7.5pt ; margin-right : 7.5pt '' > salaries , wages , and related expenses increased approximately $ 62.6 million , or 25.9 % , for the year ended december 31 , 2018 , compared with 2017. as a percentage of total revenue , salaries , wages , and related expenses increased slightly to 34.4 % of total revenue for the year ended december 31 , 2018 , as compared to 34.3 % in 2017. as a percentage of freight revenue , salaries , wages , and related expenses increased to 39.0 % of freight revenue for the year ended december 31 , 2018 , from 38.6 % in 2017. the change in salaries , wages , and related expenses is primarily due to increased headcount from the landair acquisition , pay adjustments for both driver and non-drivers since 2017 , an increase in performance-based incentive compensation expense , and a $ 5.1 million increase in group insurance costs , compared to 2017. these adjustments were partially offset by a decrease in workers ' compensation costs of approximately 0.5 cents per mile , a decrease of $ 2.4 million in fees paid to third party agents in our managed freight segment , and a lower percentage of our fleet comprised of team-driven tractors , which carry the costs of two drivers , as compared to 2017. salaries , wages , and related expenses increased approximately $ 7.3 million , or 3.1 % , for the year story_separator_special_tag ended december 31 , 2017 , compared with 2016. as a percentage of total revenue , salaries , wages , and related expenses decreased to 34.3 % of total revenue for the year ended december 31 , 2017 , as compared to 35.0 % in 2016. as a percentage of freight revenue , salaries , wages , and related expenses increased slightly to 38.6 % of freight revenue for the year ended december 31 , 2017 , from 38.4 % in 2016. the change in salaries , wages , and related expenses is primarily due to pay adjustments for both driver and non-drivers since 2016 and an increase in non-driver incentive compensation . additionally , fees paid to third party agents increased $ 1.1 million as a result of improved managed freight revenue and workers ' compensation costs increased approximately 0.4 cents per mile as compared to the historic lows of 2016. when compared to periods prior to the landair acquisition , we expect salaries , wages and related expenses will be higher as a result of the increased headcount resulting from the landair acquisition . we believe salaries , wages , and related expenses will increase going forward as a result of a tight driver market , which continues to offer significant challenges , wage inflation , higher healthcare costs , and , in certain periods , increased incentive compensation due to better performance . in particular , we expect driver pay to increase as we look to reduce the number of unseated tractors in our fleet in a tight market for drivers . additionally , as freight market rates continue to increase , we would expect to , as we have historically , pass a portion of those rate increases on to our professional drivers . salaries , wages , and related expenses will fluctuate to some extent based on the percentage of revenue generated by independent contractors and our managed freight segment , for which payments are reflected in the purchased transportation line item . fuel expense replace_table_token_6_th we receive a fuel surcharge on our loaded miles from most shippers ; however , this does not cover the entire increase in fuel prices for several reasons , including the following : surcharges cover only loaded miles we operate ; surcharges do not cover miles driven out-of-route by our drivers ; and surcharges typically do not cover refrigeration unit fuel usage or fuel burned by tractors while idling . moreover , most of our business relating to shipments obtained from freight brokers does not carry a fuel surcharge . finally , fuel surcharges vary in the percentage of reimbursement offered , and not all surcharges fully compensate for fuel price increases even on loaded miles . the rate of fuel price changes also can have an impact on results . most fuel surcharges are based on the average fuel price as published by the doe for the week prior to the shipment , meaning we typically bill customers in the current week based on the previous week 's applicable index . therefore , in times of increasing fuel prices , we do not recover as much as we are currently paying for fuel . in periods of declining prices , the opposite is true . fuel prices as measured by the doe averaged approximately $ 0.53 cents per gallon higher in 2018 than 2017 and $ 0.35 cents per gallon higher in 2017 than 2016 . 40 additionally , $ 1.6 million , $ 4.1 million , and $ 16.7 million were reclassified from accumulated other comprehensive income ( loss ) to our results of operations for the years ended december 31 , 2018 , 2017 , and 2016 , respectively , as a reduction to fuel expense for 2018 and as additional fuel expense for 2017 and 2016 , related to gains and losses on fuel hedge contracts that expired . as of december 31 , 2018 , we have no remaining fuel hedge contracts . to measure the effectiveness of our fuel surcharge program , we subtract fuel surcharge revenue ( other than the fuel surcharge revenue we reimburse to independent contractors and other third parties , which is included in purchased transportation ) from our fuel expense . the result is referred to as net fuel expense . our net fuel expense as a percentage of freight revenue is affected by the cost of diesel fuel net of fuel surcharge revenue , the percentage of miles driven by company tractors , our fuel economy , and our percentage of deadhead miles , for which we do not receive material fuel surcharge revenues . net fuel expense is shown below : replace_table_token_7_th total fuel expense increased $ 18.2 million for the year ended december 31 , 2018 , compared with 2017. as a percentage of total revenue , total fuel expense decreased 13.7 % for the year ended december 31 , 2018 , as compared to 2017. as a percentage of freight revenue , total fuel expense decreased to 15.6 % of freight revenue for the year ended december 31 , 2018 , from 16.5 % in 2017. these changes primarily related to a 4.4 % increase in total miles and higher fuel prices in 2018 , offset by net gains from fuel hedging transactions of $ 1.6 million in 2018 compared to losses of $ 4.1 million in 2017. net fuel expense decreased $ 4.7 million , or 14.5 % , for the year ended december 31 , 2018 compared to 2017. as a percentage of freight revenue , net fuel expense decreased 1.7 % for the year ended december 31 , 2018 , compared to 2017. these decreases primarily resulted from higher fuel surcharge recovery as a result of brokering less freight and the tiered reimbursement structure of certain fuel surcharge agreements . the decreases were partially offset by a greater percentage of miles driven by independent contractors , where we pay a rate that reflects then-existing fuel prices and we do not have the natural hedge created by fuel surcharges .
| landair 's shorter average length of haul and dedicated contract , solo-driven tractor operations generally produce higher revenue per total mile and fewer miles per tractor than our other truckload business units . the increase in managed freight revenue is primarily the result of landair 's contribution of $ 41.9 million of revenue to combined managed freight operations , in addition to growth with existing customers and certain internal strategic growth initiatives during 2018 , compared with 2017. for 2017 , total revenue increased $ 34.4 million , or 5.1 % , to $ 705.0 million from $ 670.7 million in 2016. freight revenue increased $ 16.0 million , or 2.6 % , to $ 626.8 million for 2017 , from $ 610.8 million in 2016 , while fuel surcharge revenue increased $ 18.4 million year-over-year . the increase in freight revenue resulted from a $ 22.8 million increase in revenues from managed freight , partially offset by a $ 6.8 million decrease in freight revenue from our truckload segment . the decrease in 2017 truckload revenue relates to a $ 4.2 million decrease in freight revenue contributed by our temperature-controlled intermodal service offering , a decrease in our average tractor fleet of 1.4 % from 2016 , partially offset by an increase in average freight revenue per tractor per week of 0.9 % compared to 2016. the increase in average freight revenue per tractor per week is the result of a 2.1 % increase , or 3.6 cents per mile , in average rate per total mile , partially offset by a 1.4 % decrease in average miles per unit when compared to 2016. team driven units decreased approximately 11.6 % to an average of 912 teams in 2017 from 1,032 teams in 2016. the increase in managed freight revenue is primarily as a result of spot market opportunities related to the hurricane-affected regions during 2017 and growth with existing customers compared with 2016. for comparison purposes in the discussion below , we use total revenue and
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in the fourth quarter of fiscal 2012 , the company sold thirteen patents and two patent applications ( covering covered solid state storage and caching products based on dram , flash , and other solid state technologies ) for a purchase price of $ 5,000,000. under terms of the sale , the company retains a license to continue to use the patents in current and future dataram products ( including xcelasan ) with limited rights to transfer its license . at the time , the company believed that this transaction represented an exceptional opportunity to fund new growth initiatives such as the amd branded products while at the same time protecting the company 's current product portfolio . the transaction also delivered a significant return on the investment the company made several years ago when it committed to use funds to convert certain intellectual property to tangible patent assets . in fiscal 2013 , the company worked to expand its sales of memory products through both existing channels of distribution and its growing web-based marketing and sales . in addition , the company plans to maintain and enhance its status as price performance leader in the virtual ram drive market through its ramdisk products . the company also continued to enhance and market its caching products , and to develop new business opportunities based on its existing expertise and software . the company plans to continue to seek and evaluate possible strategic alliances to enhance its sales , and to develop and monetize additional intellectual property as well . 25 story_separator_special_tag which are reported net of a full valuation allowance in the company 's consolidated financial statements for the fiscal years ended april 30 , 2013 and 2012. the company expects that the entire backlog on hand will be filled during the current fiscal year and most in the first quarter of fiscal 2014. the company 's backlog at april 30 , 2013 was $ 234,000. at april 30 , 2012 , the company 's backlog was $ 626,000. fiscal 2012 compared with fiscal 2011 revenues for fiscal 2012 were $ 36,079,000 compared to $ 46,847,000 in fiscal 2011 , a 22.9 percent decrease . this decrease was primarily the result of the reduction in prices of drams . the average selling price of one gigabyte of memory decreased approximately 43 percent to approximately $ 27 for fiscal 2012 , compared to approximately $ 48 for fiscal 2011. to a lesser extent the buildup of it infrastructure experienced in fiscal 2011 did not continue into fiscal 2012. cost of sales was $ 27,509,000 in fiscal 2012 or 76.2 percent of revenues compared to $ 35,777,000 or 76.4 percent of revenues in fiscal 2011. the cost of sales as a percentage of revenue is considered by management to be within the company 's normal range as evidenced by nominal change as a percentage of revenues combined with the sales decrease . engineering expense in fiscal 2012 was approximately $ 740,000 , versus approximately $ 1,033,000 in fiscal 2011. the reduction of engineering expense was primarily the result of a reduction of one employee and related severance cost in fiscal 2011. research and development expense in fiscal 2012 was $ 0 versus approximately $ 1,894,000 in fiscal 2011. the company capitalized approximately $ 907,000 of xcelasan development cost in fiscal 2012. the company capitalized approximately $ 1,480,000 of xcelasan research and development costs in fiscal 2011. research and development expense includes payroll , employee benefits , stock-based compensation expense , and other headcount-related expenses associated with product development . research and development expense also includes third-party development and programming costs . 28 selling , general and administrative expenses were $ 12,324,000 in fiscal 2012 versus $ 12,371,000 in fiscal 2011. in fiscal 2012 , approximately $ 2,500,000 of xcelasan selling expense was recorded compared to approximately $ 1,200,000 in fiscal 2011. the company 's traditional computer memory selling , general and administrative expense was approximately $ 1,000,000 less in fiscal 2012 as compared to fiscal 2011. this reduction in expense was primarily the result of a reduction of six employees and related benefit expenses . stock-based compensation expense was recorded as a component of selling general and administrative expense and totaled approximately $ 451,000 in fiscal 2012 , versus $ 482,000 in fiscal 2011. in fiscal 2012 , there were options granted to purchase 288,000 shares of the company 's common stock compared to option grants to purchase 139,000 shares in fiscal 2011. intangible asset amortization is recorded as a component of selling general and administrative expense and totaled approximately $ 163,000 in fiscal 2012 , versus $ 407,000 in fiscal 2011. during the third quarter of fiscal 2012 , the xcelasan product was available for general release and generated approximately $ 8,000 of revenue , which was significantly lower than expected . the company capitalized approximately $ 907,000 of xcelasan development cost in fiscal 2012. the company capitalized approximately $ 1,480,000 of xcelasan research and development costs in fiscal 2011. the company determined in fiscal 2012 's third quarter based on the estimated future net realizable value for the expected periods of benefit that the carrying value of capitalized software development cost was impaired . as such , approximately $ 2,387,000 of capitalized software development cost was written down to zero . other income ( expense ) for fiscal year 2012 , totaled approximately $ 3,627,000 income versus $ 401,000 expense in fiscal 2011. other income ( expense ) in fiscal 2012 includes approximately $ 4,078,000 of income recorded for the sale of thirteen patents and two patent applications , net of expenses . other income ( expense ) in fiscal 2012 also includes $ 386,000 of interest expense and $ 65,000 of foreign currency transaction losses , primarily the result of the us dollar strengthening against the euro . other income ( expense ) for fiscal 2011 includes $ 286,000 of interest expense . story_separator_special_tag other income in fiscal year 2011 also includes $ 135,000 of foreign currency transaction losses , primarily as a result of the us dollar strengthening against the euro . additionally , other income ( expense ) includes approximately $ 47,000 of income recorded for the gain on sale of machinery and equipment and approximately $ 30,000 of expenses for bank fees related to loan applications . the company 's consolidated statements of operations for fiscal 2012 and 2011 include tax expense of approximately $ 5,000 each year that consists of state minimum tax payments . liquidity and capital resources the company 's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the united states of america and have been prepared on a going concern basis , which contemplates the realization of assets and the settlement of liabilities in the normal course of business . for the fiscal years ; ended april 30 , 2013 , 2012 and 2011 , the company incurred losses in the amounts of approximately $ 4,625,000 , $ 3,259,000 and $ 4,634,000 , respectively . our continuation as a going concern is dependent upon obtaining the additional working capital necessary to sustain our operations . our future is dependent upon our ability to obtain financing , raise capital through the sales of equity and or debt securities and upon future profitable operations . in the first quarter of fiscal year 2014 , the company eliminated approximately $ 900,000 of expenses on an annual basis . there is no assurance that our current operations will be profitable or we will raise sufficient funds to continue operating . the company continues to seek out opportunities to trim overhead expenses to meet revenues . the financial statements do not include any adjustments relating to the recoverability and classification of recorded assets , or the amounts of and classification of liabilities that might be necessary in the event we can not continue in existence . these factors raise substantial doubt about the company 's ability to continue as a going concern . 29 cash and cash equivalents at april 30 , 2013 amounted to $ 324,000 and working capital amounted to $ 2,560,000 , reflecting a current ratio of 1.7 to 1 , compared to cash and cash equivalents of $ 3,275,000 and working capital of $ 6,690,000 and a current ratio of 4.0 to 1 as of april 30 , 2012. at april 30 , 2013 , the company had approximately $ 431,000 of additional financing available , and , with cash and cash equivalents on hand at april 30 , 2013 is expected to support the company 's activities into the third fiscal quarter beginning november 1 , 2013. accounts receivable at the end of fiscal 2013 , totaled $ 2,885,000 compared to $ 2,605,000 at the end of fiscal 2012. net cash used in operating activities totaled $ 3,882,000 for fiscal 2013. net losses totaled approximately $ 4,625,000 for fiscal 2013. depreciation and amortization expense of approximately $ 443,000 and stock-based compensation expense of $ 231,000 were recorded in fiscal 2013. in fiscal 2013 , an impairment of intangible asset charge of $ 438,000 was also recorded . accounts receivable increased by approximately $ 337,000 and accounts payable decrease by approximately $ 70,000. inventories and other current assets decreased by $ 29,000 and $ 34,000 , respectively . the company does not expect to improve trade terms with suppliers until profitability returns . net cash used in investing activities totaled approximately $ 349,000 in fiscal 2013 and was primarily the result of the issuance of a note receivable to shoreline memory , inc. ( “ shoreline ” ) described in note 4 of notes to consolidated financial statements . net cash provided by financing activities totaled approximately $ 1,280,000 in fiscal 2013 and consisted primarily of proceeds from borrowings under a revolving credit facility of approximately $ 1,755,000 , more fully described in note 2 of notes to consolidated financial statements . the company also purchased approximately $ 143,000 of common stock and made principal payments of approximately , $ 333,000 to mr. sheerr under the note and security agreement , more fully described in note 2 of notes to consolidated financial statements . on july 27 , 2010 , the company entered into an agreement with a financial institution for formula-based secured debt financing of up to $ 5,000,000. borrowings are secured by substantially all assets . on march 2 , 2012 , the agreement was amended to reduce the amount available under the credit facility to $ 3,500,000 which , according to the company 's projections , will be sufficient to allow for maximum borrowing under the formulas provided for in the agreement . on may 17 , 2012 , the agreement was amended and restated . the amended and restated documents reduced the interest rate to prime plus 6 % , subject to a minimum of 9.25 % and also not less than $ 8,000 per month . the loan facility allows borrowing of 90 % of eligible domestic receivables . in addition , the loan facility allows borrowing of 90 % of eligible foreign receivables to a maximum of $ 500,000 and 25 % of eligible inventory to a maximum of 20 % of the amount available on receivables . the total credit line remains at $ 3,500,000 and the tangible net worth covenant is $ 2,000,000 , measured quarterly . the company agreed to pay an exit fee if it terminates the agreement more than 30 days prior to the one year anniversary of the amended and restated agreement . the amount of financing available to the company under the agreement varies with the company 's eligible accounts receivable and inventory .
| the company capitalized approximately $ 1,480,000 of xcelasan research and development costs in fiscal 2011. the company determined in fiscal 2012 's third quarter based on the estimated future net realizable value for the expected periods of benefit that the carrying value of capitalized software development cost was impaired . as such , approximately $ 2,387,000 of capitalized software development cost was written off . selling , general and administrative expenses were $ 8,700,000 in fiscal 2013 versus $ 12,324,000 in fiscal 2012. in fiscal 2013 , there was $ 0 of xcelasan selling expenses compared to approximately $ 2,500,000 in the prior year . fiscal 2013 selling expense includes approximately $ 919,000 of expense related to the ramdisk product . the overall reduction in expense was primarily the result of a reduction of employees and related benefit expenses . stock-based compensation expense was recorded as a component of selling , general and administrative expense and totaled approximately $ 231,000 in fiscal 2013 , versus $ 451,000 in fiscal 2012. in fiscal 2013 , there were options granted to purchase 16,667 shares of the company 's common stock compared to option grants to purchase 48,000 shares in fiscal 2012. intangible asset amortization is recorded as a component of selling , general and administrative expense and totaled approximately $ 163,000 in fiscal 2013 and fiscal 2012. based on a combination of factors that occurred in the fourth quarter of fiscal 2013 including the operating results of the mmb business unit , management concluded that a goodwill impairment triggering event had occurred , and accordingly performed a testing of the carrying value of $ 1,519,000 of goodwill for mmb . after this testing , management concluded that the carrying value of the mmb business unit exceeded the fair value of this reporting unit . the implied fair value of the goodwill of the mmb business unit was calculated by allocating the fair values of substantially all of its individual assets , liabilities and identified intangible assets as if mmb business unit had been acquired in a business combination . as a result , the company recorded a non-cash goodwill impairment charge of $ 438,000. during the third quarter of
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we believe this information is meaningful as it isolates the impact that home sales impairments and leverage have on homebuilding gross margin and permits investors to make better comparisons with our competitors who also break out and adjust gross margins in a similar fashion . 34 land sales during the fourth quarter of 2016 , the company recorded a non-cash , land sale impairment charge of $ 1.2 million related to land under development in northern california that the company intends to sell . fee building replace_table_token_12_th our fee building revenues include ( i ) billings to independent third-party land owners for general contracting services , and ( ii ) management fees from our unconsolidated joint ventures for construction management services . cost of fee building includes ( i ) labor , subcontractor , and other indirect construction and development costs that are reimbursable by the land owner , and ( ii ) general and administrative , or g & a , expenses that are attributable to fee building activities and joint venture management overhead . besides allocable g & a expenses , there are no other material costs associated with management fees from our unconsolidated joint ventures . billings to land owners are a function of construction activity and reimbursable costs are incurred as homes are started . the total billings and reimbursable costs are driven by the pace at which the land owner has us execute its development plan . management fees from our unconsolidated joint ventures are collected over the project 's life and increase as homes and lots are delivered . for the year ended december 31 , 2016 , fee building revenues increased 24 % from the prior year period due to an increase in fee building activity resulting from a higher number of homes under construction during the year . the increase in number of homes under construction was due to an increased number of homes started during the year , at the direction of the land owner , offset partially by an increase in the number of homes completed and delivered . included in fee building revenues for the years ended december 31 , 2016 and december 31 , 2015 were ( i ) $ 178.3 million and $ 137.5 million of billings to land owners for general contracting services for 2016 and 2015 , respectively , and ( ii ) $ 8.2 million and $ 12.4 million of management fees from our unconsolidated joint ventures for 2016 and 2015 , respectively . the decrease in management fees from jvs was primarily the result of fewer deliveries and lower home sales revenue from jv communities , which is consistent with the company 's strategic shift to emphasize wholly owned operations . for the year ended december 31 , 2015 , fee building revenue increased 60 % year-over-year to $ 149.9 million from $ 93.6 million due to an increase in construction activity in the fee building communities and higher joint venture management fees . included in fee building revenue were ( i ) $ 137.5 million and $ 84.0 million of billings to land owners for the years ended december 31 , 2015 and 2014 , respectively , and ( ii ) $ 12.4 million and $ 9.6 million of management fees from our unconsolidated joint ventures for the years ended december 31 , 2015 and 2014 , respectively . our fee building revenue has historically been concentrated with a small number of customers . for the years ended december 31 , 2016 , 2015 and 2014 , one customer comprised 96 % , 92 % and 87 % of fee building revenue , respectively . for the year ended december 31 , 2016 , cost of fee building increased due to the increase in fee building revenues , compared to the same period during 2015 . the amount of g & a expenses included in cost of fee building was $ 8.8 million for each year ended december 31 , 2016 and 2015 . fee building gross margin percentage decreased from 6.8 % to 4.5 % for the year ended december 31 , 2016 compared to the prior year period . the reduction in fee building gross margin percentage was largely due to a decrease in management fees received from joint ventures , partially offset by a slightly higher fee rate with our largest customer on certain fee building communities . for the year ended december 31 , 2015 , cost of fee building increased to $ 139.7 million compared to $ 89.1 million for the same period during 2014 . the amount of g & a expenses included in cost of fee building were $ 8.8 million and $ 9.3 million for the years ended december 31 , 2015 and 2014 , respectively . fee building gross margin percentage increased to 6.8 % from 4.8 % for the years ended december 31 , 2015 and 2014 , respectively , primarily due to the increase in management fees from our unconsolidated joint ventures . 35 selling , general and administrative expenses replace_table_token_13_th sg & a expenses for the year ended december 31 , 2016 were up year-over-year , consistent with the 81 % increase in our homebuilding revenues and 50 % increase in wholly owned community count at december 31 , 2015. however , our sg & a operating leverage improved significantly resulting in a 170 basis point reduction in our sg & a expense ratio for the year ended december 31 , 2016 . the improvement was largely attributable to the increase in home sales revenue , which was driven by a significant increase in new home deliveries and higher average selling prices due to a heavier southern california mix . selling and marketing expenses as a percentage of home sales revenue for 2016 was up 40 basis points year-over-year to 5.3 % due to higher amortization of capitalizable marketing costs and increased model operating costs associated with higher-priced , luxury homes in southern california . story_separator_special_tag sg & a expenses for the year ended december 31 , 2015 were $ 34.0 million , compared to $ 16.4 million in the prior year period . the increase in sg & a expenses resulted from higher selling and marketing expenses due to a 400 % increase in home sales revenue and increased g & a related to higher personnel and professional fees to support our growth . as a percentage of home sales revenue , sg & a for the year ended december 31 , 2015 was 12.1 % versus 29.2 % in the prior year period . the year-over-year improvement in the sg & a percentage for the period was driven by stronger operating leverage from higher home sales revenue . effective january 1 , 2016 , certain capitalizable selling and marketing expenses were amortized to selling and marketing expenses rather than cost of home sales . prior year periods have been reclassified to conform with current year presentation . the reclassification caused an increase to selling and marketing expenses of approximately $ 4.8 million and $ 0.8 million for the years ended december 31 , 2015 and 2014 , respectively , or 1.7 % and 1.5 % of home sales revenue , respectively , and a corresponding increase to homebuilding gross margin by the same amount . equity in net income of unconsolidated joint ventures as of december 31 , 2016 and 2015 , we had ownership interests in 13 and 14 , respectively , unconsolidated joint ventures . we own interests in our unconsolidated joint ventures that generally range from 5 % to 35 % . these interests vary among our different unconsolidated joint ventures . the company 's share of joint venture income was $ 7.7 million for the year ended december 31 , 2016 as compared to $ 13.8 million for the year ended december 31 , 2015 . the reduction in joint venture income was driven by a 47 % decrease in total jv home sales revenues resulting from a 29 % decrease in our jv average selling price and a 26 % decrease in jv home deliveries . this decline was partially offset by a one-time gain related to the close-out of one joint venture . during the second quarter of 2016 , the company closed out one of its unconsolidated joint ventures known as `` lr8 '' and received an income allocation of $ 0.5 million from a reserve reduction prior to the close out . as part of this transaction , the company also recognized a gain of $ 1.1 million due to the purchase of our jv partner 's interest for less than its carrying value as part of a negotiated transaction which included an agreement to indemnify our joint venture partner for future liability associated with the project . for the year ended december 31 , 2015 , our share of joint venture income was $ 13.8 million , compared to $ 8.4 million for 2014 . the increase in our share of joint venture income was primarily attributable to a 51 % increase in total jv revenues and a $ 1.6 million gain related to the cash distribution of capital we received in excess of the book value of our land basis that was contributed to a joint venture . 36 the following sets forth supplemental operational and financial information about our unconsolidated joint ventures . such information is not included in our financial data for gaap purposes , but is reflected in our results as a component of equity in net income of unconsolidated joint ventures . this data is included for informational purposes only . replace_table_token_14_th replace_table_token_15_th ( 1 ) for the year ended december 31 , 2014 , amount includes $ 33.9 million of backlog dollar value related to purchase contracts between an unconsolidated joint venture and the company . 37 the tables below summarizes lots owned and controlled by our unconsolidated joint ventures as of the dates presented : replace_table_token_16_th ( 1 ) includes lots controlled under purchase and sale agreements or option agreements subject to customary conditions and have not yet closed . there can be no assurance that such acquisitions will occur . provision for taxes for the year ended december 31 , 2016 , the company recorded a provision for income taxes of $ 13.0 million . included in this provision is an allocation of income of $ 0.5 million from lr8 and a $ 1.1 million gain from the closeout of our lr8 joint venture , which resulted in a provision for income taxes of $ 0.6 million for the year december 31 , 2016 and did not impact our effective tax rate . the effective tax rate for 2016 differs from the 35 % federal statutory tax rate , primarily due to state income taxes , offset partially by the benefit from production activities and energy efficient credits . for the year ended december 31 , 2015 , we recorded a provision for income taxes of $ 12.5 million . the effective tax rate for the year ended december 31 , 2015 differs from the 35 % statutory tax rate due to state income taxes , offset partially by the benefit from production activities and energy efficient credits . for the first 30 calendar days of 2014 , we were a delaware llc , which was treated as a partnership for income tax purposes and was subject to certain minimal taxes and fees ; however , income taxes on taxable income or losses realized by us were the obligation of the members . federal and state taxes provided during the first 30 calendar days of 2014 relate to a subsidiary that is treated as a c corporation . on january 30 , 2014 , we completed our ipo and reorganized from a delaware llc into a delaware corporation . for the year ended december 31 , 2014 , we recorded a tax provision of $ 0.2 million .
| the higher backlog dollar value in southern california as compared to northern california was due to higher community counts in southern california combined with higher-priced communities , particularly in newport coast where we have two coastal luxury communities where average home prices in backlog are in excess of $ 5 million . the increase in the number of homes in backlog as of december 31 , 2016 compared to the prior year period was the result of increased net new home orders . the number of homes in backlog as of december 31 , 2015 compared to december 31 , 2014 increased 63 % as a result of increased net new orders due largely to a significant increase in the number of selling communities . as a result of the increase in net new orders and an 18 % higher average sales price in backlog , the dollar value of backlog as of december 31 , 2015 increased $ 79.9 million , or 92 % compared to the prior year . the year-over-year increase in average sales price in backlog was driven primarily by southern california orders from a high-priced community in newport coast , ca that opened during 2015. this increase offset the average sales price decrease for northern california attributable to a higher concentration of sales in more moderately-priced homes in the sacramento area compared to the prior period . 32 lots owned and controlled replace_table_token_9_th ( 1 ) includes lots that we control under purchase and sale agreements or option agreements subject to customary conditions and have not yet closed . there can be no assurance that such acquisitions will occur . ( 2 ) lots owned by third party property owners for which we perform general contracting services . consistent with our focus to grow our wholly owned business , the company increased the number of wholly owned lots owned and controlled by 20 % and 42 % year-over-year for the years ending december 31 , 2016 and 2015 , respectively . the decrease in fee building lots at december 31 , 2016 compared to 2015 was attributable to delivering 644 homes during
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inventory inventory is valued at the lower of cost or market value , with cost determined by the first-in , first-out method . the company regularly reviews inventory quantities on hand and records a provision for excess and or obsolete inventory primarily based upon historical usage of its inventory as well as other factors . long lived assets long-lived assets , other than goodwill , are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets . when any such impairment exists , the related assets are written down to fair value . intangible assets subject to amortization consist primarily of patents , technology intangibles , trade names , customer relationships and distribution agreements purchased in the company 's previous acquisitions . these assets are amortized on a straight-line basis or the pattern of economic benefit over their estimated useful lives of 5 to 10 years . 48 goodwill in accordance with fasb asc topic 350-20 , intangiblesgoodwill and other , ( asc 350-20 ) , the company tests goodwill for impairment on an annual basis and between annual tests if events and circumstances indicate it is more likely than not that the fair value of the company is less than the carrying value of the company . factors the company considers important , which could trigger an impairment of such asset , include the following : significant underperformance relative to historical or projected future operating results ; significant changes in the manner or use of the assets or the strategy for the company 's overall business ; significant negative industry or economic trends ; significant decline in the company 's stock price for a sustained period ; and a decline in the company 's market capitalization below net book value . the company 's chief operating decision maker ( codm ) is the chief executive officer ( ceo ) . in the second quarter of 2013 , the company changed the manner in which financial information is reported to the codm . the company determined that it had two reporting units and two reportable segments based on the information provided to the chief operating decision maker ( codm ) . the two segments and reporting units are cancer detection ( detection ) and cancer therapy ( therapy ) . each reportable segment generates revenue from the sale of medical equipment and related services and or sale of supplies . goodwill was allocated to the reporting units based on the relative fair value of the reporting units as of june 2013. the assets obtained in the acquisition of dermebx and radion and the resulting revenues are included in the therapy segment and , accordingly , the goodwill resulting from the preliminary purchase price allocation is included in goodwill of the therapy segment . the company performed the annual impairment assessment at october 1 , 2014 and compared the fair value of each of reporting unit to its carrying value as of this date . fair value of each reporting unit exceeded the carry value by approximately 315 % for the detection reporting unit and 255 % for the therapy reporting unit . the carrying values of the reporting units were determined based on an allocation of our assets and liabilities through specific allocation of certain assets and liabilities , to the reporting units and an apportionment of the remaining net assets based on the relative size of the reporting units ' revenues and operating expenses compared to the company as a whole . the determination of reporting units also requires management judgment . we would record an impairment charge if such an assessment were to indicate that the fair value of a reporting unit was less than the carrying value . when we evaluate potential impairments outside of our annual measurement date , judgment is required in determining whether an event has occurred that may impair the value of goodwill or intangible assets . we utilize either 49 discounted cash flow models or other valuation models , such as comparative transactions and market multiples , to determine the fair value of our reporting unit . we make assumptions about future cash flows , future operating plans , discount rates , comparable companies , market multiples , purchase price premiums and other factors in those models . different assumptions and judgment determinations could yield different conclusions that would result in an impairment charge to income in the period that such change or determination was made . we determined the fair values for each reporting unit using a weighting of the income approach and the market approach . for purposes of the income approach , fair value is determined based on the present value of estimated future cash flows , discounted at an appropriate risk adjusted rate . we use our internal forecasts to estimate future cash flows and include an estimate of long-term future growth rates based on our most recent views of the long-term forecast for each segment . accordingly , actual results can differ from those assumed in our forecasts . our discount rate of approximately 17 % is derived from a capital asset pricing model and analyzing published rates for industries relevant to our reporting units to estimate the cost of equity financing . we use discount rates that are commensurate with the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts . in the market approach , we use a valuation technique in which values are derived based on market prices of publicly traded companies with similar operating characteristics and industries . a market approach allows for comparison to actual market transactions and multiples . story_separator_special_tag it can be somewhat limited in its application because the population of potential comparable publicly-traded companies can be limited due to differing characteristics of the comparative business and ours , as well as the fact that market data may not be available for divisions within larger conglomerates or non-public subsidiaries that could otherwise qualify as comparable , and the specific circumstances surrounding a market transaction ( e.g. , synergies between the parties , terms and conditions of the transaction , etc . ) may be different or irrelevant with respect to our business . we corroborated the total fair values of the reporting units using a market capitalization approach ; however , this approach can not be used to determine the fair value of each reporting unit value . the blend of the income approach and market approach is more closely aligned to our business profile , including markets served and products available . in addition , required rates of return , along with uncertainties inherent in the forecast of future cash flows , are reflected in the selection of the discount rate . equally important , under the blended approach , reasonably likely scenarios and associated sensitivities can be developed for alternative future states that may not be reflected in an observable market price . we assess each valuation methodology based upon the relevance and availability of the data at the time we perform the valuation and weight the methodologies appropriately . warrants in january 2012 , the company entered into several agreements with deerfield management , a healthcare investment fund ( deerfield ) , which included a debt facilty agreement and the issuance of warrants ( the warrants ) to purchase up to 550,000 shares of common stock at an exercise price of $ 3.50 per share , of which 450,000 shares of the company 's common stock 50 became immediately exercisable . on april 30 , 2014 , deerfield exercised the warrants , for an aggregate purchase price of $ 1,575,000 , and the company issued 450,000 shares of common stock . the warrant obligation was fully satisfied following that exercise . the additional 100,000 shares of common stock that would have become exercisable if the company extended the debt were cancelled . the company accounted for the warrants as debt in accordance with asc 480 distinguishing liabilities from equity . on a quarterly basis the company evaluated the fair value of warrants using a binomial lattice model . inputs into the binomial lattice method included expected volatility , interest rate , and probabilities of a voluntary exercise of the warrants as well as the probability of major transaction ( i.e . company sale ) . the inputs to determine the value of the warrants in the binomial lattice model required significant accounting judgment and estimates . stock-based compensation the company maintains stock-based incentive plans , under which it provides stock incentives to employees , directors and contractors . the company grants to employees , directors and contractors , options to purchase common stock at an exercise price equal to the market value of the stock at the date of grant . the company may grant restricted stock to employees and directors . the underlying shares of the restricted stock grant are not issued until the shares vest , and compensation expense is based on the stock price of the shares at the time of grant . the company follows asc 718 , compensation stock compensation , ( asc 718 ) , for all stock-based compensation . the company uses the black-scholes option pricing model to value stock options which requires extensive use of accounting judgment and financial estimates , including estimates of the expected term participants will retain their vested stock options before exercising them , the estimated volatility of its common stock price over the expected term , and the number of options that will be forfeited prior to the completion of their vesting requirements . fair value of restricted stock is determined based on the stock price of the underlying option on the date of the grant . application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently , the related amounts recognized in the consolidated statements of operations . income taxes the company follows the liability method under asc 740 , income taxes ( asc 740 ) . the primary objectives of accounting for taxes under asc 740 are to ( a ) recognize the amount of tax payable for the current year and ( b ) recognize the amount of deferred tax liability or asset for the future tax consequences of events that have been reflected in the company 's financial statements or tax returns . the company has provided a full valuation allowance against its deferred tax assets at december 31 , 2014 and 2013 as it is more likely than not that the deferred tax asset will not be realized . asc 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise 's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return . asc 740-10 also provides guidance on de-recognition , classification , interest and penalties , disclosure and transition . 51 in addition , uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date and the company revaluates these items quarterly , with any adjustments to preliminary estimates being recorded to goodwill , provided that the company is within the measurement period ( which may be up to one year from the acquisition date ) and continues to collect information in order to determine their estimated values .
| the company 's headquarters are located in nashua , new hampshire , with manufacturing facilities in new hampshire and , an operation , research , development , manufacturing and warehousing facility in san jose , california . 45 critical accounting policies the company 's discussion and analysis of its financial condition , results of operations , and cash flows are based on its 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 the company to make estimates and judgments that affect the reported amounts of assets , liabilities , revenue and expenses , and related disclosure of contingent assets and liabilities . on an on-going basis , the company evaluates these estimates , including those related to revenue recognition , allowance for doubtful accounts , inventory valuation and obsolescence , intangible assets , goodwill , warrants , income taxes , contingencies and litigation . additionally , the company uses assumptions and estimates in calculations to determine stock-based compensation and the value of warrants . the company bases its estimates on historical experience and on various other assumptions that it believes 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 . the company 's critical accounting policies include : revenue recognition ; allowance for doubtful accounts ; inventory ; valuation of long-lived and intangible assets ; goodwill ; warrants stock based compensation ; and income taxes . revenue recognition the company recognizes revenue primarily from the sale of products and from the sale of services and supplies . revenue is recognized when delivery has occurred , persuasive evidence of an arrangement exists , fees are fixed or determinable and collectability of the related receivable is probable . for product revenue , delivery has occurred upon shipment provided title and risk of loss have
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because of the capital many of the tenants in our mainland properties have invested in these properties and because many of these properties appear to be of strategic importance to the tenants ' businesses , we believe that it is likely that these tenants will renew or extend their leases prior to their expirations . if we are unable to extend or renew our leases , it may be time consuming and expensive to relet some of these properties . hawaii properties . as of december 31 , 2019 , our hawaii properties represented approximately 40.9 % of our annualized rental revenues . as of december 31 , 2019 , certain of our hawaii properties are lands leased for rents that periodically reset based on fair market values , generally every ten years . revenues from our hawaii properties have generally increased under our or our predecessors ' ownership as rents under the leases for those properties have been reset or renewed . lease renewals , lease extensions , new leases and rental rates for our hawaii properties in the future will depend on prevailing market conditions when these lease renewals , lease extensions , new leases and rental rates are set . as rent reset dates or lease expirations approach at our hawaii properties , we generally negotiate with existing or new tenants for new lease terms . if we are unable to reach an agreement with a tenant on a rent reset , our hawaii properties ' leases typically provide that rent is reset based on an appraisal process . despite our and our predecessors ' prior experience with rent resets , lease extensions and new leases in hawaii , our ability to increase rents when rents reset , leases are extended , or leases expire depends upon market conditions which are beyond our control . accordingly , we can not be sure that the historical increases achieved at our hawaii properties will continue in the future . 46 the following chart shows the annualized rental revenues as of december 31 , 2019 subject to rent reset at our hawaii properties : scheduled rent resets at hawaii properties ( dollars in thousands ) replace_table_token_8_th rental rates for which available space may be leased in the future will depend on prevailing market conditions when lease extensions , lease renewals or new leases are negotiated . whenever we extend , renew or enter new leases for our properties , we intend to seek rents that are equal to or higher than our historical rents for the same properties ; however , our ability to maintain or increase the rents for our current properties will depend in large part upon market conditions , which are beyond our control . since the leases at certain of our hawaii properties were originally entered , in some cases as long as 40 or 50 years ago , the characteristics of the neighborhoods in the vicinity of some of those properties have changed . in such circumstances , we and our predecessors have sometimes engaged in redevelopment activities to change the character of certain properties in order to increase rents . because our hawaii properties are currently experiencing strong demand for their current uses , we do not currently expect redevelopment efforts in hawaii to become a major activity of ours in the near term ; however , we may undertake such activities on a selective basis . tenant review process . our manager , rmr llc , employs a tenant review process for us . rmr llc assesses tenants on an individual basis based on various applicable credit criteria . in general , depending on facts and circumstances , rmr llc evaluates the creditworthiness of a tenant based on information concerning the tenant that is provided by the tenant and , in some cases , information that is publicly available or obtained from third party sources . rmr llc also often uses a third party service to monitor the credit ratings of debt securities of our existing tenants whose debt securities are rated by a nationally recognized credit rating agency . investment activities ( dollars in thousands ) during the year ended december 31 , 2019 , we acquired 30 properties with a combined 13,288,180 rentable square feet for an aggregate purchase price of $ 936,750 , excluding acquisition related costs of $ 4,800. in february 2020 , we acquired a net leased class a e-commerce distribution center located in goodyear , az with approximately 820,000 rentable square feet for a purchase price of $ 72,000 , excluding acquisition related costs . this property is 100 % leased and has a remaining lease term of approximately six years . for more information regarding our investment activities , see note 3 to the notes to consolidated financial statements included in part iv , item 15 of this annual report on form 10-k. financing activities ( dollars in thousands ) in january 2019 , we obtained a $ 650,000 mortgage loan secured by 186 of our properties containing approximately 9.6 million square feet located on the island of oahu , hi . in october 2019 , we obtained a $ 350,000 mortgage loan secured by 11 of our mainland properties containing an aggregate of approximately 8.2 million rentable square feet and are located in eight states . we used the proceeds from these mortgage loans to reduce outstanding borrowings under our $ 750,000 unsecured revolving 47 credit facility and to fund acquisitions . in april 2019 , we assumed a $ 56,980 secured mortgage note in connection with one of our acquisitions . story_separator_special_tag in february 2020 , we entered into agreements related to a joint venture with an asian institutional investor for up to 12 of our mainland properties , including 11 properties secured by our $ 350,000 mortgage loan we obtained in october 2019. the investor will contribute approximately $ 108,300 , which includes certain costs associated with the formation of the joint venture , for a 39 % equity interest in the joint venture and we retained the remaining 61 % equity interest in the joint venture . the investment amount is based on an aggregate property valuation of $ 680,000 , less approximately $ 407,000 of existing mortgage debt on the properties at the time of the investment . we closed the joint venture with 11 of the 12 properties and the investor will initially contribute approximately $ 82,000 with the balance contributed when the twelfth property is added . we expect to use the net proceeds from this transaction to reduce outstanding borrowings under our revolving credit facility . for more information regarding our financing activities , see “ liquidity and capital resources—our investment and financing liquidity and resources ” below . 48 story_separator_special_tag style= '' line-height:120 % ; padding-bottom:13px ; text-align : left ; text-indent:24px ; font-size:10pt ; '' > weighted average common shares outstanding . the increase in weighted average common shares outstanding primarily reflects common shares granted under our equity compensation plan since our ipo . net income per common share - basic and diluted . the decrease in net income per common share reflects the changes to net income and weighted average common shares noted above . non-gaap financial measures we present certain “ non-gaap financial measures ” within the meaning of applicable sec rules , including noi , ffo and normalized ffo . these measures do not represent cash generated by operating activities in accordance with gaap and should not be considered alternatives to net income as indicators of our operating performance or as measures of our liquidity . these measures should be considered in conjunction with net income as presented in our consolidated statements of comprehensive income . we consider these non-gaap measures to be appropriate supplemental measures of operating performance for a reit , along with net income . we believe these measures provide useful information to investors because by excluding the effects of certain historical amounts , such as depreciation and amortization expense , they may facilitate a comparison of our operating performance between periods and with other reits and , in the case of noi , reflecting only those income and expense items that are generated and incurred at the property level may help both investors and management to understand the operations of our properties . net operating income we calculate noi as shown below . we define noi as income from our rental of real estate less our property operating expenses . the calculation of noi excludes certain components of net income in order to provide results that are more closely related to our property level results of operations . noi excludes amortization of capitalized tenant improvement costs and leasing commissions that we record as depreciation and amortization expense . we use noi to evaluate individual and company-wide property level performance . other real estate companies and reits may calculate noi differently than we do . 50 the following table presents the reconciliation of net income to noi for the years ended december 31 , 2019 and 2018 ( dollars in thousands ) : replace_table_token_10_th funds from operations and normalized funds from operations we calculate ffo and normalized ffo as shown below . ffo is calculated on the basis defined by the national association of real estate investment trusts , which is net income , calculated in accordance with gaap , plus real estate depreciation and amortization , as well as certain other adjustments currently not applicable to us . in calculating normalized ffo , we adjust for the items shown below , if any , and include business management incentive fees , if any , only in the fourth quarter versus the quarter when they are recognized as an expense in accordance with gaap due to their quarterly volatility not necessarily being indicative of our core operating performance and the uncertainty as to whether any such business management incentive fees will be payable when all contingencies for determining such fees are known at the end of the calendar year . ffo and normalized ffo are among the factors considered by our board of trustees when determining the amount of distributions to our shareholders . other factors include , but are not limited to , requirements to maintain our qualification for taxation as a reit , limitations in our credit agreement , the availability to us of debt and equity capital , our dividend yield and our dividend yield compared to the dividend yields of other industrial reits , our expectation of our future capital requirements and operating performance and our expected needs for and availability of cash to pay our obligations . other real estate companies and reits may calculate ffo and normalized ffo differently than we do . the following table presents our calculation of ffo and normalized ffo and reconciliations of net income to ffo and normalized ffo for the year ended december 31 , 2019 and 2018 ( dollars in thousands , except per share data ) : replace_table_token_11_th 51 liquidity and capital resources our operating liquidity and resources ( dollars in thousands ) our principal sources of funds to meet our operating and capital expenses , pay debt service obligations and make distributions to our shareholders are rents from tenants at our properties and borrowings under our revolving credit facility . we believe that these sources of funds will be sufficient to meet our operating and capital expenses , pay debt service obligations and make distributions to our shareholders for the next 12 months and for the foreseeable future thereafter .
| the increase in real estate taxes primarily reflects our acquisition activity and higher tax assessments at certain of our comparable properties . other operating expenses . other operating expenses primarily include snow removal , legal and property management fees and prior to january 1 , 2019 , bad debt expense ; beginning january 1 , 2019 , the applicable accounting standards require bad debts to be recorded as a reduction of revenues rather than as an expense . other operating expenses also included bad debt expense in the 2018 period . the increase in other operating expenses is primarily due to our acquisition activity , partially offset by a decrease in other operating expenses at our comparable properties . the decrease in other operating expenses at our comparable properties is primarily due to a decrease in bad debts recorded as expense and higher snow removal expenses in the 2018 period , partially offset by increases in insurance expense and repairs and maintenance costs during the 2019 period at certain of our comparable properties . depreciation and amortization . the increase in depreciation and amortization primarily reflects our acquisition activity and an increase in depreciation of capital improvements at certain of our properties after january 1 , 2018. general and administrative . general and administrative expenses primarily include fees paid under our business management agreement , legal fees , audit fees , trustee fees and equity compensation expense . the increase in general and administrative expenses primarily reflects an increase in business management fees as a result of our acquisition activity as well as an increase in our equity compensation expense and increased legal and accounting expenses . interest income . interest income represents interest earned on our cash balances . the increase in interest income is primarily a result of a larger amount of investable cash in the 2019 period compared to the 2018 period . interest expense . the increase in interest expense in the 2019 period is primarily due to increased net
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in november 2015 , we finalized our assay methodology and pathology-based scoring algorithm with ventana for our affinity-histochemistry companion diagnostic . in november 2015 , we announced the dosing of the first patient in a phase 1b clinical trial of pegph20 in combination with merck 's immuno-oncology drug keytruda ( pembrolizumab ) for patients with advanced non-small cell lung and gastric cancers . in november 2015 , janssen dosed the first patient in a phase 1b clinical trial evaluating subcutaneous delivery of daratumumab ( darzalex ® ) with enhanze technology in multiple myeloma . in october 2015 , pfizer dosed the first patient in the phase 1 clinical trial evaluating subcutaneous delivery of rivipansel with our enhanze technology for the treatment of individuals with vaso-occlusive crisis of sickle cell disease . in july 2015 , we entered into a clinical collaboration agreement with eisai co. ltd. ( eisai ) to evaluate eisai 's agent eribulin mesylate halaven ® ( eribulin ) in combination with pegph20 in first line her2-negative ha-high metastatic breast cancer patients . in june 2015 , we entered into a collaboration and license agreement with abbvie , under which abbvie has the worldwide license to develop and commercialize products combining our enhanze technology with abbvie proprietary biologics directed to up to nine targets . targets may be selected on an exclusive basis . we received $ 23.0 million for the license with one specified target , humira . in may 2015 , we entered into a global collaboration agreement with ventana , a member of the roche group , to collaborate on the development of , and for ventana to ultimately commercialize , a companion diagnostic assay for use with pegph20 . the ventana assay will be used to identify high levels of ha . under the agreement , ventana will develop an in vitro diagnostic ( ivd ) , under design control , using our proprietary ha binding protein , with the intent of submitting it for regulatory approval in the united states , europe and other countries . in january 2015 , we disclosed initial efficacy and safety data from an interim assessment of stage 1 of study 109-202 , a phase 2 multicenter , randomized clinical trial evaluating pegph20 as a first-line therapy for patients with stage iv pda . we also presented the final results from study 109-201 , a multi-center , international open label dose escalation phase 1b clinical study of pegph20 in combination with gemcitabine for the treatment of patients with stage iv pda at the 2015 gastrointestinal cancers symposium ( also known as asco-gi meeting ) . 35 story_separator_special_tag rhuph20 for collaboration products in 2013 excluded $ 10.0 million in manufacturing costs , of which $ 9.0 million and $ 1.0 million were charged to research and development expenses in 2013 and 2012 , respectively . the estimated selling price of the zero-cost inventory of bulk rhuph20 for herceptin sc on hand as of december 31 , 2013 , was approximately $ 1.3 million . we sold all of this inventory in 2014. in 2015 , the cost of product sales of bulk rhuph20 was approximately 81 % of bulk rhuph20 product sales revenue . 37 research and development — research and development expenses consist of external costs , salaries and benefits and allocation of facilities and other overhead expenses related to research manufacturing , clinical trials , preclinical and regulatory activities . research and development expenses incurred for the years ended december 31 , 2015 , 2014 and 2013 were as follows ( in thousands ) : replace_table_token_6_th _ ( 1 ) subsequent to the european approvals of roche 's herceptin sc product in august 2013 and mabthera sc product in march 2014 and baxalta 's hyqvia product in may 2013 , the manufacturing costs of bulk rhuph20 for these collaboration products were capitalized as inventory . ( 2 ) includes research , development and manufacturing expenses related to our proprietary rhuph20 enzyme . these expenses were not designated to a specific program at the time the expenses were incurred . research and development expenses relating to our pegph20 program in 2015 increased by 117 % , compared to 2014 primarily due to increased clinical trial activities . research and development expenses relating to our ultrafast insulin program in 2015 decreased by 93 % compared to 2014 primarily due to decreased clinical trial and manufacturing activities . research and development expenses relating to hylenex recombinant program decreased in 2015 by 72 % compared to 2014 mainly due to the completion of the technology transfer and validation campaign with a second manufacturer for hylenex recombinant in 2014. research and development expenses relating to our enhanze collaborations in 2015 decreased by 53 % , primarily due to a decrease in manufacturing expenses related to our collaboration with roche . we expect total research and development expenses to increase in future periods reflecting expected increases in our pegph20 development activities . research and development expenses relating to our pegph20 program in 2014 increased by 86 % , compared to 2013 primarily due to the increased clinical trial activities mostly relating to study 109-202. research and development expenses relating to hylenex recombinant program decreased in 2014 by 50 % compared to 2013 mainly due to the completion of the technology transfer and validation campaign with a second manufacturer for hylenex recombinant in 2014. research and development expenses relating to our enhanze collaborations in 2014 decreased by 78 % , primarily due to a $ 12.0 million decrease resulting from capitalizing manufacturing costs for approved collaboration products in the current period , an $ 8.1 million decrease in other outsourced regulatory and manufacturing activities to support our collaboration with roche and a $ 2.5 million decrease in preclinical activities to support baxalta . subsequent to the european approvals of roche 's herceptin sc product in august 2013 and mabthera sc product in march 2014 and baxalta 's hyqvia product in may 2013 , the manufacturing costs of bulk rhuph20 for these collaboration products were capitalized as inventory . story_separator_special_tag selling , general and administrative — selling , general and administrative ( sg & a ) expenses increased in 2015 compared to 2014 by $ 4.1 million , or 11 % , primarily due to the increase in compensation costs , including a $ 3.7 million increase in stock-based compensation . sg & a expenses increased in 2014 compared to 2013 by $ 3.6 million , or 11 % , primarily due to the increase in compensation costs , including a $ 2.3 million increase in stock-based compensation . 38 interest expense — interest expense included interest expense and amortization of the debt discount related to the long-term debt . interest expense decreased by $ 0.4 million in 2015 as compared to 2014 . interest expense increased by $ 2.3 million in 2014 as compared to 2013 due to the $ 20.0 million increase in the principal balance of the long-term debt in december 2013. liquidity and capital resources our principal sources of liquidity are our existing cash , cash equivalents and available-for-sale marketable securities . as of december 31 , 2015 , we had cash , cash equivalents and marketable securities of approximately $ 108.3 million . we will continue to have significant cash requirements to support product development activities . the amount and timing of cash requirements will depend on the progress and success of our clinical development programs , regulatory and market acceptance , and the resources we devote to research and other commercialization activities . we believe that our current cash , cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months . we currently anticipate an increase of cash and cash equivalents of approximately $ 35 million to $ 55 million for the year ending december 31 , 2016 , which includes cash received in january 2016 of $ 25 million paid by lilly and $ 150 million from the royalty-backed debt agreement , and will depend on the progress of various preclinical and clinical programs , the timing of our manufacturing scale up and the achievement of various milestones and royalties under our existing collaborative agreements . we expect to fund our operations going forward with existing cash resources , anticipated revenues from our existing collaborations and cash that we may raise through future transactions , such as the $ 150 million royalty-backed loan we received in january 2016. refer to note 15 , subsequent event , for further information on our royalty-backed debt agreement . we may finance future cash needs through any one of the following financing vehicles : ( i ) the public offering of securities ; ( ii ) new collaborative agreements ; ( iii ) expansions or revisions to existing collaborative relationships ; ( iv ) private financings ; and or ( v ) other equity or debt financings . we are a “ well known seasoned issuer ” , which allows us to file an automatically effective shelf registration statement on form s-3 which would allow us , from time to time , to offer and sell equity , debt securities and warrants to purchase any of such securities , either individually or in units . we may , in the future , offer and sell equity , debt securities and warrants to purchase any of such securities , either individually or in units to raise capital to fund the continued development of our product candidates , the commercialization of our products or for other general corporate purposes . our existing cash , cash equivalents and marketable securities may not be adequate to fund our operations until we become profitable , if ever . we can not be certain that additional financing will be available when needed or , if available , financing will be obtained on favorable terms . if we are unable to raise sufficient funds , we may need to delay , scale back or eliminate some or all of our research and development programs , delay the launch of our product candidates , if approved , and or restructure our operations . if we raise additional funds by issuing equity securities , substantial dilution to existing stockholders could result . if we raise additional funds by incurring debt financing , the terms of the debt may involve significant cash payment obligations , the issuance of warrants that may ultimately dilute existing stockholders when exercised and covenants that may restrict our ability to operate our business . cash flows operating activities net cash used in operations was $ 37.1 million in 2015 compared to $ 47.5 million in 2014. the $ 10.4 million decrease in utilization of cash in operations was mainly due to an increase of license fees and royalties from our collaborators ; offset in part by increased spending on our r & d programs . net cash used in operations was $ 47.5 million in 2014 compared to $ 49.3 million in 2013. the $ 1.8 million decrease in utilization of cash in operations was mainly due to the receipt of a $ 15.0 million license fee payment from the janssen collaboration ; offset in part by the timing of the collection of accounts receivable and the payment of accounts payable . investing activities net cash provided by investing activities was $ 5.9 million in 2015 compared to net cash used of $ 33.0 million in 2014 and $ 47.9 million in 2013. the change in 2015 compared to 2014 was primarily due to the $ 17.4 million decrease in purchases of 39 marketable securities and $ 22.4 million increase in proceeds from the maturities of marketable securities .
| in 2014 , we recognized $ 15.0 million in license fee revenue in connection with the janssen collaboration . revenue from reimbursements for research and development services and bulk rhuph20 supply decreased in 2015 compared to 2014 mainly due to a reduction in services provided to roche compared to the same period in 2014. revenue from reimbursements for research and development services and bulk rhuph20 supply decreased in 2014 compared to 2013 mainly due to revenue from supply of bulk rhuph20 for roche collaboration products being recognized as product sales revenue in 2014 , as opposed to revenue from reimbursements for research and development services in the same period in 2013. the decrease was also due to a decrease in reimbursements for manufacturing services to support the launches by roche and baxalta . research and development services rendered by us on behalf of our collaborators are at the request of the collaborators ; therefore , the amount of future revenues related to reimbursable research and development services is uncertain . 36 we expect the non-reimbursement revenues under our collaborative agreements to continue to fluctuate in future periods based on our collaborators ' abilities to meet various clinical and regulatory milestones set forth in such agreements and our abilities to obtain new collaborative agreements . royalties – royalty revenue was $ 31.0 million in 2015 compared to $ 9.4 million in 2014 and $ 33,000 in 2013. the increase relates primarily to increased sales of herceptin sc by roche since the launch of herceptin sc in september 2013. we recognize royalties on sales of the collaboration products by the collaborators in the quarter following the quarter in which the corresponding sales occurred . in general , we expect royalty revenue to increase in future periods reflecting expected increases in sales of collaboration products , although there may be periods with flat or declining royalty revenue as sales of products under collaborations vary . cost of product sales — cost of product sales increased in 2015 compared to 2014 by
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nustar asphalt llc owns and operates the asphalt refining assets that were previously wholly owned by nustar energy ( collectively , the asphalt operations ) . upon closing , nustar energy deconsolidated nustar asphalt llc and started reporting its remaining investment in nustar asphalt llc using the equity method of accounting . on february 26 , 2014 , nustar energy sold its remaining 50 % ownership interest in nustar asphalt llc ( the 2014 asphalt sale ) to lindsay goldberg , which constitutes all of nustar energy 's equity interest in the entity that it retained after the first sale in 2012. effective february 27 , 2014 , nustar asphalt llc changed its name to axeon specialty products llc ( axeon ) . lindsay goldberg now owns 100 % of axeon . on january 1 , 2013 , nustar energy sold its fuels refinery in san antonio , texas ( the san antonio refinery ) and related assets for approximately $ 117.0 million ( the san antonio refinery sale ) . nustar energy presented the results of operations for the san antonio refinery and related assets as discontinued operations for all periods presented . on december 13 , 2012 , nustar energy acquired the texstar crude oil assets ( as defined below ) from texstar midstream services , lp and certain of its affiliates ( collectively , texstar ) for $ 325.4 million ( the texstar asset acquisition ) . the texstar crude oil assets consist of approximately 140 miles of crude oil pipelines and gathering lines , as well as five terminals and storage facilities providing 0.6 million barrels of storage capacity . 27 story_separator_special_tag nustar energy 's pipelines subject to regulation by the federal energy regulatory commission . although the drop in crude prices in late 2014 and early 2015 has not reduced the demand for nustar energy 's transportation services so far , continued weak crude oil prices could have a negative impact on demand in the future , which could cause nustar energy 's earnings to decline . nustar energy 's storage segment nustar energy expects its storage segment earnings for the first quarter of 2015 and the full-year of 2015 to exceed the comparable periods in 2014 mainly due to nustar energy 's january 2015 purchase of the remaining 50 % interest in the former joint venture terminal in linden , new jersey and higher throughputs at its north beach terminal as a result of the increase in eagle ford shale crude oil being shipped to corpus christi . nustar energy 's fuels marketing segment nustar energy expects first quarter of 2015 results for its fuels marketing segment to be comparable to the first quarter of 2014 , although higher than the fourth quarter of 2014. nustar energy expects the full-year 2015 results in this segment to be comparable to 2014 results . 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 , changes to refinery maintenance schedules , demand for crude oil , refined products and ammonia , demand for its transportation and storage services , and changes in laws or regulations affecting its assets . 32 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 their 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 , 2014 , 2013 and 2012 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 . 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 . story_separator_special_tag 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 . cash distributions received from nustar energy were $ 92.6 million for the year ended december 31 , 2012 , which we used primarily to fund distributions to our unitholders totaling $ 88.3 million . we borrowed $ 21.0 million from our revolving credit facility during 2012 , mainly to fund our $ 7.1 million in contributions to nustar energy in order to maintain our 2 % general partner interest following its issuance of common units in september 2012. additionally , we repaid $ 17.5 million under the revolving credit facility . 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 amended on june 17 , 2014 , will mature on june 27 , 2015 and has a borrowing capacity of up to $ 40.0 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 . 33 as of december 31 , 2014 , we had outstanding borrowings of $ 26.0 million and availability of $ 14.0 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 , 2014 , the interest rate was 2.2 % . the weighted-average interest rate related to borrowings under our revolving credit facility for the year ended december 31 , 2014 was 2.2 % . our revolving credit facility contains customary restrictive covenants , such as limitations on indebtedness , liens , dispositions of material property , mergers , asset transfers and certain investing activities . in addition , our revolving credit facility requires nustar energy to maintain , as of the end of each rolling period of four consecutive fiscal quarters , a consolidated debt coverage ratio not to exceed 5.0-to-1.0 . as of december 31 , 2014 , nustar energy 's consolidated debt coverage ratio was 4.0 x. we are also required to receive cash distributions of at least $ 12.5 million in respect of our ownership interests in nustar energy each fiscal quarter . our management believes that we are in compliance with the covenants of our revolving credit facility as of december 31 , 2014 . we are in discussions with the lenders to renew or replace our revolving credit facility . investment in nustar energy on september 10 , 2012 , nustar energy issued 7,130,000 common units representing limited partner interests at a price of $ 48.94 per unit . nustar energy received proceeds of $ 336.8 million , net of issuance costs . in conjunction with nustar energy 's issuance of common units , we contributed $ 7.1 million to nustar energy in order to maintain our 2 % general partner interest . 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 2014 , we contributed $ 11.1 million to our pension and postretirement benefit plans . we expect to contribute approximately $ 8.4 million to our pension and postretirement benefit plans in 2015 , 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 2015 as the funding can vary from year to year based upon changes in the fair value of the plan assets and actuarial assumptions . since costs incurred by us related to our pension and other postretirement benefit plans are reimbursed by nustar energy , funding for these plans will primarily be provided by nustar energy . long-term contractual obligations as of december 31 , 2014 , we had no future minimum payments applicable to non-cancellable operating leases and purchase obligations . 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 . 34 related party transactions agreements with nustar energy nustar gp , llc and nustar energy entered into a services agreement effective january 1 , 2008 ( the gp services agreement ) .
| 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. 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_7_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 the year ended december 31 , 2014 , compared to equity in loss for the year ended december 31 , 2013 related to our general and limited partner interests in nustar energy . 29 year ended december 31 , 2013 compared to year ended december 31 , 2012 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 ( loss ) income data : replace_table_token_9_th nustar energy 's operating loss for both years includes significant impairment charges . in 2013 , nustar energy recognized a goodwill impairment charge of $ 304.5 million associated with its st. eustatius and point tupper terminal operations , while 2012 included an impairment charge of $ 266.4 million related to the goodwill and long-lived assets of its asphalt operations . nustar energy 's segment operating income , which includes these impairment charges , increased $ 13.5 million for the year ended december 31 , 2013 , compared to the year
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free cash flow was strong in 2019 at $ 497.7 million as compared to $ 420.9 million in the prior year ( 2 ) . in 2019 we paid $ 186.6 million in shareholder dividends , an increase of eight percent as compared to the prior year , while also reducing our long term debt by $ 225.0 million and allocating approximately $ 71 million of capital to acquisitions . ( 1 ) adjusted net income and adjusted diluted earnings per share are non-gaap financial measures . see `` adjusted operating measures '' below for a reconciliation to the comparable gaap financial measures . ( 2 ) free cash flow is a non-gaap financial measure . see `` adjusted operating measures '' and `` financial condition , liquidity and capital resources - cash flow '' below for a reconciliation to the comparable gaap financial measure . summary of consolidated results ( in millions , except per share data ) replace_table_token_2_th 20 hubbell incorporated - form 10-k adjusted operating measures in the following discussion of results of operations , we refer to `` adjusted '' operating measures . we believe those adjusted measures , which exclude the impact of certain costs , gains and losses , may provide investors with useful information regarding our underlying performance from period to period and allow investors to understand our results of operations without regard to items we do not consider a component of our core operating performance . management uses these adjusted measures when assessing the performance of the business . effective with results of operations reported in the first quarter of 2019 , `` adjusted '' operating measures exclude amortization of intangible assets associated with all of our business acquisitions , including inventory step-up amortization associated with those acquisitions . for comparability , all prior period `` adjusted '' operating measures as well as management 's discussion and analysis have been updated to reflect this change in definition . adjusted operating measures in 2019 also exclude a gain on the disposition of the haefely business , an investment loss as well as a 2019 net charge to recognize certain additional liabilities associated with the company 's previously disclosed withdrawal from a multi-employer pension plan . those items are reported in total other expense ( below operating income ) in the consolidated statements of income . refer to note 3 - business acquisitions and dispositions , and note 15 - commitments and contingencies in the notes to consolidated financial statements , for additional information . our adjusted operating measures also exclude aclara transaction costs recognized in 2017 and 2018 , income tax effects associated with u.s. tax reform recognized in 2017 , and the loss on extinguishment of debt incurred in 2017 from the redemption of all of our $ 300 million outstanding long-term unsecured , unsubordinated notes that were scheduled to mature in 2018. however , the net tax benefit of approximately $ 6 million related to adjustments made in connection with the company 's accounting for the effects of tcja during the measurement period in 2018 has not been reflected as an adjustment to the gaap measures and is therefore not a reconciling item in the adjusted operating measures below . the following table reconciles our adjusted financial measures to the directly comparable gaap financial measure ( in millions , except per share amounts ) : replace_table_token_3_th hubbell incorporated - form 10-k 21 2019 compared to 2018 net sales net sales of $ 4.6 billion in 2019 increased by two percent compared to 2018 primarily due to higher organic volume and the contribution of an additional month of net sales in 2019 associated with the aclara acquisition which closed on february 2 , 2018. organic net sales growth contributed approximately two percentage points , including favorable price realization , and acquisitions added approximately one percentage point , partially offset by an approximately one percentage point decline in net sales from the disposal of the haefely business and foreign exchange . cost of goods sold as a percentage of net sales , cost of goods sold decreased by 50 basis points to 70.5 % of net sales in 2019 as compared to 71.0 % in 2018. the improvement was primarily driven by favorable price realization and savings from our productivity initiatives that outpaced cost increases as well as lower amortization of acquisition-related intangible assets , partially offset by higher restructuring and related costs , and lower net sales unit volume . gross profit the gross profit margin in 2019 increased by 50 basis points to 29.5 % of net sales as compared to 29.0 % in 2018. excluding amortization of acquisition-related intangible assets , the adjusted gross profit margin was 30.0 % in 2019 as compared to 29.7 % in 2018 and increased primarily due to favorable price realization and savings from our productivity initiatives that outpaced cost increases , partially offset by higher restructuring and related costs , and lower net sales unit volume . selling & administrative expenses s & a expense in 2019 was $ 756.1 million and increased by $ 12.6 million compared to the prior year . s & a expense as a percentage of net sales declined by 10 basis points from 16.6 % in 2018 to 16.5 % in 2019 . excluding amortization of acquisition-related intangible assets and aclara transaction costs incurred in 2018 , adjusted s & a expense as a percentage of net sales increased by 40 basis points from 15.3 % in 2018 to 15.7 % in 2019 primarily due to higher restructuring and related costs in 2019 partially offset by volume leverage associated with higher reported net sales dollars . operating income operating income increased seven percent in 2019 to $ 596.6 million compared to 2018 , and operating margin increased by 60 basis points to 13.0 % . story_separator_special_tag excluding amortization of acquisition-related intangible assets and aclara transaction costs incurred in 2018 , adjusted operating income increased approximately four percent in 2019 to $ 668.7 million compared to 2018 and adjusted operating margin increased by 30 basis points to 14.6 % in 2019 . the increase in adjusted operating income and adjusted operating margin is the result of higher gross profit and expanding gross profit margin in 2019 , from price realization and productivity in excess of cost increases , partially offset by the effect of lower unit volume , and higher restructuring and related costs . total other expense total other expense decreased by $ 13.8 million in 2019 to $ 76.1 million compared to the prior year primarily due to the impact of certain discrete non-operating items , including a $ 21.7 million gain recognized on the disposal of the haefely business partially offset by an $ 8.5 million net charge associated with the withdrawal from a multi-employer pension plan and subsequent execution of a settlement agreement with regard to the withdrawal obligation , and a $ 5.0 million loss on an investment in an available-for-sale debt security . interest expense , net of investment income , reported within total other expense for 2019 declined by $ 4.4 million as compared to the same period of the prior year . income taxes the effective tax rate was 21.7 % in 2019 as compared to 21.6 % in 2018. the increase in the effective tax rate is primarily due to the absence of favorable adjustments related to tcja recorded in 2018 , largely offset by the net favorable impact of dispositions , reserve releases related to statute of limitations expiration , and favorable provision to return adjustments recorded in 2019. net income attributable to hubbell and earnings per diluted share net income attributable to hubbell was $ 400.9 million in 2019 and increased 11 % as compared to 2018 . excluding amortization of acquisition-related intangibles , aclara transaction costs , and the impact of non-operating items within other expense , as described above , adjusted net income attributable to hubbell was $ 445.7 million in 2019 and increased 4 % as compared to 2018 . earnings per diluted share in 2019 increased 12 % compared to 2018 . adjusted earnings per diluted share in 2019 increased 5 % as compared to 2018 and reflects higher adjusted net income as well as a decline in the average number of diluted shares outstanding of 0.2 million as compared to the prior year . story_separator_special_tag income attributable to hubbell was $ 428.0 million in 2018 and increased 28 % as compared to 2017. earnings per diluted share in 2018 increased 49 % compared to 2017. adjusted earnings per diluted share in 2018 increased 29 % as compared to 2017. segment results electrical segment replace_table_token_6_th net sales in the electrical segment were $ 2.7 billion , up five percent in 2018 as compared with 2017 due to approximately five percentage points of net sales growth from higher organic volume , including favorable price realization for the segment . acquisitions increased net sales by less than one percentage point and the effect of foreign currency translation was flat . within the segment , the aggregate net sales of our commercial and industrial and construction and energy business groups increased by seven percentage points , due to approximately six percentage points of organic growth , and approximately one percentage point of net sales growth from acquisitions . organic net sales growth of these businesses was driven primarily by our products serving the energy-related markets as well as the non-residential and residential construction markets . net sales of our lighting business group increased approximately two percent in 2018 due to higher organic volume , partially offset by pricing headwinds . within the lighting business group , net sales of residential lighting products increased by 12 % , driven by strong unit volume growth , while net sales of commercial and industrial lighting products declined by 2 % as a result of lower volume and pricing headwinds . operating income in the electrical segment for 2018 was $ 320.8 million and increased nine percent compared to 2017. operating margin in 2018 increased by 50 basis points to 12.1 % . the increase in operating margin is primarily due to incremental earnings on higher net sales , as discussed above , and productivity gains in excess of cost increases , partially offset by material cost headwinds ( including the impact of tariffs ) that outpaced price realization . excluding amortization of acquisition-related intangibles , adjusted operating margin increased by 40 basis points to 13.0 % . 24 hubbell incorporated - form 10-k power segment replace_table_token_7_th net sales in the power segment were $ 1.8 billion , up approximately 60 % as compared to 2017 , primarily due to the addition of net sales of the aclara business as well as higher organic volume . acquisitions contributed 56.6 % to net sales growth and higher organic volume contributed 4.1 % , including favorable price realization . organic net sales growth was driven by the transmission and distribution ( t & d ) and telecommunications markets . foreign exchange reduced net sales as compared to the prior year by less than one percentage point . operating income in the power segment for 2018 increased by five percent to $ 236.1 million as compared to the prior year . operating margin in 2018 decreased to 13.0 % as compared to 19.8 % in 2017 and reflects an approximately 2 % decline from higher amortization of acquisition-related intangibles and aclara transaction costs in 2018 , as well as approximately 2 % attributable to the lower margin operating results of the aclara business .
| the operating margin decreased slightly in 2019 as compared to the prior year due to the disposal of the haefely business . power segment replace_table_token_5_th net sales in the power segment in 2019 were $ 2.0 billion , an increase of approximately 8 % as compared to 2018 , due to 5.5 % of organic growth and approximately 3 % of growth from acquisitions , partially offset by approximately 0.5 % from foreign currency translation . organic net sales growth was primarily driven by the transmission and distribution ( t & d ) market . operating income in the power segment increased by 17 % to $ 276.5 million in 2019 and operating margin in 2019 increased by 110 basis points to 14.1 % . excluding amortization of acquisition-related intangibles and aclara transaction costs , the adjusted operating margin increased by 30 basis points to 16.6 % primarily driven by favorable price realization and productivity which outpaced cost increases ( including tariffs ) , and a benefit from higher net sales volume , partially offset by one additional month of operating results of the aclara business in 2019 and higher restructuring and related costs . 2018 compared to 2017 net sales net sales of $ 4.5 billion in 2018 increased 22.2 % percent compared to 2017 due to the contribution of net sales from acquisitions , higher organic volume and favorable price realization . acquisitions added 17.8 % to net sales , primarily from the acquisition of aclara , while organic volume , including favorable price realization , contributed 4.4 % . the effect of foreign exchange was flat compared to the prior year . cost of goods sold as a percentage of net sales , cost of goods sold increased by 250 basis points to 71.0 % of net sales in 2018 as compared to 68.5 % in 2017. the increase was primarily driven by acquisitions , as 2018 includes $ 29.5 million of aclara acquisition-related costs as well
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