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we have not secured any commitment for new financing at this time , nor can we provide any assurance that new financing will be available on commercially acceptable terms , if needed . in july 2016 , we completed a registered direct offering of an aggregate of 1,687,500 of our common shares , and a concurrent private placement of warrants to purchase up to an aggregate of 1,265,626 common shares with an exercise price of $ 4.50 per share , resulting in net proceeds of approximately $ 6 million . we have filed with the securities and exchange commission , and the securities and exchange commission declared effective , a universal shelf registration statement of up to $ 100 million worth of registered equity securities , of which we utilized approximately $ 6.75 million in our july 2016 offering . under this effective registration statement , we may issue registered securities , from time to time , in one or more separate offerings or other transactions with the size , price and terms to be determined at the time of issuance . pursuant to general instruction i.b.6 of form s-3 , in no event will we sell securities in a public primary offering with a value of more than one-third of the aggregate market value of our common shares held by non-affiliates in any twelve-month period , so long as the aggregate market value of our common shares held by non-affiliates remains below $ 75 million . registered securities issued using our existing shelf may be used to raise additional capital to fund our working capital , r & d and other corporate needs . research and development our core business is developing and commercializing keyhole limpet hemocyanin for use in immunotherapy and immunodiagnostic applications . our internal research has included , among other activities , continual improvement of methods for the culture and growth of giant keyhole limpet , innovations in aquaculture systems and infrastructure , biophysical and biochemical characterization of the klh molecule , analytical processes to enhance performance of our products , klh manufacturing process improvements , new klh formulations , and early development of potential new klh-based immunotherapies . research and development costs , including materials , klh designated for internal research use only and salaries of employees directly involved in research and development efforts , are expensed as incurred . the following table includes our research and development costs for each of the most recent three fiscal years : replace_table_token_10_th off balance sheet arrangements we do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition , changes in financial condition , revenues or expenses , results of operations , liquidity , capital expenditures , or capital resources . disclosure of contractual obligations we currently lease 4,300 square feet of executive office and laboratory space in port hueneme , california under a lease which was renewed in july 2016 for a two-year term , with options to renew for three successive two-year terms . page 30 our aquaculture and klh manufacturing operations are located on approximately 37,000 square feet of oceanfront land in the port hueneme aquaculture business park . our facilities here include specialized aquaculture infrastructure , seawater supply and discharge systems , laboratories , manufacturing and administrative offices . we have two sublease agreements which expire in september and october 2020 , respectively , with options to extend the leases for two additional five-year terms . we also currently lease undeveloped land in baja california , mexico under a lease agreement which we entered into in june 2015 , with a three-year term , which lease agreement is terminable at will at any time with 30 days prior notice by either party . we are utilizing the undeveloped land to conduct suitability studies for the potential development of an additional aquaculture locale and future expansion of production . we also have a short-term lease for office space in a business center located in ensenada , baja california . this office serves as the administrative headquarters of our bioestelar subsidiary . we have purchase commitments for contract research organizations , consultants and construction contractors . the approximate amounts of our contractual obligations are as follows : contractual obligations as of september 30 , 2017 replace_table_token_11_th significant accounting policies and estimates our consolidated financial statements , which are indexed under item 15 of this annual report on form 10-k , have been prepared in accordance with accounting principles generally accepted in the united states , which require that the management make certain assumptions and estimates and , in connection therewith , adopt certain accounting policies . our significant accounting policies are set forth in note 3 in the notes to consolidated financial statements . of those policies , we believe that the policies discussed below may involve a higher degree of judgment or may otherwise be more relevant to our financial condition and results of operations . investments investments at september 30 , 2017 and 2016 consisted of u.s. treasury bills with original maturities between 13 and 52 weeks . they are classified as held-to-maturity and are reported at amortized cost , which approximates fair value . we regularly review these investments to determine whether any decline in fair value below the amortized cost basis has occurred that is other than temporary . if a decline in fair value has occurred that is determined to be other than temporary , the cost basis of the investment is written down to fair value . inventory we record inventory at the lower of cost or market , with market not in excess of net realizable value . raw materials are measured using fifo ( first-in first-out ) cost . work in process and finished goods are measured using average cost . raw materials include inventory of manufacturing supplies . work in process includes manufacturing supplies , direct and indirect labor , contracted manufacturing and testing , and allocated manufacturing overhead for inventory in process at the end of the year . story_separator_special_tag finished goods include products that are complete and available for sale . the company recorded work in process and finished goods inventory only for those products with recent sales levels to evaluate net realizable value . page 31 warrant liability our equity offerings in prior years included the issuance of warrants with exercise prices denominated in canadian dollars . as a result of having exercise prices denominated in a currency other than our functional currency , our warrants with canadian dollar exercise prices met the definition of derivatives and were therefore classified as derivative liabilities measured at fair value with noncash adjustments to fair value recognized through the consolidated statements of operations . upon exercise of these warrants , the fair value of warrants included in derivative liabilities was reclassified to common shares . if these warrants expired , the related decrease in warrant liability was recognized as gain in fair value of warrant liability . there was no cash flow impact as a result of this accounting treatment . the fair value of the warrants was determined using the black-scholes option valuation model at the end of each reporting period . all warrants with exercise prices denominated in canadian dollars were exercised or expired by december 2015. therefore , there is no outstanding warrant liability at september 30 , 2017. revenue recognition product sales the company recognizes product sales when klh product is shipped ( for which the risk is typically transferred upon delivery to the shipping carrier ) and there is persuasive evidence of an arrangement , the fee is fixed or determinable , and collectability is reasonably assured . the company documents arrangements with customers with purchase orders and sales agreements . product sales include sales made under supply agreements with customers for a fixed price per gram of klh products based on quantities ordered . supply agreements are typically on a non-exclusive basis except within that customer 's field of use . contract services revenue the company recognizes contract services revenue when contract services have been performed and reasonable assurance exists regarding measurement and collectability . an appropriate amount will be recognized as revenue in the period that the company is assured of fulfilling the contract requirements . amounts received in advance of performance of contract services are recorded as deferred revenue . contract services include services performed under collaboration agreements and technology transfer and purchase agreement . share-based compensation we grant options to buy common shares of the company to our directors , officers , employees and consultants , and grant other equity-based instruments to non-employees . the fair value of share-based compensation is measured on the date of grant , using the black-scholes option valuation model and is recognized over the vesting period net of estimated forfeitures for employees or the service period for non-employees . the black-scholes option valuation model requires the input of subjective assumptions , including price volatility of the underlying shares , risk-free interest rate , dividend yield , and expected life of the option . foreign exchange items included in the financial statements of our subsidiaries are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ) . our functional currency and the functional currency of our subsidiaries is the u.s. dollar . transactions in currencies other than the u.s. dollar are recorded at exchange rates prevailing on the dates of the transactions . recent accounting pronouncements recent accounting pronouncements are contained in note 3 to the financial statements , which are indexed under item 15 of this this annual report on form 10-k. page 32 certain income tax considerations united states federal income taxation as used below , a “ u.s . holder ” is a beneficial owner of a common share that is , for u.s. federal income tax purposes , ( i ) a citizen or resident alien individual of the united states , ( ii ) a corporation ( or an entity treated as a corporation ) created or organized under the law of the united states , any state thereof or the district of columbia , ( iii ) an estate the income of which is subject to u.s. federal income tax without regard to its source or ( iv ) a trust if ( 1 ) a court within the united states is able to exercise primary supervision over the administration of the trust , and one or more united states persons have the authority to control all substantial decisions of the trust , or ( 2 ) the trust has a valid election in effect under applicable u.s. treasury regulations to be treated as a united states person . for purposes of this discussion , a “ non-u.s. holder ” is a beneficial owner of a common share that is ( i ) a nonresident alien individual , ( ii ) a corporation ( or an entity treated as a corporation ) created or organized in or under the law of a country other than the united states or a political subdivision thereof or ( iii ) an estate or trust that is not a u.s. holder . if a partnership ( including for this purpose any entity treated as a partnership for u.s. federal tax purposes ) is a beneficial owner of a common share , the u.s. federal tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership . a holder of a common share that is a partnership and partners in that partnership should consult their own tax advisers regarding the u.s. federal income tax consequences of holding and disposing of common shares . we have not sought a ruling from the internal revenue service ( irs ) or an opinion of counsel as to any u.s. federal income tax consequence described herein . the irs may disagree with the description herein , and its determination may be upheld by a court .
| · our general and administrative expenses decreased by $ .38 million to $ 2.94 million for fiscal 2017 compared to $ 3.32 million for fiscal 2016 primarily due to management 's actions to reduce corporate expenses , including travel and professional fees , as well as lower legal fees and public company expenses . page 28 our other income ( loss ) increased by $ .31 million to an overall gain of $ .19 million for fiscal 2017 compared to an overall loss of $ .11 million for fiscal 2016. the increase was primarily due to a noncash change in fair value of warrant liability related to warrants with canadian dollar exercise prices . all such warrants were exercised or expired by december 2015 and , consequently , there was no warrant liability and no gain/loss in fair value of warrant liability for fiscal 2017 compared to a loss of $ .21 million for fiscal 2016. foreign exchange gain ( loss ) was a gain of $ .16 million for the fiscal 2017 compared to a gain of $ .08 million for fiscal 2016 due to fluctuations in exchange rates and decreased amounts held in canadian cash and cash equivalents . our net loss for fiscal 2017 was $ 5.03 million , or $ 0.49 per basic share , compared to a net loss of $ 5.03 million , or $ 0.57 per basic share , for fiscal 2016. fiscal year ended september 30 , 2016 our total revenues increased by $ .51 million to $ 1.27 million for fiscal 2016 compared to $ .76 million for fiscal 2015. product sales increased by $ .68 million to $ 1.24 million for fiscal 2016 compared to $ .56 million for fiscal 2015 primarily due to an increase in the number of customers and greater product sales volume , including sales under supply agreements and custom manufactured products . contract services revenue decreased by $ .17 million to $ .03 million for fiscal 2016 compared to $ .20 million for fiscal 2015 as a result of the successful conclusion of a collaboration agreement in
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if , however , all these criteria are not satisfied , then the payments are treated as a reduction of revenue from that customer . if we determines that any potential future payments to its customers are to be considered as a reduction of revenue , it must evaluate if the total amount of revenue to be received under the arrangement is fixed and determinable . if the total amount of revenue is not fixed and determinable due to the uncertain nature of the potential future payments to the customer , then any customer payments can not be recognized as revenue until the total arrangement consideration becomes fixed and determinable . the reimbursements for research and development costs under collaboration agreements that meet the criteria for revenue recognition are included in research revenue and the costs associated with these reimbursable amounts are included in research and development expenses . in order to determine the revenue recognition for contingent milestones , we evaluate the contingent milestones using the criteria as provided by the financial accounting standards boards ( `` fasb '' ) guidance on the milestone method of revenue recognition at the inception of a collaboration -86- agreement . the criteria requires that ( i ) we determines if the milestone is commensurate with either its performance to achieve the milestone or the enhancement of value resulting from our activities to achieve the milestone , ( ii ) the milestone be related to past performance , and ( iii ) the milestone be reasonable relative to all deliverable and payment terms of the collaboration arrangement . if these criteria are met then the contingent milestones can be considered as substantive milestones and will be recognized as revenue in the period that the milestone is achieved . inventories and cost of goods sold until regulatory approval of galafold , we expensed all manufacturing costs of galafold as research and development expense . upon regulatory approval , we began capitalizing costs related to the purchase and manufacture of galafold . inventories are stated at the lower of cost or market determined by the first-in , first-out method . inventories are reviewed periodically to identify slow-moving or obsolete inventory based on projected sales activity as well as product shelf-life . in evaluating the recoverability of inventories produced , the probability that revenue will be obtained from the future sale of the related inventory is considered and inventory value is written down for inventory quantities in excess of expected requirements . expired inventory is disposed of and the related costs are recognized as cost of product sales in the consolidated statements of operations . cost of goods sold includes the cost of inventory sold , manufacturing and supply chain costs , product shipping and handling costs , provisions for excess and obsolete inventory , as well as royalties payable . a portion of the inventory available for sale was expensed as research and development costs prior to regulatory approval and as such the cost of goods sold and related gross margins are not necessarily indicative of future cost of goods sold and gross margin . research and development expenses we expect to continue to incur substantial research and development expenses as we continue to develop our product candidates and explore new uses for our pharmacological chaperone technology . research and development expense consists of : internal costs associated with our research and clinical development activities ; payments we make to third party contract research organizations , contract manufacturers , investigative sites , and consultants ; technology license costs ; manufacturing development costs ; personnel-related expenses , including salaries , benefits , travel , and related costs for the personnel involved in drug discovery and development ; activities relating to regulatory filings and the advancement of our product candidates through preclinical studies and clinical trials ; and facilities and other allocated expenses , which include direct and allocated expenses for rent , facility maintenance , as well as laboratory and other supplies . we have multiple research and development projects ongoing at any one time . we utilize our internal resources , employees , and infrastructure across multiple projects . we record and maintain information regarding external , out-of-pocket research and development expenses on a project-specific basis . we expense research and development costs as incurred , including payments made to date under our license agreements . we believe that significant investment in product development is a competitive necessity and plan to continue these investments in order to realize the potential of our product candidates . -87- the following table summarizes our principal product development programs , including the related stages of development for each product candidate in development , and the out-of-pocket , third party expenses incurred with respect to each product candidate ( in thousands ) : replace_table_token_7_th ( 1 ) other project costs are leveraged across multiple projects . ( 2 ) other costs include facility , supply , overhead , and licensing costs that support multiple projects . the successful development of our product candidates is highly uncertain . at this time , we can not reasonably estimate or know the nature , timing , and costs of the efforts that will be necessary to complete the remainder of the development of our product candidates . as a result , we are not able to reasonably estimate the period , if any , in which material net cash inflows may commence from our product candidates , including migalastat or any of our other preclinical product candidates . story_separator_special_tag this uncertainty is due to the numerous risks and uncertainties associated with the conduct , duration , and cost of clinical trials , which vary significantly over the life of a project as a result of evolving events during clinical development , including : the number of clinical sites included in the trials ; the length of time required to enroll suitable patients ; the number of patients that ultimately participate in the trials ; the results of our clinical trials ; and any mandate by the fda or other regulatory authority to conduct clinical trials beyond those currently anticipated . our expenditures are subject to additional uncertainties , including the terms and timing of regulatory approvals , and the expense of filing , prosecuting , defending , and enforcing any patent claims or other intellectual property rights . we may obtain unexpected results from our clinical trials . we may elect to discontinue , delay , or modify clinical trials of some product candidates or focus on others . a change in the outcome of any of the foregoing variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development , regulatory approval , and commercialization of that product candidate . for example , if the fda or -88- other regulatory authorities were to require us to conduct clinical trials beyond those which we currently anticipate , or if we experience significant delays in enrollment in any of our clinical trials , we could be required to expend significant additional financial resources and time on the completion of clinical development . drug development may take several years and millions of dollars in development costs . general and administrative expense general and administrative expense consists primarily of salaries and other related costs , including equity-based compensation expense , for persons serving in our executive , finance , accounting , legal , information technology , and human resource functions . other general and administrative expense includes facility-related costs not otherwise included in research , and development expense , promotional expenses , costs associated with industry and trade shows , and professional fees for legal services , including patent-related expense and accounting services . interest income and interest expense interest income consists of interest earned on our cash and cash equivalents and marketable securities . interest expense consists of interest incurred on our debt agreements . stock option grants in accordance with the applicable guidance , we estimate the fair value of each equity award granted . we chose the `` straight-line '' attribution method for allocating compensation costs and recognized the fair value of each stock option on a straight-line basis over the vesting period of the related awards . we use the black-scholes option pricing model when estimating the grant date fair value for stock-based awards . use of a valuation model requires management to make certain assumptions with respect to selected model inputs . expected volatility was based on our historical volatility since our initial public offering in may 2007. we will continue to use a blended weighted average approach using our own historical volatility and other similar public entity volatility information until our historical volatility is relevant to measure expected volatility for future option grants . the average expected life was determined using a `` simplified '' method of estimating the expected exercise term which is the mid-point between the vesting date and the end of the contractual term . as our stock price volatility has been over 75 % and we have experienced significant business transactions , we believe that we do not have sufficient reliable exercise data in order to justify a change from the use of the `` simplified '' method of estimating the expected exercise term of employee stock option grants . the risk-free interest rate is based on u.s. treasury , zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant . forfeitures are estimated based on expected turnover as well as a historical analysis of actual option forfeitures . the weighted average assumptions used in the black-scholes option pricing model are as follows : replace_table_token_8_th -89- restricted stock units ( `` rsus '' ) the rsus awarded are generally subject to graded vesting and are contingent on an employee 's continued service on such date . rsus are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions . we expense the cost of the rsus , which is determined to be the fair market value of the shares of common stock underlying the rsus at the date of grant , ratably over the period during which the vesting restrictions lapse . on december 30 , 2016 , the compensation committee approved a form of performance-based restricted stock unit award agreement ( the `` performance-based rsu agreement '' ) , to be used for performance-based rsus granted to participants under the amended and restated amicus therapeutics , inc. 2007 equity incentive plan , including named executive officers . awards under the form of performance-based rsu agreement will vest based on the company meeting specified performance criteria . vesting of the rsus is generally subject to the participant 's continuous service with the company through a specified date . as of december 31 , 2016 , there were no rsus issued under the performance-based rsu agreement . warrants in october 2015 , we entered into the october 2015 purchase agreement with redmile , who beneficially owned approximately 6.7 % of the common stock as of december 31 , 2015 , as set forth in the october 2015 purchase agreement , whereby we sold , on a private placement basis , ( a ) $ 50.0 million aggregate principal amount of its unsecured promissory notes and ( b ) 1.3 million warrants that have a term of five-years . the warrants are classified as equity and included in stockholder 's equity . the fair value of the warrants were initially measured at $ 8.8 million using the black-scholes valuation model .
| for the year ended december 31 , 2016 , we recorded expense of $ 6.8 million representing an increase of $ 2.4 million from the $ 4.4 million of expense for the year ended december 31 , 2015. the change in the fair value resulted from an increase in the scioderm contingent consideration of $ 8.5 million and a decrease to the callidus contingent consideration of $ 6.1 million . the fair value is impacted by updates to the estimated probability of achievement , assumed timing of milestones and adjustments to the discount periods and rates . depreciation . depreciation expense was $ 3.2 million in 2016 , representing an increase of $ 1.4 million as compared to $ 1.8 million in 2015. depreciation was higher due to increased asset acquisitions , resulting in a higher depreciation base in 2016. interest income . interest income was $ 1.6 million for the year ended december 31 , 2016 , representing an increase of $ 0.7 million from $ 0.9 million for the year ended december 31 , 2015. the increase in interest income was due to the overall higher average cash and investment balances as a result of our financing transactions . interest expense . interest expense was $ 5.4 million in 2016 as compared to $ 1.6 million in 2015. interest expense was higher due to the $ 50 million notes payable borrowed in october 2015 and the related revised agreement in february 2016 , as well as the $ 250 million convertible debt secured in december 2016. loss from extinguishment of debt . we recognized a non-cash loss of $ 13.3 million for the year ended december 31 , 2016 arising from the early extinguishment of the $ 80 million secured loan in the fourth quarter of 2016. for the year ended december 31 , 2015 , we recognized a loss of $ 1.0 million arising from the early extinguishment of the $ 15 million secured loan in the first quarter of 2015. other expense . other expense was $ 4.8 million for the year ended december 31 , 2016 as compared to
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% of the outstanding principal . 35 formed oms under the laws of the usvi as part of an initiative to consolidate the ownership and management of all of our global servicing assets and operations under a single entity and cost-effectively expand our u.s.-based servicing activities . we anticipate that these changes will streamline global operations and lower our effective international tax rate on existing assets , and we began to see the initial effect of these changes in the fourth quarter of 2012. operations summary the residential msr acquisitions during 2012 , the litton acquisition on september 1 , 2011 and the homeq acquisition on september 1 , 2010 have significantly impacted our consolidated operating results for the past three years . the homeward acquisition closed on december 27 , 2012 , and therefore did not have a significant impact on operating results for 2012. the operating results of the homeward , litton loan servicing and homeq servicing businesses are included in our operating results since their respective acquisition dates . the following table summarizes our consolidated operating results for the years indicated . we provide a more complete discussion of operating results in the segments section . replace_table_token_8_th 2012 versus 2011. servicing and subservicing fee revenues for 2012 were higher than 2011 primarily as a result of 46 % growth in the average upb of the residential servicing portfolio that included $ 34.2 billion of servicing and subservicing added during the second quarter of 2012 , principally as a result of the acquisitions of msrs from saxon , jpmcb and bana , and the effect of the litton portfolio for a full year in 2012 as compared to four months in 2011. an increase in the mix of servicing versus subservicing and a 9 % increase in completed modifications also contributed to the increase in revenues . the homeward acquisition closed on december 27 , 2012 , and therefore did not have a significant impact on revenues . 36 operating expenses for 2012 increased principally because of the effects of growth in the servicing portfolio which resulted in a substantial increase in staffing and higher amortization of msrs . newly acquired servicing portfolios typically have higher delinquencies upon boarding which raises costs relative to increases in upb . this disproportionate increase in costs results because we incur our highest expenses up-front as we invest in loss mitigation resources and incur transaction-related costs . however , the effects of the increase in staffing on compensation and benefits were offset in part by the 2011 nonrecurring expenses associated with the operations of litton loan servicing immediately after the litton acquisition . technology and occupancy costs have increased as well , as we have added facilities and infrastructure to support the growth . operating expenses for 2012 also include a charge of $ 4,779 to establish a liability for the remaining lease payments on the former litton facility that we vacated in march . we also incurred a fee of $ 3,689 in the first quarter of 2012 as a result of cancelling a planned $ 200,000 upsizing of the sstl facility . nevertheless , income from operations increased by $ 224,735 , or 88 % , for 2012 as compared to 2011. other expense , net increased by $ 90,222 primarily due to a $ 90,685 increase in interest expense . higher interest on borrowings related to the litton acquisition and the msr acquisitions that closed during 2012 were partially offset by a decline in interest expense on borrowings related to the homeq advance facility transferred to hlss in march 2012 and on match funded and sstl borrowings repaid with proceeds from the hlss transactions . losses on extinguishment of debt were $ 2,167 in 2012 as compared to gains of $ 3,651 in 2011. in addition , we recognized a loss of $ 3,167 in 2012 on the deconsolidation of the four loan securitization trusts that we began consolidating in 2010. partially offsetting these increases in other expense , net was a $ 6,274 decline in losses on derivatives . 2011 versus 2010. servicing and subservicing fees were higher in 2011 as a result of loan modifications and the 36 % growth in the average servicing portfolio that included approximately $ 38.6 billion acquired on september 1 , 2011 related to the litton acquisition and the effect of the homeq portfolio for a full year in 2011 as compared to four months in 2010. operating expenses increased slightly in 2011. higher amortization of msrs and the effects of a substantial increase in staffing to service the larger portfolio were largely offset by lower non-recurring expenses related to the litton acquisition as compared to those incurred in connection with the homeq acquisition in 2010 and a decline in litigation-related expenses . non-recurring expenses related to the litton acquisition were $ 50,340 in 2011 versus $ 52,603 for the homeq acquisition in 2010. in addition , litigation-related expenses were higher during 2010 due to $ 26,882 of litigation expense incurred in connection with the adverse verdict in a vendor dispute and the settlement of the mdl proceeding . income from operations increased by $ 132,439 , or 107 % , in 2011 as compared to 2010. other expense , net increased by $ 48,598 primarily due to an increase of $ 42,543 in interest expense on borrowings related to the homeq and litton acquisitions , including the write-off of $ 12,575 of unamortized discount and deferred debt issuance costs as the result of the prepayment of $ 180,000 on the $ 350,000 sstl . also increasing other expense , net in 2011 was $ 7,426 of losses on derivatives , including $ 6,104 of unrealized losses on foreign exchange forward contracts that we entered into to hedge against the effects of changes in the value of the indian rupee . also , 2010 included $ 6,036 of gains related to affordable housing investments that we sold . story_separator_special_tag these factors contributing to the increases in other expense , net in 2011 were partly offset by $ 3,651 of gains on extinguishment of debt in 2011 and the effects of $ 7,909 of realized and unrealized losses on auction rate securities and a $ 3,000 write-off of a commercial real estate investment in 2010. income tax expense recognized in 2010 was reduced by the release of a reserve predominantly related to deductions associated with a servicing advance finance structure and statute expirations . the reserve for this item was recorded in 2009. change in financial condition summary during 2012 , our balance sheet was significantly impacted by the homeward acquisition , by the msr acquisitions and by the hlss transactions . the following table summarizes our consolidated balance sheet at the dates indicated . we provide a more complete discussion of our balance sheet in the segments section . 37 replace_table_token_9_th sales of advances to hlss and collections more than offset the advances acquired in connection with the servicing portfolios we purchased . msrs increased as a result of the homeward acquisition and msr asset acquisitions . the increase in goodwill is the result of goodwill recorded as part of the homeward acquisition . reductions in match funded liabilities as a result of the sale and transfer of advances to hlss and the collection of advances more than offset borrowings to fund the msrs and advances acquired and borrowings assumed from homeward . lines of credit and other borrowings increased as liabilities resulting from the sales of msrs to hlss accounted for as financings and new borrowings related to the homeward acquisition exceeded repayments on the sstl ( including required prepayments from the proceeds received from the hlss transactions ) . debt securities were reduced to zero as a result of converting the remaining principal balance of the 3.25 % convertible notes and redeeming the 10.875 % capital securities . mezzanine equity results from the issuance of $ 162,000 of the preferred shares in connection with the homeward acquisition . total stockholders ' equity increased primarily due to net income of $ 180,923 and $ 56,410 of additional equity resulting from the conversion of the 3.25 % convertible notes to 4,635,159 shares of common stock in march . the exercise of stock options and the recognition of compensation related to employee share-based awards also contributed to the increase in equity in 2012. liquidity summary we meet our financing requirements using a combination of debt and equity capital . our short-term financing needs arise primarily from our holding of mortgage loans pending sale and our obligations to advance certain payments on behalf of delinquent mortgage borrowers . our long-term financing needs arise primarily from our investments in msrs and the financial instruments acquired to manage the interest rate risk associated with those investments , and from investments that we make in technology and other capital expenditures . the structure and mix of our debt and equity capital are primarily driven by our strategic objectives but are also influenced by our credit ratings and market conditions . such ratings and market conditions affect the type of financing we are able to obtain and the rate at which we are able to grow . we primarily rely on secured borrowings as the key component of our financing strategy . our financing arrangements allow us to fund a portion of our servicing advances until they are recovered and to fund our loan originations on a short-term basis until the mortgage loans are sold to secondary market investors . see note 13 , note 14 and note 15 to the consolidated financial statements for additional information regarding the components of our debt . 38 we define liquidity as unencumbered cash balances plus unused , collateralized advance financing capacity . our liquidity as of december 31 , 2012 , as measured by cash and available credit , was $ 220,130 , a decrease of $ 330,937 , or 60 % , from december 31 , 2011. at december 31 , 2012 , our cash position was $ 220,130 compared to $ 144,234 at december 31 , 2011. we had no available credit on collateralized but unused advance financing capacity at december 31 , 2012 compared to $ 406,833 at december 31 , 2011. available credit was reduced to zero because we borrowed the maximum amount , given the available collateral , principally in order to support the homeward acquisition . during 2012 , we used $ 2.3 billion of the proceeds from our sales to hlss of rights to msrs and related advances to pay down our borrowing under the sstl and the advance financing facilities . we repaid in full the borrowings under three of our advance financing facilities and terminated these facilities in 2012 and hlss assumed a fourth facility . we regularly monitor and project cash flow to minimize liquidity risk . in assessing our liquidity outlook , our primary focus is on maintaining cash and unused borrowing capacity that is sufficient to meet the needs of the business . our investment policies emphasize principal preservation by limiting investments to include : securities issued by the u.s. government , a u.s. agency or a u.s. gse money market mutual funds money market demand deposits demand deposit accounts at december 31 , 2012 , $ 1.2 billion of our maximum advance borrowing capacity remained unused . however , as noted above , the amount of collateral pledged to these facilities limit additional borrowing , and at the end of the year none of the unused borrowing capacity was readily available . we may utilize the unused borrowing capacity in the servicing business in the future by pledging additional qualifying collateral to these facilities . in order to reduce fees charged by lenders ( which we recognize as interest expense ) , we limit unused borrowing capacity to a level that we consider prudent relative to the current levels of advances and match funded advances and to our anticipated funding needs for reasonably foreseeable changes in advances .
| the total balance outstanding under these facilities at december 31 , 2012 was $ 437,728 ; in connection with the acquisition of msrs from bana in june , issued notes with a maximum borrowing capacity of $ 100,000 under a new advance funding facility and issued a new promissory note to finance the msrs . at december 31 , 2012 , a total of $ 112,561 was outstanding under these new agreements . in connection with the homeward acquisition , we assumed advance financing facilities with a maximum borrowing capacity of $ 2.6 billion and $ 2.0 billion of outstanding borrowings under these facilities at december 31 , 2012. also , in connection with the homeward acquisition , we assumed mortgage loan warehouse facilities with a maximum borrowing capacity of $ 733,938 and $ 388,075 of borrowings outstanding at december 31 , 2012. maximum borrowing capacity for match funded advances decreased by $ 0.4 billion from $ 4.1 billion at december 31 , 2011. during 2012 , we fully repaid and terminated match funded advance financing facilities that had total aggregate borrowing capacity of $ 3.5 billion at december 31 , 2011. this decrease is also partly a result of the assumption by hlss of one of our advance financing facilities in connection with the hlss transactions ( see note 3 to the consolidated financial statements for additional information regarding the hlss transactions. ) . the facility assumed by hlss had a maximum borrowing capacity of $ 582,729 at december 31 , 2011. these declines were offset in part by $ 1.1 billion of borrowing capacity added in connection with the 2012 saxon msr transaction , $ 2.6 billion added in connection with the homeward acquisition , $ 100,000 added in connection with the bana msr acquisition and $ 50,000.added in connection with the aurora small-balance commercial msr acquisition . our unused advance borrowing capacity decreased from $ 1.6 billion at december 31 , 2011 to $ 1.2 billion at december 31 , 2012. we fully repaid and terminated match funded facilities that had unused borrowing capacity of $ 1.4 billion at december 31 , 2011. the decrease is also due in part to the loss
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during fiscal 2013 , we completed construction of a new industrial manufacturing facility in rosemount , minnesota . the site provides capacity for future business growth and lessens our dependence on our flood-prone sites on the mississippi river . we 11 incurred incremental costs to operate this new facility during fiscal 2014 as compared to fiscal 2013 of approximately $ 1.7 million , which have been recorded in cost of sales in our industrial segment . through the acquisitions described above , we opened seven new branches for our water treatment group in fiscal 2015 and one in fiscal 2014. we are opening one new branch in early fiscal 2016 and opened one in fiscal 2013. we expect to continue to invest in existing and new branches to expand our water treatment group 's geographic coverage . the cost of any one of these expansion branches is not expected to be material . in addition , in fiscal 2015 and continuing into fiscal 2016 , we have proactively added route sales and other support personnel to water treatment group branch offices within our existing geographic coverage area . while these additions will add costs in the near term , we expect these investments to better position us for future growth . share repurchase program in the first quarter of fiscal 2015 , our board of directors authorized a share repurchase program of up to 300,000 shares of our outstanding common stock . the shares may be repurchased on the open market or in privately negotiated transactions subject to applicable securities laws and regulations . the primary objective of the share repurchase program is to offset the impact of dilution from issuances relating to employee and director equity grants and our employee stock purchase program . during fiscal 2015 we repurchased 59,602 shares of common stock with an aggregate purchase price of $ 2.2 million . other events in fiscal 2014 , we moved into a new corporate headquarters located in roseville , minnesota . the move was necessary because we had outgrown our former corporate headquarters that had been our home for over 60 years . as a result of this move , we incurred incremental costs during fiscal 2014 as compared to fiscal 2013 of approximately $ 1.0 million , recorded in selling , general and administrative expenses and allocated among both our water treatment and industrial segments . in fiscal 2013 , we recorded a pre-tax charge of $ 7.2 million in our industrial segment ( approximately $ 4.5 million after tax , or $ 0.43 per fully diluted share ) . this charge represented the discounted value of our estimated withdrawal payment obligation from the central states , southeast and southwest areas pension fund ( “ css ” ) , a collectively bargained multiemployer pension plan . the withdrawal liability will be paid over 20 years and our payments began in the third quarter of fiscal 2014. in fiscal 2013 , we entered into a settlement agreement with a chemical supplier to us , pursuant to which we mutually resolved previously disclosed litigation and all disputes between us . the settlement agreement provided for a cash payment by us to the supplier and provided that both parties enter into new contracts for the supply by the supplier of certain chemicals to us . our obligations under the settlement agreement resulted in a $ 3.2 million charge to pre-tax income recorded in cost of sales in our industrial segment ( approximately $ 2.0 million after tax , or $ 0.19 per fully diluted share ) . financial overview an overview of our financial performance in fiscal 2015 is provided below : sales of $ 364.0 million , a 4.5 % increase from fiscal 2014 ; gross profit of $ 65.8 million , or 18.1 % of sales , an increase of $ 4.2 million in gross profit dollars from fiscal 2014 ; net cash provided by operating activities of $ 20.7 million ; and cash and cash equivalents and investments available for sale of $ 50.4 million as of the end of fiscal 2015 . we seek to maintain relatively constant gross profit dollars per unit sold on each of our products as the cost of our raw materials increase or decrease , subject to competitive pricing pressures that may negatively impact our gross profit dollars per unit sold . since we expect that we will continue to experience fluctuations in our raw material costs and resulting prices in the future , we believe that gross profit dollars is the best measure of our profitability from the sale of our products , as opposed to gross profit as a percentage of sales . we use the last in , first out ( “ lifo ” ) method of valuing the vast majority of our inventory , which causes the most recent product costs to be recognized in our income statement . the valuation of lifo inventory for interim periods is based on our estimates of fiscal year-end inventory levels and costs . the lifo inventory valuation method and the resulting cost of sales are consistent with our business practices of pricing to current chemical raw material prices . our lifo reserve increased by $ 0.4 million in fiscal 2015 due to an increase in inventory volumes on hand , resulting in a decrease to our reported gross profit for the year . in fiscal 12 2014 , our lifo reserve decreased by $ 1.9 million , increasing our reported gross profit for that year . story_separator_special_tag the reduction in the lifo reserve in fiscal 2014 was primarily due to lower volumes of inventory on hand at year-end , driven by cold and wintry weather that resulted in rail car and barge shipment delays during the fourth quarter of fiscal 2014. we disclose the sales of our bulk commodity products as a percentage of total sales dollars . our definition of bulk commodity products includes products that we do not modify in any way , but receive , store , and ship from our facilities , or direct ship to our customers in large quantities . we review our sales reporting on a periodic basis to ensure we are including all products that meet this definition . the disclosures in this document referring to sales of bulk commodity products have been updated for all periods presented based on the most recent review . story_separator_special_tag sales of certain specialty chemical products and equipment , more than offset the negative impact of unfavorable weather conditions during the majority of the spring and summer months and reduced sales volumes of bulk commodity products . gross profit gross profit was $ 61.6 million , or 17.7 % of sales , for fiscal 2014 , as compared to $ 56.9 million , or 16.2 % of sales , for fiscal 2013. the prior year 's gross profit was adversely impacted by the $ 7.2 million css pension withdrawal charge and the $ 3.2 million charge resulting from the litigation settlement , both of which were recorded in our industrial segment . together , these charges constituted 3.0 % of sales for fiscal 2013. the lifo method of valuing inventory increased gross profit by $ 1.9 million for fiscal 2014 and $ 0.4 million for fiscal 2013 , primarily due to lower levels of inventory of many of our products at year-end . 14 industrial segment . gross profit for the industrial segment was $ 32.0 million , or 13.1 % of sales , for fiscal 2014 , as compared to $ 28.9 million , or 11.6 % of sales , for fiscal 2013. the prior year 's gross profit for this segment was negatively impacted by the $ 7.2 million css pension withdrawal charge and the $ 3.2 million charge resulting from the litigation settlement , which charges together constituted 4.2 % of industrial segment sales for the fiscal year . gross profit for fiscal 2014 was adversely impacted by $ 1.7 million in incremental costs to operate our new rosemount manufacturing facility as compared to fiscal 2013 , and a $ 0.4 million year-over-year difference in costs incurred to exit the leased facility used to serve our bulk pharmaceutical customers . despite slightly higher overall sales volumes , gross profit was also negatively impacted by competitive pricing pressures and higher volumes of lower margin products sold as compared to the prior year . the lifo method of valuing inventory increased gross profit by $ 1.6 million in fiscal 2014 and increased gross profit by $ 0.4 million in fiscal 2013. water treatment segment . gross profit for the water treatment segment was $ 29.6 million , or 28.6 % of sales , for fiscal 2014 , as compared to $ 28.1 million , or 27.6 % of sales , for fiscal 2013. growth at our newer branches , including the recently acquired oklahoma location , along with a favorable product mix shift to specialty chemical products from bulk commodities , more than offset the impact to gross profit of unfavorable weather conditions during the spring and summer months . the lifo method of valuing inventory increased gross profit by $ 0.3 million in fiscal 2014 and had a nominal impact on gross profit in fiscal 2013. selling , general and administrative expenses selling , general and administrative expenses were $ 33.5 million , or 9.6 % of sales , for fiscal 2014 , as compared to $ 31.6 million , or 9.0 % of sales , for fiscal 2013. the increase in expenses was driven by incremental costs of $ 1.0 million related to our new headquarters facility , as well as additional sales and infrastructure support staffing costs in the water treatment segment , including our recently acquired oklahoma location . operating income operating income was $ 28.1 million , or 8.1 % of sales , for fiscal 2014 , as compared to $ 25.3 million , or 7.2 % of sales , for fiscal 2013. operating income for the industrial segment increased by $ 3.3 million as a result of the $ 7.2 million css pension withdrawal charge and the $ 3.2 million litigation settlement charge recorded in the prior year , largely offset by the reductions in gross profit in fiscal 2014 as discussed above . operating income for the water treatment segment decreased $ 0.5 million primarily as a result of higher selling , general and administrative expenses , more than offsetting increases in gross profit as discussed above . interest income ( expense ) , net interest income on cash and investments of $ 0.2 million was offset by interest expense related to our pension withdrawal liability of $ 0.2 million during fiscal 2014. interest income of $ 0.1 million for fiscal 2013 consisted primarily of interest income on cash and investments . income tax provision our effective income tax rate was 35.5 % for fiscal 2014 compared to 32.7 % for fiscal 2013. our effective tax rate for fiscal 2014 was reduced by a non-recurring state tax benefit of $ 0.4 million . during fiscal 2013 , we amended previously filed u.s. federal tax returns resulting in an increase of $ 0.8 million in the benefits related to the domestic manufacturing deduction and investment tax credits , which reduced our tax rate for that year .
| the increase in gross profit dollars was driven by higher sales volumes in fiscal 2015 as compared to fiscal 2014 , partially offset by lower per-unit margins due to continued competitive pricing pressures in certain product lines . gross profit for fiscal 2015 as compared to fiscal 2014 was favorably impacted by $ 0.3 million , as costs incurred in fiscal 2014 to exit a leased facility were partially offset by accelerated depreciation on assets incurred in fiscal 13 2015 in connection with a construction project . the lifo method of valuing inventory decreased gross profit in our industrial segment by $ 0.3 million in fiscal 2015 , while it increased gross profit by $ 1.6 million in fiscal 2014. water treatment segment . gross profit for the water treatment segment increased $ 2.6 million to $ 32.2 million , or 28.0 % of sales , for fiscal 2015 , as compared to $ 29.6 million , or 28.6 % of sales , for fiscal 2014 . the increase in gross profit dollars was a result of higher sales volumes across most of our branches , in particular the addition of our recently acquired florida and oklahoma locations , along with increased sales of specialty chemicals . gross profit as a percentage of sales decreased primarily due to the addition of and growth in our newer branches that have lower per-branch revenues , and the costs to operate these branches represent a higher percentage of their sales than many of our existing branches . the lifo method of valuing inventory decreased gross profit by $ 0.1 million in fiscal 2015 , while it increased gross profit by $ 0.3 million in fiscal 2014. selling , general and administrative expenses selling , general and administrative expenses were $ 35.4 million , or 9.7 % of sales , for fiscal 2015 , as compared to $ 33.5 million , or 9.6 % of sales , for fiscal 2014 . the expenses increased in our water
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as such , we are required to make certain estimates , judgments and assumptions that we believe are reasonable based upon the information available . these estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period . we routinely evaluate our estimates based on historical experience and on various other assumptions that our management believes are reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . if actual results significantly differ from our estimates , our financial condition and results of operations could be materially impacted . other significant accounting policies , primarily those with lower levels of uncertainty than those discussed below , are also critical to understanding our consolidated financial statements . the notes to our consolidated financial statements contain additional information related to our accounting policies and should be read in conjunction with this discussion . revenue recognition facility management revenues are recognized as services are provided under facility management contracts with approved government appropriations based on a net rate per day per inmate or on a fixed monthly rate , as applicable . a limited number of our contracts have provisions upon which a small portion of the revenue for the contract is based on the performance of certain targets . revenue based on the performance of certain targets is less than 1 % of our 54 consolidated annual revenues . these performance targets are based on specific criteria to be met over specific periods of time . such criteria includes our ability to achieve certain contractual benchmarks relative to the quality of service we provide , non-occurrence of certain disruptive events , effectiveness of our quality control programs and our responsiveness to customer requirements and concerns . for the limited number of contracts where revenue is based on the performance of certain targets , revenue is either ( i ) recorded pro rata when revenue is fixed and determinable or ( ii ) recorded when the specified time period lapses . in many instances , we are a party to more than one contract with a single entity . in these instances , each contract is accounted for separately . construction revenues are recognized from our contracts with certain customers to perform construction and design services ( project development services ) for various facilities . in these instances , we act as the primary developer and subcontract with bonded national and or regional design build contractors . these construction revenues are recognized as earned on a percentage of completion basis measured by the percentage of costs incurred to date as compared to the estimated total cost for each contract . provisions for estimated losses on uncompleted contracts and changes to cost estimates are made in the period in which we determine that such losses and changes are probable . typically , we enter into fixed price contracts and do not perform additional work unless approved change orders are in place . costs attributable to unapproved change orders are expensed in the period in which the costs are incurred if we believe that it is not probable that the costs will be recovered through a change in the contract price . if we believe that it is probable that the costs will be recovered through a change in the contract price , costs related to unapproved change orders are expensed in the period in which they are incurred , and contract revenue is recognized to the extent of the costs incurred . revenue in excess of the costs attributable to unapproved change orders is not recognized until the change order is approved . changes in job performance , job conditions , and estimated profitability , including those arising from contract penalty provisions , and final contract settlements , may result in revisions to estimated costs and income , and are recognized in the period in which the revisions are determined . for the years ended december 31 , 2016 , 2015 and 2014 , there have been no changes in job performance , job conditions and estimated profitability that would require a revision to the estimated costs and income related to project development services . as the primary contractor , we are exposed to the various risks associated with construction , including the risk of cost overruns . accordingly , we record our construction revenue on a gross basis and include the related cost of construction activities in operating expenses . when evaluating multiple element arrangements for certain contracts where we provide project development services to our clients in addition to standard management services , we follow revenue recognition guidance for multiple element arrangements under asc 605-25 multiple element arrangements . this revenue recognition guidance related to multiple deliverables in an arrangement provides guidance on determining if separate contracts should be evaluated as a single arrangement and if an arrangement involves a single unit of accounting or separate units of accounting and if the arrangement is determined to have separate units , how to allocate amounts received in the arrangement for revenue recognition purposes . in instances where we provide these project development services and subsequent management services , generally , the arrangement results in no delivered elements at the onset of the agreement . the elements are delivered , and revenue is recognized , over the contract period as the project development and management services are performed . project development services are generally not provided separately to a customer without a management contract . we have determined that the significant deliverables in such an arrangement during the project development phase and services performed under the management contract qualify as separate units of accounting . with respect to the deliverables during the management services period , we regularly negotiate such contracts and provide management services to our customers outside of any arrangement for construction . story_separator_special_tag we establish per diem rates for all of our management contracts based on , amongst other factors , expected and guaranteed occupancy , costs of providing the services and desired margins . as such , the fair value of the consideration to each deliverable was determined using our estimated selling price for the project development deliverable and vendor specific objective evidence for the facility management services deliverable . 55 reserves for insurance losses the nature of our business exposes us to various types of third-party legal claims , including , but not limited to , civil rights claims relating to conditions of confinement and or mistreatment , sexual misconduct claims brought by prisoners or detainees , product liability claims , intellectual property infringement claims , claims relating to employment matters ( including , but not limited to , employment discrimination claims , union grievances and wage and hour claims ) , property loss claims , environmental claims , automobile liability claims , contractual claims and claims for personal injury or other damages resulting from contact with our facilities , programs , electronic monitoring products , personnel or prisoners , including damages arising from a prisoner 's escape or from a disturbance or riot at a facility . in addition , our management contracts generally require us to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation . we maintain a broad program of insurance coverage for these general types of claims , except for claims relating to employment matters , for which we carry no insurance . there can be no assurance that our insurance coverage will be adequate to cover all claims to which we may be exposed . it is our general practice to bring merged or acquired companies into our corporate master policies in order to take advantage of certain economies of scale . we currently maintain a general liability policy and excess liability policies with total limits of $ 80.0 million per occurrence and $ 100 million in the aggregate covering the operations of u.s. corrections & detention , geo care 's community based services , geo care 's youth services and bi . we have a claims-made liability insurance program with a specific loss limit of $ 35.0 million per occurrence and in the aggregate related to medical professional liability claims arising out of correctional healthcare services . we are uninsured for any claims in excess of these limits . we also maintain insurance to cover property and other casualty risks including , workers ' compensation , environmental liability and automobile liability . for most casualty insurance policies , we carry substantial deductibles or self-insured retentions of $ 3.0 million per occurrence for general liability and medical professional liability , $ 2.0 million per occurrence for workers ' compensation and $ 1.0 million per occurrence for automobile liability . in addition , certain of our facilities located in florida and other high-risk hurricane areas carry substantial windstorm deductibles . since hurricanes are considered unpredictable future events , no reserves have been established to pre-fund for potential windstorm damage . limited commercial availability of certain types of insurance relating to windstorm exposure in coastal areas and earthquake exposure mainly in california and the pacific northwest may prevent the company from insuring some of its facilities to full replacement value . with respect to operations in south africa , the united kingdom and australia , we utilize a combination of locally-procured insurance and global policies to meet contractual insurance requirements and protect us . in addition to these policies , our australian subsidiary carries tail insurance on a general liability policy related to a discontinued contract . of the insurance policies discussed above , our most significant insurance reserves relate to workers ' compensation , general liability and auto claims . these reserves are undiscounted and were $ 51.6 million and $ 52.8 million as of december 31 , 2016 and 2015 , respectively and are included in accrued expenses in the accompanying balance sheets . we use statistical and actuarial methods to estimate amounts for claims that have been reported but not paid and claims incurred but not reported . in applying these methods and assessing their results , we consider such factors as historical frequency and severity of claims at each of our facilities , claim development , payment patterns and changes in the nature of our business , among other factors . such factors are analyzed for each of our business segments . our estimates may be impacted by such factors as increases in the market price for medical services and unpredictability of the size of jury awards . we also may experience variability between our estimates and the actual settlement due to limitations inherent in the estimation process , including our ability to estimate costs of processing and settling claims in a timely manner as well as our ability to accurately estimate our exposure at the onset of a claim . because we have high deductible insurance policies , the amount of our insurance expense is dependent on our ability to control our claims experience . if actual losses related to insurance claims significantly differ from our estimates , our financial condition , results of operations and cash flows could be materially adversely impacted . 56 income taxes the consolidated financial statements reflect provisions for federal , state , local and foreign income taxes . we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis , as well as operating loss and tax credit carryforwards . we measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which those temporary differences and carryforwards are expected to be recovered or settled .
| 63 the number of compensated mandays in u.s. corrections & detention facilities was 22.0 million in 2016 as compared to 20.3 million in 2015. we experienced an aggregate net increase of approximately 1.7 million mandays as a result of our new contracts discussed above and also as a result of population increases at certain facilities . these increases were partially offset by decreases resulting from contract terminations . we look at the average occupancy in our facilities to determine how we are managing our available beds . the average occupancy is calculated by taking compensated mandays as a percentage of capacity . the average occupancy in our u.s. detention & corrections facilities was 93.4 % and 91.5 % of capacity in 2016 and 2015 , respectively , excluding idle facilities . geo care revenues increased for geo care by $ 53.5 million in 2016 compared to 2015 primarily due to increases in average client and participant counts under our electronic monitoring contracts and isap program . we also experienced increases from new contracts and program growth at our community based and reentry centers , including our new contract for community-based case management services under a new pilot program launched in september 2015 by the department of homeland security . international services revenues for international services in 2016 compared to 2015 increased by $ 2.5 million . contributing to the increase was an aggregate increase of $ 6.9 million primarily related to population increases at our australian subsidiary . this increase was partially offset by foreign exchange rate fluctuations of $ ( 4.4 ) million resulting from the strengthening of the u.s. dollar against certain international currencies . facility construction & design the increase in revenues for our facility construction & design services is due to increased construction activity for our new ravenhall prison contract , which was executed in september 2014 , with the department of justice in the state of victoria , australia . refer to note 7contract receivable of the notes to our audited consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. operating expenses replace_table_token_15_th operating expenses consist of those expenses incurred in the operation and
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asset managers , such as ab , rely heavily on the performance of the financial markets largely to determine assets under management ( “ aum ” ) and revenues . our results during the first quarter of 2020 were strong , which was primarily a reflection of financial market conditions during january and february , which were not adversely affected by covid-19 . market conditions deteriorated dramatically during march , which negatively impacted our performance in that month . financial markets , and hence our performance , rebounded during the ensuing months , primarily due to a u.s. federal government stimulus package and u.s. treasury programs , which were instituted during march 2020 and throughout the second quarter . these programs renewed confidence in the financial markets by introducing liquidity through government purchasing of financial instruments . as various states and countries around the world eased restrictions on business and lockdown protocols during the second quarter and increasingly throughout the third and fourth quarters , increases in consumer spending , decreases in the unemployment rate and improvement in other leading economic indicators have stimulated domestic and global financial market performance . as a result of these developments , our aum has increased in the second , third and fourth quarters . however , as u.s. states and countries globally have continued to ease restrictions , there has been a resurgence in the spread of the virus , causing certain states and countries to , among other things , shutter some businesses again or impose new social distancing restrictions . as a result , market volatility continues . the economic impact of covid-19 and any additional declines in the financial markets could have a significant adverse effect on our aum and revenues , particularly if economic activity does not continue to recover . although countries throughout the world continue to grapple with re-opening their economies , this will continue to be a gradual process , and there is a significant risk that the opening process may be further interrupted if infection rates increase . also , although unemployment rates have declined , they are still considered high and any reluctance of consumers to resume spending will do long-term damage to the global economy , which would have an adverse effect on our business . additionally , as most of our workforce is working remotely , we are mindful of increased risk related to cybersecurity , which could significantly disrupt our business functions . ultimately , the return to normal business and economic activity will likely require the broad application of effective vaccines . although the distribution of multiple vaccines was initiated towards the end of the fourth quarter , the speed , selective nature of those who are eligible to receive the vaccination , as well as logistical challenges regarding availability and distribution of the vaccines , could mean many months until the general population has been vaccinated . executive overview percentage change figures are calculated using assets under management rounded to the nearest million and financial statement amounts rounded to the nearest thousand . our total assets under management ( `` aum `` ) as of december 31 , 2020 were $ 685.9 billion , up $ 63.0 billion , or 10.1 % , during 2020. the increase was driven primarily by market appreciation of $ 65.4 billion , partially offset by net outflows of $ 2.6 billion ( due to private wealth management net outflows of $ 2.0 billion and retail net outflows of $ 1.6 billion , offset by institutional net inflows of $ 1.0 billion ) . excluding axa 's redemption of low-fee fixed income mandates of $ 11.8 billion , the firm generated net inflows of $ 9.2 billion in 2020. institutional aum increased $ 32.9 billion , or 11.6 % , to $ 315.6 billion during 2020 , primarily due to market appreciation of $ 30.5 billion and net inflows of $ 1.0 billion . gross sales increased $ 13.8 billion , from $ 17.1 billion in 2019 to $ 30.9 billion in 2020. redemptions and terminations increased $ 11.3 billion , from $ 12.0 billion in 2019 to $ 23.3 billion in 2020. excluding axa 's redemption of low-fee fixed income mandates of $ 11.8 billion , institutional net inflows were $ 12.8 billion in 2020. retail aum increased $ 26.1 billion , or 10.9 % , to $ 265.3 billion during 2020 , primarily due to market appreciation of $ 28.1 billion , partially offset by net outflows of $ 1.6 billion . gross sales increased $ 3.6 billion , from $ 75.3 billion in 2019 to $ 78.9 36 billion in 2020. redemptions and terminations increased $ 25.5 billion , from $ 44.0 billion in 2019 to $ 69.5 billion in 2020 , due to record first quarter 2020 redemptions , reflecting the financial market sell-off in march amidst the onset of covid-19 . private wealth management aum increased $ 4.0 billion , or 3.9 % , to $ 105.0 billion during 2020 , primarily due to market appreciation of $ 6.8 billion , partially offset by net outflows of $ 2.0 billion . gross sales increased $ 3.0 billion , from $ 11.3 billion in 2019 to $ 14.3 billion in 2020. redemptions and terminations increased $ 4.1 billion , from $ 12.4 billion in 2019 to $ 16.5 billion in 2020. bernstein research services revenue increased $ 51.8 million , or 12.7 % , in 2020. the increase was due to higher market volatility , particularly between march and june 2020 , primarily as a result of covid-19 , which led to higher customer activity and greater global trading volumes . we expect customer activity and trading volumes to gradually decrease in 2021 and to normalize in 2022 , as the volatility surrounding covid-19 begins to decline . any decreases in customer activity and trading volumes will have a corresponding effect on bernstein research services revenue . furthermore , all of 2020 reflects the inclusion of revenues from our acquisition of autonomous research ( `` autonomous '' ) , which closed on april 1 , 2019. story_separator_special_tag our 2020 net revenues of $ 3.7 billion increased $ 190.1 million , or 5.4 % , compared to the prior year 's net revenues . the most significant contributors to the increase were higher base advisory fees of $ 90.4 million , higher distribution revenues of $ 74.7 million , higher bernstein research services revenue of $ 51.8 million and higher performance-based fees of $ 33.0 million , partially offset by higher investment losses of $ 55.1 million and lower net dividend and interest income of $ 11.9 million . our operating expenses of $ 2.8 billion increased $ 106.1 million , or 3.9 % , compared to the prior year 's expenses . the increase primarily was due to higher promotion and servicing expenses of $ 63.6 million , higher employee compensation and benefits of $ 51.4 million and higher general and administrative expenses ( including real estate charges ) of $ 3.0 million , partially offset by lower amortization of intangible assets of $ 7.4 million and lower interest on borrowings of $ 6.9 million . our operating income increased $ 84.0 million , or 10.2 % , to $ 907.4 million from $ 823.4 million in 2019 and our operating margin increased from 22.6 % in 2019 to 24.6 % in 2020. market environment despite 2020 being a year marked by a global pandemic , record-breaking recession and unemployment levels , and a contentious u.s. presidential election , equity markets closed the year with solid gains . the s & p 500 , dow jones industrial average and nasdaq each rallied for most of the fourth quarter , finishing the year in positive territory . in the u.s. , the presidential election passed with a market-friendly outcome , the distribution of multiple covid-19 vaccines was initiated and the unemployment rate continued to decline . meanwhile , after months of deadlock , a covid-19 relief package was passed in the fourth quarter , consisting of direct payments , unemployment benefits and small business aid . however , even with the increasing likelihood of covid-19 vaccines potentially boosting activity in 2021 , significant slack in the economy and labor market by the end of this year are likely . as a result , the u.s. federal reserve will likely keep interest rates near zero as the economy improves . in the u.k. , covid-19 and brexit uncertainty resulted in the worst performing year for its equity market since the 2008 financial crisis . however , with a brexit deal reached in the final days of 2020 between the u.k. and the e.u . and the distribution of a covid-19 vaccine , the u.k. economy may rebound in 2021. the bank of england is likely to keep rates on hold during the recovery phase . in china , the economy has returned to almost pre-pandemic output levels . chinese efforts to re-center the economy on a consumer-led model are expected to continue and fiscal policy will likely remain supportive through 2021. more stimulus may be announced in the first quarter of 2021 as the government continues to support consumption . while the economic outlook for china in 2021 appears positive , one big unknown is the future of the relationship between china and the new u.s. administration . mifid ii in europe , mifid ii , which became effective on january 3 , 2018 , has made significant modifications to the manner in which european broker-dealers can be compensated for research . these modifications are believed to have significantly reduced the overall research spend by european buy-side firms , which has decreased the revenues we derive from our european clients . our european clients may continue to reduce their research budgets , which could result in a significant decline in our sell-side revenues . also , while mifid ii is not applicable to firms operating outside of europe , competitive and client pressures may force buy-side firms operating outside of europe to pay for research from their own resources instead of through bundled trading commissions . if that occurs , we would expect that research budgets from those clients will decrease further , which could result in an additional significant decline in our sell-side revenues . additionally , these competitive and client pressures may result in our buy-side operation paying for research out of our own resources instead of through bundled trading commissions , which could increase our firm 's expenses and decrease our operating income . 37 the ultimate impact of mifid ii on payments for research globally remains uncertain . equitable holdings ipo during the second quarter of 2018 , axa s.a. ( `` axa '' ) completed the sale of a minority stake in equitable holdings , inc. ( “ eqh ” ) through an initial public offering ( `` ipo `` ) . since then , axa has completed additional offerings and taken other steps , most recently during the fourth quarter of 2019. as a result , axa owned less than 10 % of the outstanding common stock of eqh as of december 31 , 2020. while we can not at this time predict the full impact on ab of this transaction , such impact has included a reduction in the support axa provided to ab in the past with respect to ab 's investment management business , resulting in a modest decrease in our revenues and ability to initiate new investment services . also , ab relies on axa , including its subsidiary , axa business services , for several significant services and ab has benefited from its affiliation with axa in certain common vendor relationships . some of these arrangements have changed , and others are expected to change , with immaterial financial implications for ab . our ending aum at december 31 , 2020 reflects $ 11.8 billion in 2020 outflows resulting from axa 's redemption of certain low-fee fixed income mandates .
| such measures are not based on generally accepted accounting principles ( “ non-gaap measures ” ) . these non-gaap measures are provided in addition to , and not as substitutes for , net revenues , operating income and operating margin , and they may not be comparable to non-gaap measures presented by other companies . management uses both gaap and non-gaap measures in evaluating the company 's financial performance . the non-gaap measures alone may pose limitations because they do not include all of ab 's revenues and expenses . further , adjusted diluted net income per ab holding unit is not a liquidity measure and should not be used in place of cash flow measures . see “ management operating metrics ” in this item 7 . the impact of these adjustments on ab holding 's net income and diluted net income per ab holding unit are as follows : replace_table_token_14_th the degree to which ab 's non-gaap adjustments impact ab holding 's net income fluctuates based on ab holding 's ownership percentage in ab . tax legislation for a discussion of tax legislation , see “ risk factors - structure-related risks ” in item 1a . capital resources and liquidity during the year ended december 31 , 2020 , net cash provided by operating activities was $ 270.0 million , compared to $ 222.8 million during the corresponding 2019 period . the increase primarily resulted from higher cash distributions received from ab of $ 49.5 million . during the year ended december 31 , 2019 , net cash provided by operating activities was $ 222.8 million , compared to $ 279.3 million during the corresponding 2018 period . the decrease primarily resulted from lower cash distributions received from ab of $ 58.6 million . during the years ended december 31 , 2020 , 2019 and 2018 , net cash used in investing activities was $ 0.1 million , $ 11.5 million and $ 16.6 million , respectively , reflecting investments in ab with proceeds from exercises of compensatory options to buy ab holding units . during the year ended december 31 , 2020 , net cash used
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fluctuations in market interest rates are driven by many factors , including governmental monetary policies , inflation , deflation , macroeconomic developments , changes in unemployment , the money supply , political and international conditions and conditions in domestic and foreign financial markets . periodic changes in the volume and types of loans in our loan portfolio are affected by , among other factors , economic and competitive conditions in louisiana , texas and our other out-of-state market areas . during the extended period of historically low interest rates , we continue to evaluate our investments in interest-earning assets in relation to the impact such investments have on our financial condition , results of operations and shareholders ' equity . -37- financial highlights for 2017 and 2016 : ● during the fourth quarter of 2017 , first guaranty elected to become a financial holding company because first guaranty acquired a fifty percent ownership in an insurance brokerage in november 2017 . ● first guaranty completed its merger with premier bancshares , inc. ( `` premier '' ) and its wholly owned subsidiary , synergy bank , on june 16 , 2017. first guaranty acquired a total of $ 158.3 million in assets and assumed an $ 137.4 million in liabilities . first guaranty issued 397,988 shares of its common stock at a price of $ 25.86 and paid $ 10.3 million in cash to premier shareholders ( unadjusted for the 10 % stock dividend in december 2017 ) . total consideration was $ 21.0 million . first guaranty acquired a total of $ 128.0 million in loans , securities of $ 5.9 million , cash and due from banks of $ 4.5 million , fed funds sold of $ 2.9 million , premises of $ 9.5 million , other real estate owned of $ 0.2 million and other assets that totaled $ 2.0 million . intangibles recorded from the transaction were a total of $ 5.3 million , including goodwill of $ 1.5 million . total assumed liabilities included deposits of $ 127.2 million , an fhlb advance of $ 9.7 million and other liabilities of $ 0.4 million . expenses related to the merger totaled $ 1.4 million in 2017 . ● total assets at december 31 , 2017 increased $ 249.5 million , or 16.6 % , to $ 1.8 billion when compared to december 31 , 2016. total loans at december 31 , 2017 were $ 1.1 billion , an increase of $ 200.1 million , or 21.1 % , compared with december 31 , 2016. common shareholders ' equity was $ 144.0 million and $ 124.3 million at december 31 , 2017 and 2016 , respectively . ● net income for the years ended december 31 , 2017 and 2016 was $ 11.8 million and $ 14.1 million , respectively . ● earnings per common share were $ 1.37 and $ 1.68 for the years ended december 31 , 2017 and 2016 , respectively . total weighted average shares outstanding were 8,608,088 at december 31 , 2017 compared to 8,369,424 at december 31 , 2016. the change in shares was due to first guaranty 's acquisition of premier in june 2017 and the 10 % common stock dividend issued in december 2017 . ● net interest income for 2017 was $ 53.2 million compared to $ 48.4 million for 2016 . ● the provision for loan losses totaled $ 3.8 million for 2017 compared to $ 3.7 million in 2016 . ● the net interest margin for 2017 was 3.33 % , which was a decrease of six basis points from the net interest margin of 3.39 % for 2016. first guaranty attributed the decrease in the net interest margin to a rise in interest expense associated with deposits . ● investment securities totaled $ 501.7 million at december 31 , 2017 , an increase of $ 2.3 million when compared to $ 499.3 million at december 31 , 2016. at december 31 , 2017 , available for sale securities , at fair value , totaled $ 381.5 million , a decrease of $ 15.9 million when compared to $ 397.5 million at december 31 , 2016. at december 31 , 2017 , held to maturity securities , at amortized cost , totaled $ 120.1 million , an increase of $ 18.3 million when compared to $ 101.9 million at december 31 , 2016 . ● total loans net of unearned income were $ 1.1 billion at december 31 , 2017 compared to $ 948.9 million at december 31 , 2016. the net loan portfolio at december 31 , 2017 totaled $ 1.1 billion , a net increase of $ 202.0 million from $ 937.8 million at december 31 , 2016. total loans net of unearned income are reduced by the allowance for loan losses which totaled $ 9.2 million at december 31 , 2017 and $ 11.1 million at december 31 , 2016 . ● total impaired loans decreased $ 13.2 million to $ 15.6 million at december 31 , 2017 compared to $ 28.8 million at december 31 , 2016 . ● nonaccrual loans decreased $ 9.1 million to $ 12.6 million at december 31 , 2017 compared to $ 21.7 million at december 31 , 2016 . ● the allowance for loan losses was 0.80 % of loans at december 31 , 2017. the allowance for loan losses as a percentage of total loans was 0.90 % prior to the inclusion of the acquired loans from premier . ● return on average assets was 0.71 % and 0.97 % for the years ended december 31 , 2017 and 2016 , respectively . return on average common equity was 8.59 % and 11.18 % for 2017 and 2016 , respectively . return on average assets is calculated by dividing net income before preferred dividends by average assets . return on average common equity is calculated by dividing net income to common shareholders by average common equity . story_separator_special_tag ● book value per common share was $ 16.35 as of december 31 , 2017 compared to $ 14.86 as of december 31 , 2016. tangible book value per common share was $ 15.59 as of december 31 , 2017 compared to $ 14.50 as of december 31 , 2016 . ● the increase in book value was due primarily to the issuance of shares related to the acquisition of premier adjusted for the 10 % common stock dividend , the changes in accumulated other comprehensive income/loss ( `` aoci '' ) and an increase in retained earnings . aoci is comprised of unrealized gains and losses on available for sale securities . ● first guaranty 's board of directors declared and first guaranty paid cash dividends of $ 0.60 and $ 0.58 per common share in 2017 and 2016. first guaranty has paid 98 consecutive quarterly dividends as of december 31 , 2017 . ● on december 22 , 2017 , the tax cuts and jobs act ( the `` tax act '' ) was signed into law . the tax act permanently lowers the federal corporate income tax rate to 21 % from the existing maximum rate of 35 % , effective january 1 , 2018. first guaranty recorded a one-time income tax expense of $ 0.9 million in 2017 related to the estimated net impact from the remeasurement of deferred tax assets and liabilities . -38- application of critical accounting policies our accounting and reporting policies conform to generally accepted accounting principles in the united states and to predominant accounting practices within the banking industry . certain critical accounting policies require judgment and estimates which are used in the preparation of the financial statements . allowance for loan losses . the allowance for loan losses is established through a provision for loan losses charged to expense . loans are charged against the allowance for loan losses when management believes that the collectability of the principal is unlikely . the allowance , which is based on evaluation of the collectability of loans and prior loan loss experience , is an amount that , in the opinion of management , reflects the risks inherent in the existing loan portfolio and exists at the reporting date . the evaluations take into consideration a number of subjective factors including changes in the nature and volume of the loan portfolio , overall portfolio quality , review of specific problem loans , current economic conditions that may affect a borrower 's ability to pay , adequacy of loan collateral and other relevant factors . in addition , regulatory agencies , as an integral part of their examination process , periodically review the estimated losses on loans . such agencies may require additional recognition of losses based on their judgments about information available to them at the time of their examination . the following are general credit risk factors that affect our loan portfolio segments . these factors do not encompass all risks associated with each loan category . construction and land development loans have risks associated with interim construction prior to permanent financing and repayment risks due to the future sale of developed property . farmland and agricultural loans have risks such as weather , government agricultural policies , fuel and fertilizer costs , and market price volatility . one- to four-family residential , multi-family , and consumer credits are strongly influenced by employment levels , consumer debt loads and the general economy . non-farm non-residential loans include both owner-occupied real estate and non-owner occupied real estate . common risks associated with these properties is the ability to maintain tenant leases and keep lease income at a level able to service required debt and operating expenses . commercial and industrial loans generally have non-real estate secured collateral which requires closer monitoring than real estate collateral . although management uses available information to recognize losses on loans , because of uncertainties associated with local economic conditions , collateral values and future cash flows on impaired loans , it is reasonably possible that a material change could occur in the allowance for loan losses in the near term . however , the amount of the change that is reasonably possible can not be estimated . the evaluation of the adequacy of loan collateral is often based upon estimates and appraisals . because of changing economic conditions , the valuations determined from such estimates and appraisals may also change . accordingly , we may ultimately incur losses that vary from management 's current estimates . adjustments to the allowance for loan losses will be reported in the period such adjustments become known or can be reasonably estimated . all loan losses are charged to the allowance for loan losses when the loss actually occurs or when the collectability of the principal is unlikely . recoveries are credited to the allowance at the time of recovery . the allowance consists of specific , general , and unallocated components . the specific component relates to loans that are classified as doubtful , substandard , and impaired . for such loans that are also classified as impaired , an allowance is established when the discounted cash flows ( or collateral value or observable market price ) of the impaired loan is lower than the carrying value of that loan . also , a specific reserve is allocated for our syndicated loans . the general component covers non-classified loans and special mention loans and is based on historical loss experience adjusted for qualitative factors . an unallocated component is maintained to cover uncertainties that could affect the estimate of probable losses . the allowance for loan losses is reviewed on a monthly basis . the monitoring of credit risk also extends to unfunded credit commitments , such as unused commercial credit lines and letters of credit . a reserve is established as needed for estimates of probable losses on such commitments . other-than-temporary impairment of investment securities .
| earnings per common share for the year ended december 31 , 2017 was $ 1.37 per common share , a decrease of 18.5 % or $ 0.31 per common share from $ 1.68 per common share for the year ended december 31 , 2016 ( as adjusted for the 10 % stock dividend in december 2017 ) . earnings per share was affected by the change in earnings and by the change in shares outstanding due to the premier acquisition . average shares outstanding was 8,608,088 for 2017 compared to 8,369,424 for 2016. year ended december 31 , 2016 compared with year ended december 31 , 2015. net income for the year ended december 31 , 2016 was $ 14.1 million , a decrease of $ 0.4 million , or 2.8 % , from $ 14.5 million for the year ended december 31 , 2015. net income available to common shareholders for the year ended december 31 , 2016 was $ 14.1 million which was a decrease of $ 28,000. the decrease in net income of $ 0.4 million for the year ended december 31 , 2016 was primarily the result of increased interest expense and increased noninterest expense , partially offset by an increase in interest income and noninterest income . net gains on securities sales for the years ended december 31 , 2016 and 2015 were $ 3.8 million and $ 3.3 million , respectively . earnings per common share for the year ended december 31 , 2016 was $ 1.68 per common share , a decrease of 8.2 % or $ 0.15 per common share from $ 1.83 per common share for the year ended december 31 , 2015 ( as adjusted for the 10 % stock dividend in december 2017 ) . net interest income our operating results depend primarily on our net interest income , which is the difference between interest income earned on interest-earning assets , including loans and securities , and interest expense incurred on interest-bearing liabilities , including deposits and other borrowed funds . interest rate fluctuations , as well as changes in the amount and type
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in those regions where we do not have a direct sales team , we use distributors . revenues from direct sales to end users represented approximately 57 % of our revenues for each of the years ended december 31 , 2013 and 2012. products in our molecular and cell analysis product lines are generally sold by distributors , and are typically priced in the range of $ 5,000- $ 15,000. they are mainly scientific instruments like spectrophotometers and plate readers that analyze light to detect and quantify a wide range of molecular and cellular processes , or apparatus like gel electrophoresis units . we also use distributors for both our catalog products and our higher priced products , for sales in locations where we do not have subsidiaries or where we have distributors in place for acquired businesses . for the years ended december 31 , 2013 and 2012 , approximately 43 % , of our revenues were derived from sales to distributors . for the year ended december 31 , 2013 , approximately 64 % of our revenues were derived from products we manufacture ; approximately 11 % were derived from complementary products we distribute in order to provide the researcher with a single source for all equipment needed to conduct a particular experiment and approximately 25 % were derived from distributed products sold under our brand names . for the year ended december 31 , 2012 , approximately 67 % of our revenues were derived from products we manufacture and approximately 10 % were derived from complementary products we distribute in order to provide the researcher with a single source for all equipment needed to conduct a particular experiment and approximately 23 % were derived from distributed products sold under our brand names . for the years ended december 31 , 2013 and 2012 , approximately 39 % and 41 % of our revenues , respectively , were derived from sales made by our non-u.s. operations . changes in the relative proportion of our revenue sources between catalog or website sales , direct sales and distribution sales are primarily the result of a different sales proportion of acquired companies . cost of product revenues . cost of product revenues includes material , labor and manufacturing overhead costs , obsolescence charges , packaging costs , warranty costs , shipping costs and royalties . our cost of product revenues may vary over time based on the mix of products sold . we sell products that we manufacture and products that we purchase from third parties . the products that we purchase from third parties have a higher cost of product revenues as a percent of revenue because the profit is effectively shared with the original manufacturer . we anticipate that our manufactured products will continue to have a lower cost of product revenues as a percentage of revenues as compared with the cost of non-manufactured products for the foreseeable future . additionally , our cost of product revenues as a percent of product revenues will vary based on mix of direct to end user sales and distributor sales , mix by product line and mix by geography . 25 sales and marketing expenses . sales and marketing expense consists primarily of salaries and related expenses for personnel in sales , marketing and customer support functions . we also incur costs for travel , trade shows , demonstration equipment , public relations and marketing materials , consisting primarily of the printing and distribution of our catalogs , supplements and the maintenance of our websites . we may from time to time expand our marketing efforts by employing additional technical marketing specialists in an effort to increase sales of selected categories of products in our catalog . we may also from time to time expand our direct sales organizations in an effort to concentrate on key accounts or promote certain product lines . general and administrative expenses . general and administrative expense consists primarily of salaries and other related costs for personnel in executive , finance , accounting , information technology and human relations functions . other costs include professional fees for legal and accounting services , facility costs , investor relations , insurance and provision for doubtful accounts . research and development expenses . research and development expense consists primarily of salaries and related expenses for personnel and spending to develop and enhance our products . other research and development expense includes fees for consultants and outside service providers , and material costs for prototype and test units . we expense research and development costs as incurred . we believe that investment in product development is a competitive necessity and plan to continue to make these investments in order to realize the potential of new technologies that we develop , license or acquire for existing markets . hart transaction costs . hart transaction costs consist of legal , accounting and other professional fees incurred to facilitate the separation and spin-off of hart . the costs have been included as a component of operating expenses on our consolidated statements of operations . stock-based compensation expenses . stock-based compensation expense for the years ended december 31 , 2013 , 2012 and 2011 was $ 2.7 million , $ 3.3 million and $ 2.9 million , respectively . the stock-based compensation expense was related to stock options , restricted stock units , and the employee stock purchase plan and was recorded as a component of cost of product revenues , sales and marketing expenses , general and administrative expenses , research and development expenses and discontinued operations . currently , we intend to retain all of our earnings to finance the expansion and development of our business and do not anticipate paying any cash dividends to holders of our common stock in the near future . as a result , capital appreciation , if any , of our common stock will be a stockholder 's sole source of gain for the near future . story_separator_special_tag hart transaction costs . story_separator_special_tag hart transaction costs , which consist of corporate transaction costs related to the separation and spin-off of hart , were $ 2.0 million for the year ended december 31 , 2013 compared with $ 0.7 million for the same period in 2012. other ( expense ) income , net . other expense and income , net , was $ 1.1 million expense and $ 0.9 million expense for the year ended december 31 , 2013 and 2012 , respectively . interest expense was $ 1.0 million for the year ended december 31 , 2013 compared to interest expense of $ 0.6 million for the year ended december 31 , 2012. the increase in interest expense was primarily due to both higher average debt balances and interest rates in 2013 compared to the prior year . other expense and income , net , for the year ended december 31 , 2013 and 2012 , also included $ 0 and $ 0.3 million , respectively , of acquisition related expenses . income taxes . income tax ( benefit ) expense from continuing operations was approximately $ 0.3 million benefit and $ 2.4 million expense for the years ended december 31 , 2013 and 2012 , respectively . the effective income tax rate from continuing operations was 66.2 % benefit for the year ended december 31 , 2013 , compared with 34.8 % expense for the same period in 2012. the difference between our effective tax rate year to year was primarily attributable to increased research and development tax credits and pension expense benefits in 2013 versus 2012 , an increase in the valuation allowance related to foreign tax credits in 2012 , partially offset by non-deductible costs related to the spin-off of hart in 2013 . 27 discontinued operations . in september 2008 , we completed the sale of assets of our union biometrica division including our german subsidiary , union biometrica gmbh , representing the remaining portion of our capital equipment business segment , to ubio acquisition company . the purchase price paid by ubio acquisition company under the terms of the asset purchase agreement consisted of $ 1 in cash , the assumption of certain liabilities , plus additional consideration in the form of an earn-out based on the revenues generated by the acquired business as it was conducted by ubio acquisition company over a five-year post-transaction period in an amount equal to ( i ) 5 % of the revenues generated up to and including $ 6.0 million each year and ( ii ) 8 % of the revenues generated above $ 6.0 million each year . any earn-out amounts were evidenced by interest-bearing promissory notes due on september 30 , 2013 or at an earlier date based on certain triggering events . during 2013 , ubio acquisition company made payments , including interest , of $ 1.8 million . ubio acquisition company 's final payment under the earn-out obligation was received in october 2013. included in the loss from discontinued operations , net of taxes , is a gain on disposal related to the union biometrica earn-out of $ 0.3 million in 2013 compared to $ 0.8 million in 2012. on november 1 , 2013 , the previously announced spin-off of our regenerative medicine device ( “ rmd ” ) business was completed . through the spin-off date the historical operations of rmd were reported as continuing operations in our consolidated statements of operations . following the spin-off , the historical operations of rmd were restated and presented as discontinued operations in our consolidated statements of operations . discontinued operations include the results of the rmd business except for certain corporate overhead costs and other allocations , which remain in continuing operations . the costs we incurred to separate and spin-off the rmd business are included in our continuing operations and have been classified and reported as transaction costs , within operating expenses , on our consolidated statements of operations . loss from discontinued operations , net of taxes , related to rmd was $ 2.8 million in 2013 compared to $ 3.0 million in 2012. year ended december 31 , 2012 compared to year ended december 31 , 2011 backlog . our order backlog was approximately $ 4.6 million and $ 5.0 million as of december 31 , 2012 and 2011 , respectively . the decrease in backlog was primarily the result of the timing of customer orders and shipments . we include in backlog only those orders for which we have received valid purchase orders . purchase orders may be cancelled at any time prior to shipment . our backlog as of any particular date may not be representative of actual sales for any succeeding period . we typically ship our backlog at any given time within 90 days . revenues . revenues increased $ 2.3 million , or 2.1 % , to $ 111.2 million for the year ended december 31 , 2012 compared to $ 108.9 million for the same period in 2011. our ahn and cma acquisitions contributed approximately $ 3.4 million , or 3.1 % , to the revenue increase for the year ended december 31 , 2012. the effect of a stronger u.s. dollar decreased our revenues by $ 1.2 million , or 1.1 % , compared with the same period in 2011. adjusting for the effects of foreign currency and acquisitions , revenues increased $ 0.1 million , or 0.1 % . our organic revenue growth was negatively impacted by weaker than expected academic and government research markets in both the u.s. and international markets . cost of product revenues . cost of product revenues increased $ 0.1 million , or 0.3 % , to $ 58.8 million for the year ended december 31 , 2012 compared with $ 58.7 million for the year ended december 31 , 2011. the increase in cost of product revenues included $ 2.5 million , or 4.3 % , attributable to our ahn and cma acquisitions .
| % , attributable to our ahn acquisition and $ 0.1 million , or 0.2 % , attributable to the effect of a weaker u.s. dollar . adjusting for the effects of foreign currency and acquisitions , cost of product revenues decreased $ 1.7 million , or 2.8 % . gross profit as a percentage of revenues decreased to 45.4 % for the year ended december 31 , 2013 compared with 47.1 % for the same period in 2012. the decline in margin was due primarily to inventory adjustments relating to discontinued and obsolete inventory and , lower sales volume and product mix . sales and marketing expenses . sales and marketing expenses decreased $ 1.0 million , or 5.2 % , to $ 17.3 million for the year ended december 31 , 2013 compared with $ 18.3 million for the year ended december 31 , 2012. the decrease was primarily attributable to lower payroll related costs , lower commissions , lower travel expenses and lower advertising and promotional expenses . general and administrative expenses . general and administrative expenses decreased $ 0.2 million , or 1.3 % , to $ 17.9 million for the year ended december 31 , 2013 compared with $ 18.1 million for the year ended december 31 , 2012. the decrease was primarily due to lower stock compensation expense , partially offset by higher legal and consulting fees . research and development expenses . research and development expenses decreased $ 0.2 million , or 4.4 % , to $ 4.2 million for the year ended december 31 , 2013 compared with $ 4.3 million for the same period in 2012. the decrease was mainly due to lower project supplies and outside services . amortization of intangible assets . amortization of intangible asset expenses was $ 2.6 million for the year ended december 31 , 2013 compared with $ 2.8 million for the same period in 2012 and includes amortization expense of intangible assets related to our acquisitions . restructuring . restructuring charges increased approximately $ 1.8 million to $
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we completed the acquisition of tommy hilfiger in the second quarter of 2010. we recorded pre-tax charges in 2010 in connection with the acquisition and integration of tommy hilfiger that totaled $ 338.3 million , which included : ( i ) a loss of $ 140.5 million associated with hedges against euro to united states dollar exchange rates relating to the purchase price ; ( ii ) short-lived non-cash valuation amortization charges of $ 76.8 million , which became fully amortized during 2010 ; and ( iii ) transaction , integration , restructuring and debt extinguishment costs of $ 121.0 million . we incurred pre-tax charges of $ 69.5 million during 2011 in connection with the integration and the related restructuring , including product exit charges . we expect to incur additional pre-tax charges of approximately $ 30.0 million during 2012 in connection with the continued integration and the related restructuring . 29 we exited in the fourth quarter of 2010 our united kingdom and ireland van heusen dresswear and accessories business . we recorded in 2010 pre-tax charges in connection with this exit of $ 6.6 million , which consists principally of non-cash charges . we amended and restated our senior secured credit facility in the first quarter of 2011. we recorded debt modification costs of $ 16.2 million in connection with this transaction . please see the section entitled “ liquidity and capital resources ” below for a further discussion . we negotiated during the second quarter of 2011 the early termination of our license to market sportswear under the timberland brand and will be exiting the business in 2012. we also announced during the fourth quarter of 2011 that we will be exiting the izod women 's wholesale sportswear business beginning in 2012. we incurred pre-tax charges of $ 8.1 million during 2011 in connection with these two initiatives . we reacquired during the third quarter of 2011 the rights in india to the tommy hilfiger trademarks that had been subject to a perpetual license . we paid $ 25.0 million as consideration for this transaction . in connection with the transaction , we were required to record an expense of $ 20.7 million due to the settlement of an unfavorable contract as a result of a pre-existing relationship with the licensee , as the license provided favorable terms to the licensee . please see the section entitled “ liquidity and capital resources ” below for a further discussion . we entered into agreements during 2011 to reacquire from a licensee , prior to the expiration of the license , the rights to distribute tommy hilfiger brand tailored apparel in europe and acquire an outlet store from the licensee . the transfer of the rights and store ownership will be effective december 31 , 2012. under these agreements , we made a payment of $ 9.6 million ( based on the applicable exchange rate in effect on the payment date ) to the licensee during the fourth quarter of 2011 and are required to make an additional payment of approximately $ 25.0 million ( which is subject to change based on the applicable exchange rate in effect on the payment date ) to the licensee in the fourth quarter of 2012. please see the section entitled “ liquidity and capital resources ” below for a further discussion . the following table summarizes our income statements in 2011 , 2010 and 2009 : replace_table_token_1_th 30 total revenue our net sales were $ 5.410 billion in 2011 , $ 4.220 billion in 2010 and $ 2.071 billion in 2009. the 2011 net sales increase of $ 1.190 billion as compared to 2010 net sales was due principally to the effect of the following items : the addition of $ 433.7 million and $ 267.6 million of first quarter net sales in our tommy hilfiger international and tommy hilfiger north america segments , respectively , as the acquisition was not completed until the second quarter of 2010. the addition of $ 262.2 million and $ 116.6 million , attributable to second through fourth quarter growth in the tommy hilfiger international and tommy hilfiger north america segments , respectively . this increase was driven by low double-digit growth in the european wholesale division , combined with retail comparable store sales growth of 10 % and 14 % for our tommy hilfiger international and tommy hilfiger north america retail businesses , respectively . also contributing to the revenue increase was a net benefit of approximately $ 55 million in our tommy hilfiger international segment from year-over-year foreign exchange rate changes versus the united states dollar in 2011 as compared to 2010. the addition of $ 85.1 million of net sales attributable to growth in our other ( calvin klein apparel ) segment , as our calvin klein outlet retail business posted a 16 % increase in comparable store sales in 2011 and the wholesale business experienced low double-digit growth . the addition of $ 41.0 million of sales attributable to growth in our heritage brand wholesale dress furnishings segment . the addition of $ 7.9 million of sales attributable to growth in our heritage brand retail segment , due principally to a 2 % increase in retail comparable stores sales in 2011. the addition of $ 7.5 million of net sales attributable to growth in our calvin klein licensing segment . the reduction of $ 31.2 million of sales attributable to our heritage brand wholesale sportswear segment , which was driven particularly by decreases in the izod division and the soon-to-be exited timberland division . story_separator_special_tag the 2010 net sales increase of $ 2.149 billion as compared to 2009 net sales was due principally to the effect of the following items : the addition of $ 1.008 billion and $ 889.6 million of net sales attributable to our tommy hilfiger international and tommy hilfiger north america segments , respectively , as a result of the acquisition of tommy hilfiger early in the second quarter of 2010. the addition of $ 129.4 million of combined net sales attributable to growth in our heritage brand wholesale dress furnishings and heritage brand wholesale sportswear segments resulting from better performance across almost all brands , with van heusen performing particularly well . the addition of $ 88.0 million of net sales attributable to growth in our other ( calvin klein apparel ) segment , as both our calvin klein wholesale and retail divisions exhibited strong growth during 2010. comparable store sales in our calvin klein outlet retail division increased 13 % in 2010. the addition of $ 28.6 million of net sales attributable to growth in our heritage brand retail segment . this was principally driven by an overall comparable store sales increase of 8 % . the addition of $ 5.6 million of net sales attributable to growth in our calvin klein licensing segment . royalty , advertising and other revenue was $ 480.6 million in 2011 as compared to $ 417.1 million in 2010. of this $ 63.5 million increase , $ 25.6 million was attributable to tommy hilfiger , due principally to the addition of first quarter royalty , advertising and other revenue , combined with second through fourth quarter increases due to growth in central and south america and asia , and strong performance in tailored apparel , fragrance and eyewear . within the calvin klein licensing segment , global licensee royalty revenue increased $ 28.1 million , or 11 % , as compared to 2010 driven by growth across virtually all product categories and regions , with jeanswear , underwear , fragrance , footwear , accessories and women 's sportswear and dresses performing particularly well . calvin klein advertising and other revenue increased $ 11.1 million to $ 108.6 million in 2011 as compared to 2010 , driven principally by the launch in the first quarter of 2011 of the global marketing campaign supporting the introduction of the new ck one lifestyle brand for jeanswear , underwear and fragrance . such advertising and other revenue is generally collected and spent and , therefore , is presented as both a revenue and an expense within our income statement , with minimal net impact on earnings . royalty , advertising and other revenue was $ 417.1 million in 2010 as compared to $ 328.0 million in 2009. of the $ 89.1 million increase , $ 47.8 million was attributable to the acquisition of tommy hilfiger . within the calvin klein licensing segment , royalty revenue increased $ 26.0 million , or 12 % , as compared to 2009 due to strong performance across virtually all 31 product categories , with jeanswear , underwear , fragrance , watches , women 's sportswear and dresses performing particularly well . in addition , advertising and other revenue increased $ 13.2 million for the calvin klein licensing segment . revenue in 2012 is currently projected to be relatively flat to up 2 % as compared to 2011 , including a negative impact of approximately 4 % , of which approximately $ 150 million is attributable to projected differences in foreign currency translation ( principally related to an expected weaker euro to united states dollar exchange rate ) and approximately $ 100 million is attributable to the 2012 exit from the timberland and izod women 's wholesale sportswear businesses . revenue for the tommy hilfiger business is expected to be relatively flat to up 2 % as compared to 2011 , including a negative impact of approximately 5 % due to projected differences in foreign currency translation . revenue for the calvin klein business is expected to grow 5 % to 7 % as compared to 2011. calvin klein royalty revenue is expected to be negatively impacted by projected differences in foreign currency translation , our upcoming reacquisition of the license for ck calvin klein apparel and accessories in europe as discussed above , challenging business conditions for our licensees in europe and a reduction in licensee selling of calvin klein branded products in secondary channels . revenue for the heritage brand business is expected to decrease 3 % to 4 % as compared to 2011 , including a negative impact of approximately 6 % due to the exit of businesses as discussed above . gross profit on total revenue the following table shows our revenue mix between net sales and royalty , advertising and other revenue , as well as our gross profit as a percentage of total revenue for 2011 , 2010 and 2009 : replace_table_token_2_th gross profit on total revenue in 2011 was $ 3.056 billion , or 51.9 % of total revenue , compared to $ 2.422 billion , or 52.2 % of total revenue in 2010. gross profit as a percentage of revenue decreased 30 basis points in 2011 as compared with 2010 , due principally to ( i ) the negative impact of higher overall product costs in 2011 , particularly in the second half of the year , and increased promotional selling during 2011 in our izod and timberland wholesale sportswear divisions ; ( ii ) the negative impact of a change in revenue mix , as royalty , advertising and other revenue , which does not carry a cost of sales and has a gross profit percentage of 100 % , decreased in 2011 as a percentage of total revenue ; ( iii ) the positive impact of the absence in 2011 of $ 44.5 million of short-lived non-cash valuation amortization charges that were recorded during 2010 as a result of the tommy hilfiger acquisition ; and ( iv ) the positive impact of owning tommy hilfiger for a full year in 2011 ,
| we made additional payments totaling $ 1.6 million to th india during 2011 with respect to our 50 % interest . capital expenditures our capital expenditures in 2011 were $ 169.8 million compared to $ 101.0 million in 2010. this increase was due principally to the addition of first quarter spending in our tommy hilfiger business combined with investments in the tommy hilfiger business , particularly related to the expansion of international operations and in our corporate infrastructure to support our expanded operations . we currently expect capital expenditures in 2012 to be approximately $ 250 million , which includes a shift into 2012 of expenditures previously planned to be made in 2011. acquisitions reacquisition of tommy hilfiger tailored apparel license we entered into agreements during 2011 to reacquire from a licensee , prior to the expiration of the license , the rights to distribute tommy hilfiger brand tailored apparel in europe and acquire an outlet store from the licensee . the transfer of the rights and store ownership will be effective december 31 , 2012. under these agreements , we made a payment of $ 9.6 million ( based on the applicable exchange rate in effect on the payment date ) to the licensee during the fourth quarter of 2011 and are required to make an additional payment of approximately $ 25.0 million to the licensee during 2012 ( which amount may differ due to the actual exchange rate in effect on the payment date ) . tommy hilfiger india perpetually licensed rights reacquisition we reacquired in 2011 the rights in india to the tommy hilfiger trademarks that had been subject to a perpetual license previously granted to gvm . we paid $ 25.0 million during 2011 as consideration for the transaction . in addition , we are required to make annual contingent purchase price payments based on a percentage of annual sales over a certain threshold of 35 tommy hilfiger products in india for a period of five years ( or , under certain circumstances , a period of six years ) following the acquisition date .
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how we evaluate our operations we evaluate our performance based on a number of financial and non-financial measures , including the following : revenue : we compare actual revenue achieved each month to the most recent projection 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 performance of our operations compared to historical revenue drivers or market metrics . we are particularly interested in identifying positive or negative trends and investigating to understand the root causes . adjusted gross profit ( excluding depreciation and amortization ) : adjusted gross profit ( excluding depreciation and amortization ) is a key metric that we use to evaluate operating performance . we define adjusted gross profit ( excluding depreciation and amortization ) as revenues less direct and indirect costs of revenues ( excluding depreciation and amortization ) . costs of revenues include direct and indirect labor costs , costs of materials , maintenance of equipment , fuel and transportation freight costs , contract services , crew cost , and other miscellaneous expenses . for additional information , see “ non-gaap financial measures ” below . adjusted ebitda : we define adjusted ebitda as net income ( loss ) before interest , taxes , and depreciation and amortization , further adjusted for ( i ) property and equipment , goodwill , and or intangible asset impairment charges , ( ii ) transaction and integration costs related to acquisitions and our ipo , ( iii ) loss or gain on equity method investment , ( iv ) loss or gain on revaluation of contingent liabilities , ( v ) loss or gain on the sale of subsidiaries , ( vi ) restructuring charges , ( vii ) stock-based compensation expense , ( viii ) loss or gain on sale of property and equipment , ( ix ) other expenses or charges to exclude certain items which we believe are not reflective of ongoing performance of our business , such as legal expenses and settlement costs related to litigation outside the ordinary course of business . for additional information , see “ non-gaap financial measures ” below . return on invested capital ( “ roic ” ) : we define roic as after-tax net operating profit ( loss ) , divided by average total capital . we define after-tax net operating profit ( loss ) as net income ( loss ) plus ( i ) property and equipment , goodwill , and or intangible asset impairment charges , ( ii ) transaction and integration costs related to acquisitions and our ipo , ( iii ) interest expense ( income ) , ( iv ) restructuring charges , ( v ) loss or gain on the sale of subsidiaries , and ( vi ) the provision or benefit for deferred income taxes . we define total capital as book value of equity plus the book value of debt less balance sheet cash and cash equivalents . we compute the average of the current and prior year-end total capital for use in this analysis . for additional information , see “ non-gaap financial measures ” below . safety : we measure safety by tracking the total recordable incident rate ( “ trir ” ) , which is reviewed on a monthly basis . trir is a measure of the rate of recordable workplace injuries , defined below , normalized and stated on the basis of 100 workers for an annual period . the factor is derived by multiplying the number of recordable injuries in a calendar year by 200,000 ( i.e. , the total hours for 100 employees working 2,000 hours per year ) and dividing this value by the total hours actually worked in the year . a recordable injury includes occupational death , nonfatal occupational illness , and other occupational injuries that involve loss of 36 consciousness , restriction of work or motion , transfer to another job , or medical treatment other than first aid . factors affecting the comparability of our results of operations our future results of operations may not be comparable to our historical results of operations for the periods presented , and our historical results of operations among the periods presented may not be comparable to each other , primarily due to the magnum acquisition and our divestiture of the production solutions segment . the historical results of operations for the year ended december 31 , 2019 include activity related to the magnum acquisition whereas the historical results of operations for the year ended december 31 , 2018 include activity related to the magnum acquisition only after the magnum closing date ( october 25 , 2018 ) . as a result , the historical results of operations for the year ended december 31 , 2018 may not give an accurate indication of what our actual results would have been if the magnum acquisition had been completed at the beginning of the period presented , or of what our future results of operations are likely to be for the following reasons : as a result of the magnum acquisition and the application of purchase accounting , these identifiable net assets have been adjusted to their estimated fair value as of october 25 , 2018 , the magnum closing date . these adjusted valuations increase our operating expenses in periods after the magnum closing date , primarily due to an increase in the amortization of intangible assets with definite lives . transaction and integration costs associated with the magnum acquisition increase operating expenses in periods after the magnum closing date . our completion tools line constitutes a larger portion of our business , due in large part to the magnum acquisition . story_separator_special_tag we incurred significant indebtedness in connection with the consummation of the magnum acquisition , and our related interest expense is expected to be significantly higher than in prior periods for additional information on the magnum acquisition , see note 3 – divestitures , acquisitions , and combinations included in item 8 of part ii of this annual report on form 10-k. our historical results of operations included in this annual report include the impact of the divestiture of the production solutions segment on august 30 , 2019. future results of operations will not include activity related to the production solutions segment . for additional information on the divestiture of the production solutions segment , see note 3 – divestitures , acquisitions , and combinations included in item 8 of part ii of this annual report on form 10-k. industry trends and outlook our business depends , to a significant extent , on the level of unconventional resource development activity and corresponding capital spending of oil and natural gas companies . these activity and spending levels are strongly influenced by the current and expected oil and natural gas prices . during 2019 , oil prices mostly ranged from $ 50 to $ 60. at the beginning of 2019 , opec members and some nonmembers , including russia , renewed pledges to reduce planned production in an effort to draw down a global oversupply and to rebalance supply and demand . these and other events provided support for an increase in oil prices during the first several months of 2019. as a result of a decrease in global demand for oil and natural gas due to the recent coronavirus outbreaks , in march 2020 , members of opec and russia considered extending their agreed oil production cuts and making additional oil production cuts . however , negotiations were unsuccessful ; saudi arabia has announced a significant reduction in its export prices effective immediately and russia has announced that all agreed oil production cuts between members of opec and russia will expire on april 1 , 2020. following these announcements , global oil and natural gas prices declined sharply and may continue to decline . we expect ongoing oil price volatility as output increases over the short term as a result of the events described above , the coronavirus outbreaks continue to develop , and changes in oil inventories , gdp growth , and actual demand growth are reported . similarly , natural gas prices have decreased significantly throughout 2019 and are expected to continue to be volatile in 2020 , causing many operators in the more gas-exposed regions to curtail activity in 2020. significant factors that are likely to affect 2020 commodity prices include the extent to which members of opec and other oil exporting nations continue to reduce oil export prices and increase production ; the effect of u.s. energy , monetary , and trade policies ; the pace of economic growth in the u.s. and throughout the world , including the potential for macro weakness ; geopolitical and economic developments in the u.s. and globally ; the outcome of the united states presidential election and subsequent energy and epa policies ; and overall north american natural gas supply and demand fundamentals , including the pace at which export capacity grows . 37 on average , customer budgets for 2020 are likely to decrease as compared to 2019 , which could adversely affect our business . with this overall reduction , there has been a strong commitment from e & p operators to stay within capital budgets , prompting many of them to scale back activity . even with price improvements in oil and natural gas , operator activity may not materially increase , as operators remain focused on operating within their capital plans . additionally , if natural gas prices remain depressed in 2020 , it could negatively affect activity and pricing in our gas-leveraged regions , specifically in the marcellus and utica . operators have continued to improve operational efficiencies in completions design , increasing the complexity and difficulty , making oilfield service selection more important . this increase in high-intensity , high-efficiency completions of oil and gas wells further enhances the demand for our services . we compete for the most complex and technically demanding wells in which we specialize , which are characterized by extended laterals , increased stage spacing , multi-well pads , cluster spacing , and high proppant loads . these well characteristics lead to increased operating leverage and returns for us , as we are able to complete more jobs and stages with the same number of units and crews . service providers for these projects are selected based on their technical expertise and ability to execute safely and efficiently , rather than only price . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 21.2 million gain on the revaluation of contingent liabilities in 2019 in comparison to a $ 3.3 million loss on the revaluation of contingent liabilities recorded in 2018. the gain was primarily the result of the company not meeting the earnout requirements for the sale of certain dissolvable plug products in 2019 associated with the magnum acquisition , which contributed to the reduction in fair value of contingent liabilities year-over-year . ( gain ) loss on sale of subsidiaries we recorded a $ 15.9 million loss on the sale of subsidiaries in 2019 associated with the sale of the historical production solutions segment .
| the increase in 2019 was primarily related to an increase in completion tools revenue of $ 67.6 million , or 57 % , as completion tool stages increased 37 % and completion tools revenue by stage increased 18 % , due in large part to a full year of revenue attributed to the magnum acquisition in 2019 , compared to approximately two months of revenue in 2018. in addition , cementing revenue ( including pump downs ) increased $ 17.9 million , or 9 % , as total cement jobs increased 9 % year-over-year . the overall increase in revenue is partially offset by a decrease in coiled tubing revenue of $ 48.4 million , or 27 % , in 2019 as total days worked decreased by 34 % in comparison to 2018. in addition , wireline revenue decreased $ 8.1 million , or 3 % , in 2019 primarily due to the pricing pressure from its customer base , as discussed above . total completed wireline stages increased 11 % year-over-year . production solutions : revenue decreased $ 23.6 million , or 29 % , to $ 58.3 million in 2019 . the overall decrease in revenue was related to the fact that , given the segment was sold on august 30 , 2019 , only eight months of revenue was recorded in 2019 compared to a full year of revenue in 2018. cost of revenues ( exclusive of depreciation and amortization ) cost of revenue increased $ 30.7 million , or 5 % , to $ 670.0 million in 2019 . the increase was primarily related to additional costs of $ 42.9 million for materials installed and consumed while performing services . the increase in these costs was due in large part to a full year of activity attributed to the magnum acquisition in 2019 , compared to approximately two months of activity in 2018. the overall increase in cost of revenue was partially offset by a decrease of $ 11.0 million in employee-related costs , driven in part by the sale of the historical production solutions segment on august 30 , 2019 , which reduced headcount year-over-year . additional information with respect to cost of revenue by historical reportable segment is discussed below . completion solutions : cost of revenue increased $ 51.6 million , or 9 % , to $ 620.1
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we are also protecting our liquidity by tightly managing cash outflows associated with all our major expenditures : operating expenses , capital expenditures , acquisitions , and advances in both our ticketing and concert businesses . the length and severity of the impact to live events and our related sponsorship and ticketing businesses is still uncertain . the magnitude and pace of the recovery will depend on each market and their containment efforts , the nature of the events being held , ongoing efforts to develop rapid testing technologies and rollout of approved vaccines and treatments for covid-19 . we remain optimistic about the long-term potential of our company and the unique power of live shows to unite people . we believe our aggressive cost-savings and cash management programs , combined with a strong liquidity profile , position live nation to manage through the global covid-19 pandemic and its impact on live events and provides us the flexibility to scale up quickly when our shows resume . segment overview concerts revenue and related costs for events are generally deferred and recognized when the event occurs . all advertising costs incurred during the year for shows in future years are expensed at the end of the year . if a current year event is rescheduled into a future year , all advertising costs incurred to date are expensed in the period when the event is rescheduled . concerts direct operating expenses include artist fees , event production costs , show-related marketing and advertising expenses , along with other costs . to judge the health of our concerts segment , we primarily monitor the number of confirmed events and fan attendance in our network of owned or operated and third-party venues , talent fees , average paid attendance , market ticket pricing , advance ticket sales and the number of major artist clients under management . in addition , at our owned or operated venues and festivals , we monitor ancillary revenue per fan and premium ticket sales . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates . ticketing revenue related to ticketing service charges is recognized when the ticket is sold for our third-party clients . for our own events , where our concert promoters control ticketing , revenue is deferred and recognized when the event occurs . gross transaction value ( “ gtv ” ) represents the total amount of the transaction related to a ticket sale and includes the face value of the ticket as well as the service charge . we use gtv to evaluate changes in ticket fee revenue that are driven by the pricing of our service charges . ticketing direct operating expenses include call center costs and credit card fees , along with other costs . to judge the health of our ticketing segment , we primarily review the gtv and the number of tickets sold through our ticketing operations , the number of clients renewed or added and the average royalty rate paid to clients who use our ticketing services . in addition , we review the number of visits to our websites , cost of customer acquisition , the purchase conversion rate , the overall number of customers in our database , the number and percentage of tickets sold via mobile and the number of app installs . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates . sponsorship & advertising revenue related to sponsorship and advertising programs is recognized over the term of the agreement or operating season as the benefits are provided to the sponsor unless the revenue is associated with a specific event , in which case it is recognized when the event occurs . sponsorship & advertising direct operating expenses include fulfillment costs related to our sponsorship programs , along with other costs . to judge the health of our sponsorship & advertising segment , we primarily review the revenue generated through sponsorship arrangements and online advertising , and the percentage of expected revenue under contract . for business that is conducted in foreign markets , we also compare the operating results from our foreign operations to prior periods without the impact of changes in foreign exchange rates . 34 key operating metrics replace_table_token_4_th _ ( 1 ) events generally represent a single performance by an artist . fans generally represent the number of people who attend an event . festivals are counted as one event in the quarter in which the festival begins , but the number of fans is based on the days the fans were present at the festival and thus can be reported across multiple quarters . events and fan attendance metrics are estimated each quarter . ( 2 ) the fee-bearing tickets estimated above include primary and secondary tickets that are sold using our ticketmaster systems or that we issue through affiliates . this metric includes primary tickets sold during the year regardless of event timing , except for our own events where our concert promoters control ticketing which are reported when the events occur . the non-fee-bearing tickets estimated above include primary tickets sold using our ticketmaster systems , through season seat packages and our venue clients ' box offices , along with tickets sold on our “ do it yourself ” platform . these ticketing metrics are net of any refunds requested and any cancellations that occurred during the period and up to the time of reporting of these consolidated financial statements . fee-bearing tickets sold above are net of refunds of 27.4 million tickets for the year ended december 31 , 2020 . story_separator_special_tag 35 non-gaap measures the following table sets forth the reconciliation of aoi to operating income ( loss ) : replace_table_token_5_th adjusted operating income ( loss ) aoi is a non-gaap financial measure that we define as operating income ( loss ) before certain stock-based compensation expense , loss ( gain ) on disposal of operating assets , depreciation and amortization ( including goodwill impairment ) , amortization of non-recoupable ticketing contract advances and acquisition expenses ( including transaction costs , changes in the fair value of accrued acquisition-related contingent consideration obligations , and acquisition-related severance and compensation ) . we use aoi to evaluate the performance of our operating segments . we believe that information about aoi assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income ( loss ) , thus providing insights into both operations and the other factors that affect reported results . aoi is not calculated or presented in accordance with gaap . a limitation of the use of aoi as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business . accordingly , aoi should be considered in addition to , and not as a substitute for , operating income ( loss ) , net income ( loss ) , and other measures of financial performance reported in accordance with gaap . furthermore , this measure may vary among other companies ; thus , aoi as presented herein may not be comparable to similarly titled measures of other companies . 36 aoi margin aoi margin is a non-gaap financial measure that we calculate by dividing aoi by revenue . we use aoi margin to evaluate the performance of our operating segments . we believe that information about aoi margin assists investors by allowing them to evaluate changes in the operating results of our portfolio of businesses separate from non-operational factors that affect net income ( loss ) , thus providing insights into both operations and the other factors that affect reported results . aoi margin is not calculated or presented in accordance with gaap . a limitation of the use of aoi margin as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business . accordingly , aoi margin should be considered in addition to , and not as a substitute for , operating income ( loss ) margin , and other measures of financial performance reported in accordance with gaap . furthermore , this measure may vary among other companies ; thus , aoi margin as presented herein may not be comparable to similarly titled measures of other companies . constant currency constant currency is a non-gaap financial measure . we calculate currency impacts as the difference between current period activity translated using the current period 's currency exchange rates and the comparable prior period 's currency exchange rates . we present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations . 37 segment operating results concerts our concerts segment operating results were , and discussions of significant variances are , as follows : replace_table_token_6_th _ * percentages are not meaningful . * * see “ —non-gaap measures ” above for the definition and reconciliation of aoi and aoi margin . revenue concerts revenue decreased $ 8.0 billion during the year ended december 31 , 2020 as compared to the prior year primarily due to the unprecedented stoppage of our concert events globally during 2020. due to the global covid-19 pandemic , beginning in mid-march 2020 we ceased all of our tours , closed our venues and cancelled or postponed our festivals to support global efforts at social distancing and mitigating the virus , and to comply with restrictions put in place by various governmental entities . concerts had incremental revenue of $ 134.0 million during 2020 from acquisitions , primarily that of a merchandise business . operating results the decrease in concerts operating results for the year ended december 31 , 2020 was primarily driven by the reduction in revenue caused by the global covid-19 pandemic discussed above partially offset by cost reduction measures implemented during 2020 , which have included salary reductions , hiring freezes , furloughs , and reduction or elimination of other discretionary spending along with participating in government support programs globally . depreciation and amortization during 2020 includes $ 23.2 million in impairment charges associated with revenue-generating contracts , venue management and leaseholds and client/vendor relationships intangible assets due to the impacts from the global covid-19 pandemic . depreciation and amortization in 2019 includes $ 21.2 million in impairment charges primarily associated with revenue-generating contract intangible assets . concerts operating results for the year ended december 31 , 2020 include net operating losses of $ 59.2 million related to acquisitions and new venues . 38 ticketing our ticketing segment operating results were , and discussions of significant variances are , as follows : replace_table_token_7_th * percentages are not meaningful . * * see “ —non-gaap measures ” above for the definition and reconciliation of aoi and aoi margin . revenue ticketing revenue decreased $ 1.4 billion during the year ended december 31 , 2020 as compared to the prior year primarily due to the lack of tickets available for sale to the public driven by the unprecedented stoppage of concerts , sports and other events globally during 2020 and refunds for cancelled or rescheduled events for third-party clients due to the global covid-19 pandemic . story_separator_special_tag underlying financial institutions fail . to date , we have experienced no loss or lack of access to our cash and cash equivalents ; however , we can provide no assurances that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets , including those resulting from the global covid-19 pandemic .
| 41 corporate corporate expenses decreased $ 66.7 million , or 40 % , during the year ended december 31 , 2020 as compared to the prior year primarily due to cost reduction efforts implemented during 2020 , including salary reductions , with salaries for senior executives reduced by up to 60 % . additional cost reduction efforts include hiring freezes , reduction in the use of contractors , furloughs , and reduction or elimination of other discretionary spending , including , among other things , travel and entertainment and repairs and maintenance . interest expense interest expense increased $ 69.3 million , or 44 % , during the year ended december 31 , 2020 as compared to the prior year due to additional interest costs from the issuance of our 4.75 % senior notes in october 2019 , the issuance of our 2.0 % convertible senior notes in february 2020 and the issuance of our 6.5 % senior secured notes in may 2020. these additional costs were partially offset by interest cost reductions realized from the october 2019 redemption of our 5.375 % senior notes and amendment to our senior secured credit facility . our debt balances , excluding unamortized debt discounts and issuance costs , were $ 5.0 billion and $ 3.4 billion as of december 31 , 2020 and 2019 , respectively . income taxes for the year ended december 31 , 2020 , we had a net tax benefit of $ 28.9 million on losses before income taxes of $ 1.9 billion compared to a net tax expense of $ 66.9 million on income before income taxes of $ 185.1 million for 2019. in 2020 , the net income tax benefit consisted of $ 16.4 million related to united states federal income taxes , $ 12.8 million related to foreign entities partially offset by $ 0.3 million tax expense related to state and local income taxes . the net decrease in tax expense of $ 95.8 million is due primarily to lower pre-tax income or higher pre-tax losses in taxable jurisdictions . net income ( loss ) attributable to noncontrolling interests net
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in 2013 , refinancing activity accounted for 62.8 % of all mortgage originations and is projected to represent 39.4 % of mortgage originations in 2014. according to data published by freddie mac , the average 30-year fixed mortgage interest rate in the united states was 3.98 % , 3.66 % and 4.45 % for the years ended december 31 , 2013 , 2012 and 2011 , respectively . according to the mba forecast , refinancing is expected to be significantly lower in 2014 as mortgage interest rates continue to climb to a projected 5.1 % in the fourth quarter of 2014. in september 2012 , the federal reserve announced quantitative easing , “ qe 3 , ” in which it would purchase mortgage-backed securities at a rate of $ 40 billion per month and longer-term treasury securities at a rate of $ 45 billion per month . in december 2013 , former federal reserve chairman bernanke announced that beginning in january 2014 , the federal open market committee ( “ fomc ” ) of the federal reserve would begin to modestly taper the pace of asset purchases . the monthly purchase amount was reduced to $ 35 billion for mortgage-backed securities and $ 40 billion for per month for longer-term treasury securities . furthermore , it was stated that if incoming economic information supported the fomc 's expectations regarding labor market conditions and inflation , the federal reserve would likely further reduce the pace of asset purchases in the future ; however , decisions regarding the federal reserve 's asset purchases remain contingent on meeting fomc expectations . there is no stated end date associated with this round of quantitative easing . the fomc is also issuing disclosures on a periodic basis that include projections of the federal funds rate and expected actions . at the december 2013 meeting , the fomc reaffirmed their intent to keep the federal funds rate exceptionally low , between 0 % and 0.25 % , so long as the unemployment exceeds 6.5 % , short-term inflation does not exceed 2.5 % and longer-term inflation is within their range of acceptability . in washington , d.c. , there are continued discussions regarding the possible reform of government-sponsored enterprises , the federal national mortgage association ( “ fannie mae ” ) and the federal home loan mortgage corporation ( “ freddie mac ” ) . fannie mae and freddie mac often require the purchase of title insurance for home loans that they securitize . changes to these entities could impact the entire mortgage loan process and as a result , could impact the demand for title insurance . the timing and results of reform are currently unknown ; however , any changes to these entities could impact the company and its results of operations . the january 2014 economic and mortgage finance commentary predicts a 2014 overall economic growth of approximately 2.5 % and a decline in the unemployment rate to 6.7 % . as a result of the economic growth , the 10 year treasury rate is expected to increase to an average of 3.2 % in 2014. continued growth in home prices and housing starts are also expected in 2014. on november 20 , 2013 , the consumer financial protection bureau ( “ cfpb ” ) , which enforces real estate settlement procedures act ( “ respa ” ) , the primary federal regulatory guidance covering the real estate settlement industry , released a final rule to integrate mortgage disclosures under the respa and the truth in lending act ( “ tila ” ) . the final rule goes into effect in august 2015. under this rule , the early disclosure forms required by tila and the good faith estimate , required by respa , have been combined into one form , titled the loan estimate . the final disclosure required by tila and the hud-1 settlement statement required by respa have been combined into one form , titled the closing disclosure . the company is currently assessing the impact that this rule will have on both direct and agency operations in terms of processes and procedures , systems and compliance costs . effective january 10 , 2014 , the tila regulation z rule requires a lender to assess each borrower 's ability to meet the obligations of the prospective mortgage . within this rule , there is also a provision that requires the lender to determine if the mortgage is a “ qualified mortgage. ” the key features of a qualified mortgage are that it ( 1 ) not have excessive upfront points and fees ; ( 2 ) not have toxic loan features such as interest only , negative amortization or balloon payment provisions ; and ( 3 ) limits the borrower 's debt-to-income ratio . the lender must include all fees paid to an affiliate of the lender in the points and fees calculation . the company and its subsidiaries are not involved in mortgage lending ; however , this rule could have an adverse impact on mortgage lending activity and potentially reduce premium volume . 17 the cfpb , office of the comptroller of currency and the federal reserve have issued memorandums to banks which have heightened their focus on vetting third party providers and may impact the company 's agents and approved providers . further proposals to change regulations governing insurance holding companies and the title insurance industry are often introduced in congress , in state legislatures and before various insurance regulatory agencies . the company regularly monitors such proposals , but their likelihood and timing , and the impact they may have on the company and its subsidiaries can not be determined at this time . historically , activity in real estate markets has varied over the course of market cycles by geographic region and in response to evolving economic factors . operating results can vary from year to year based on cyclical market conditions and do not necessarily indicate the company 's future operating results and cash flows . story_separator_special_tag critical accounting estimates and policies this discussion and analysis of the company 's financial condition and results of operations is based upon the company 's accompanying consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the company 's management makes various estimates and judgments when applying policies affecting the preparation of the consolidated financial statements . actual results could differ from those estimates . significant accounting policies of the company are discussed in note 1 to the accompanying consolidated financial statements . following are the accounting estimates and policies considered critical to the company . reserves for claim losses : the company 's reserves for claims are established using estimates of amounts required to settle claims for which notice has been received ( reported ) and the amount estimated to be required to satisfy incurred claims of policyholders which may be reported in the future ( incurred but not reported , or “ ibnr ” ) . the total reserve for all losses incurred but unpaid as of december 31 , 2013 is represented by the reserve for claims totaling $ 35,360,000 in the accompanying consolidated balance sheets . of that total , approximately $ 4,671,000 was reserved for specific claims which have been reported to the company , and approximately $ 30,689,000 was reserved for ibnr claims . a provision for estimated future claims payments is recorded at the time the related policy revenue is recorded . the company records the claims provision as a percentage of net premiums written . this provisional rate is set to provide for losses on current year policies . by their nature , title claims can often be complex , vary greatly in dollar amounts , vary in number due to economic and market conditions such as an increase in mortgage foreclosures , and involve uncertainties as to ultimate exposure . in addition , some claims may require a number of years to settle and determine the final liability for indemnity and loss adjustment expense . the payment experience may extend for more than twenty years after the issuance of a policy . events such as fraud , defalcation and multiple property defects can substantially and unexpectedly cause increases in estimates of losses . due to the length of time over which claim payments are made and regularly occurring changes in underlying economic and market conditions , these estimates are subject to variability . management considers factors such as the company 's historical claims experience , case reserve estimates on reported claims , large claims , actuarial projections and other relevant factors in determining its loss provision rates and the aggregate recorded expected liability for claims . in establishing reserves , actuarial projections are compared with recorded reserves to evaluate the adequacy of such recorded claims reserves and any necessary adjustments are then recorded in the current period 's income statement . as the most recent claims experience develops and new information becomes available , the loss reserve estimate related to prior periods will change to more accurately reflect updated and improved emerging data . the company reflects any adjustments to reserves in the results of operations in the period in which new information ( principally claims experience ) becomes available . the company initially reserves for each known claim based upon an assessment of specific facts and updates the reserve amount as necessary over the course of administering each claim . loss ratios for earlier years tend to be more reliable than recent policy years as those years are more fully developed . in making loss estimates , management determines a loss provision rate , which it then applies to net premiums written . there are key assumptions that materially affect the reserve estimates . during the third quarter of 2013 , certain actuarial inputs were changed to provide a more refined ibnr reserve estimate . the company considers these modifications in actuarial inputs to be a change in estimate . the company believes that these changes in actuarial inputs were necessary in response to favorable reserve development and claims experience incurred in several recent reporting periods . the approximate impact of this change in estimate for the year ended december 31 , 2013 was a reduction of $ 2,200,000 to the reserves for claims in the consolidated balance sheets , and in the consolidated statements of income a decrease of $ 2,200,000 to the provision for claims , an increase of approximately $ 750,000 in the provision for income taxes and an increase of approximately $ 1,450,000 in net income , or $ 0.71 per basic share and $ 0.70 per diluted share , compared with the amounts that would have been recorded under the company 's prior estimate . this change in estimate , coupled with several recent policy years which continued to emerge favorably in comparison with prior expectations , contributed to a benefit in the claims provision this quarter . the change in estimate was primarily driven by the following : 18 changing the specific weightings used in estimating expected loss ratios for use in actuarial methods , including the weighting between policy years and weighting of title industry loss data ; adjusting for premium rate changes and the company 's improved underwriting efforts related to construction business ; and increasing the ratios used to estimate projected payments of unallocated loss adjustment expenses to more accurately reflect expected payments . the company assumes the reported liability for known claims and ibnr , in the aggregate , will be comparable to its historical claims experience unless factors , such as loss experience , change significantly . also affecting the company 's assumptions are large losses related to fraud and defalcation , as these can cause significant variances in loss emergence patterns . management defines a large loss as one where incurred losses exceed $ 250,000. due to the small volume of large claims , the long-tail nature of title insurance claims and the inherent uncertainty in loss emergence patterns , large claim activity can vary significantly between policy years .
| following is a breakdown of premiums generated by branch and agency operations for the years ended december 31 : 21 replace_table_token_5_th home and branch office net premiums : in the company 's home and branch operations , the company issues the insurance policy and retains the entire premium , as no commissions are paid in connection with these policies . net premiums written from home and branch operations increased 4.4 % in 2013 to $ 24,811,602 compared with $ 23,762,885 in 2012 and increased 44.1 % in 2012 compared with $ 16,485,973 in 2011 . the increase in 2013 home and branch operations primarily reflects increased purchase transactions and average home values . the increase in 2012 home and branch operations primarily reflects increased purchase and refinance activity and new industry-wide premium charges in the state of north carolina that became effective march 1 , 2012. all of the company 's home office operations and the majority of branch offices are located in north carolina ; as a result , the home and branch office net premiums written are primarily for north carolina policies . agency net premiums : when a policy is written through a title agency , the agency retains the majority of the title premium collected , with the balance remitted to the title underwriter for bearing the risk of loss in the event that a claim is made under the title insurance policy . net premiums written by agencies increased 13.4 % in 2013 to $ 89,074,664 compared with $ 78,568,217 in 2012 and increased 20.8 % in 2012 compared with $ 65,043,360 in 2011 . the increase in 2013 net agency premiums primarily reflects increases in purchase transactions and average home values in many parts of the nation . the increase in net agency premiums in 2012 primarily reflects increases in purchase and refinance activity and new industry-wide premium charges in certain markets that went into effect during the second half of 2012 . following is a schedule of net premiums written in select states where the company 's two insurance
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we financed the alent acquisition with ( i ) available cash on hand , ( ii ) the proceeds from the november 2015 notes offering of $ 500 million aggregate principal amount of 10.375 % usd notes due 2021 , and ( iii ) additional borrowings of $ 1.05 billion ( less original issue discount of 2 % ) through the establishment of the alent u.s. dollar tranche b-3 term loan , approximately 300 million ( less original discount of 2 % ) through the establishment of the alent euro tranche c-2 term loan , and $ 115 million under our increased u.s. dollar revolving credit facility . omg acquisition -- on october 28 , 2015 , we completed the omg acquisition for a total purchase price of approximately $ 237 million in cash , net of acquired cash , subject to purchase price adjustments . the acquired omg businesses are included in our performance solutions business segment . we believe the omg businesses are in line with our business strategy of growing into niche markets . omg 's electronic chemicals business is similar to the legacy macdermid electronic chemical and surface treatment businesses , as it develops , produces and supplies chemicals for electronic and industrial applications . omg 's photomasks products are used by customers to produce semiconductors and related products . we financed the omg acquisition with the proceeds from the june 2015 equity offering . arysta acquisition -- on february 13 , 2015 , we completed the arysta acquisition for approximately $ 3.50 billion , consisting of $ 2.86 billion in cash , net of acquired cash and certain post-closing working capital and other adjustments , and the issuance of $ 600 million of series b convertible preferred stock . the legacy arysta business is included in our agricultural solutions business segment . arysta has a solutions-oriented business model which focuses on product innovation to address grower needs , complementing the legacy agriphar 's and cas businesses . we acquired arysta to expand our presence in the agrochemical business and our offering of products and solutions utilizing globally managed patented , proprietary off-patent agrochemical ais and biosolutions , as well as off-patent agrochemical products . we financed the arysta acquisition with ( i ) available cash on hand , ( ii ) the proceeds from the february 2015 notes offering of $ 1.10 billion aggregate principal amount of 6.50 % usd notes due 2022 and 350 million aggregate principal amount of 6.00 % eur notes due 2023 , and ( iii ) additional borrowings of $ 500 million ( less original issue discount of 1 % ) through the establishment of the arysta u.s. dollar tranche b-2 term loan , 83.0 million ( less original discount of 2 % ) through the establishment of the arysta euro tranche c-1 term loan , and $ 160 million under our increased u.s. dollar revolving credit facility . 2014 activity cas acquisition -- on november 3 , 2014 , we completed the cas acquisition for $ 1.04 billion , consisting of $ 983 million in cash , net of acquired cash and certain post-closing working capital and other adjustments , 2,000,000 shares of our common stock and the assumption of certain liabilities by platform . legacy cas was a niche provider of seed treatments and agrochemical products for a wide variety of crop protection applications in numerous geographies . we financed the cas acquisition with a combination of available cash on hand and borrowings under an increase in term loans of approximately $ 389 million ( $ 256 million of which is denominated in euro ) , $ 60.0 million under our u.s. dollar revolving credit facility and 55.0 million ( $ 68.7 million ) under our multicurrency revolving credit facility pursuant to our amended and restated credit agreement . agriphar acquisition -- on october 1 , 2014 , we completed the agriphar acquisition for a purchase price of approximately 300 million ( $ 370 million ) , consisting of $ 350 million in cash , net of acquired cash and certain post-closing working capital and other adjustments , and 711,551 restricted shares of our common stock , which will become unrestricted beginning january 2 , 2018 , unless agreed otherwise in accordance with the terms of the acquisition agreement . legacy agriphar was a european crop protection group supported by a team of researchers and regulatory experts which provided a wide range of fungicides , herbicides and insecticides with end markets primarily across europe . 38 we financed the agriphar acquisition with proceeds from the incremental amendment no . 1 and available cash on hand . 2013 activity macdermid acquisition -- on october 31 , 2013 , we completed the macdermid acquisition , and concurrently changed our name to “ platform specialty products corporation. ” the total consideration for the macdermid acquisition and the exchange agreement was approximately $ 1.80 billion ( including the assumption of $ 754 million of indebtedness , consisting primarily of macdermid 's then existing first lien credit facility ) , plus ( i ) up to $ 100 million of contingent consideration tied to achieving certain ebitda and stock trading price performance metrics over a seven-year period following the closing of the macdermid acquisition and ( ii ) an interest in certain macdermid pending litigation , which consideration was paid through a combination of both equity interests and cash . we financed the macdermid acquisition with proceeds from our initial public offering and the warrant exchange offer , as well as borrowings under amendment no.1 to our amended and restated credit agreement . our business our business involves the formulation of a broad range of solutions-oriented specialty chemicals which are sold into multiple industries including agricultural , animal health , electronics , graphic arts , plating , and offshore oil and gas production and drilling . we refer to our products as “ dynamic chemistries ” due to their intricate chemical compositions . story_separator_special_tag our dynamic chemistries are used in a wide variety of attractive niche markets and we believe that the majority of our operations hold strong positions in the product markets they serve . we generate revenue through the formulation and sale of our dynamic chemistries and by providing highly technical service to our customers through our extensive global network of specially trained service personnel . our personnel work closely with our customers to ensure that the intricate chemical composition and function of our products are maintained as intended while ensuring that these products are applied safely and effectively by users globally . for example , a customer in our performance solutions segment will engage us to manufacture and sell a product consisting of a process composed of eight successive chemical baths , each of which is made up of our specialty chemicals , in order to enhance the overall performance of that customer 's circuit boards . in our agricultural solutions segment , our “ aplique bem ” stewardship program focuses on teaching growers to apply agrochemicals safely and cost-efficiently . this program started in brazil in partnership with the institute of agriculture , campinas ( ic ) and rapidly expended into latin america , africa and asia . this high quality customer service is also complemented by a close proximity to our global customers ' local sites , enabling access to key growth markets . for example , we have developed state-of-the-art facilities in são paulo , brazil and suzhou , china . in addition , we leverage our close customer relationships to execute our growth strategy by working directly with our customers to identify opportunities for new products . these new products are developed and created by drawing upon our significant intellectual property portfolio and technical expertise . we believe that our customers place significant value on our brands , which we capitalize on through innovation , product leadership and customer service . while our dynamic chemistries typically represent only a small portion of our customers ' costs , we believe that they are critical to our customers ' manufacturing processes and overall product performance . further , operational risks and switching costs make it difficult for our customers to change suppliers and allow us to retain customers and maintain our market positions . during the first quarter of 2015 , we completed certain changes to our organizational structure that resulted in a change to our reportable business segments . as a result , the performance materials and graphic solutions reportable segments were combined into the performance applications reportable segment , and the agrosolutions reportable segment was re-branded to agricultural solutions . in december 2015 , the company further re-branded its performance applications segment by changing its name to `` performance solutions . '' platform 's segment reporting structure represents businesses for which separate financial information is utilized by our chief operating decision maker , or codm , for purpose of allocating resources and evaluating performance . each reportable segment has its own president , who reports to the codm . as a result of these organizational and branding changes , platform manages its business in two reportable segments : performance solutions and agricultural solutions . performance solutions – our performance solutions segment formulates and markets dynamic chemistry solutions that are used in electronics , automotive production , oil and gas production , drilling , and commercial packaging and printing . our products 39 include surface and coating materials , water-based hydraulic control fluids and photopolymers . in conjunction with the sale of these products , we provide extensive technical service and support when necessary to ensure superior performance of their application . the regional sales mix in this segment has shifted over the past several years from more industrialized nations towards emerging markets , such as asia and south america . we have 16 manufacturing facilities in asia and remain focused on further increasing our presence in the region . agricultural solutions – our agricultural solutions segment is based on a solutions-oriented business model that focuses on product innovation to address an ever-increasing need for higher crop yield and quality . we offer to growers diverse crop protection solutions from weeds ( herbicides ) , insects ( insecticides ) and diseases ( fungicides ) , in foliar and seed treatment applications . we also offer a wide variety of proven biosolutions , including biostimulants , innovative nutrition and biocontrol products . we emphasize farmer economics and food safety by combining , when possible , biosolutions with crop protection and seed treatment agrochemicals . our global value added portfolio , or gvap , consists of agrochemicals in the herbicides , insecticides , fungicides and seed treatment categories , based on patented or proprietary off-patent ais . our global biosolutions portfolio , or gbp , includes biostimulants , innovative nutrition and biocontrol products . we consider our gvap and gbp to be key pillars for our sustainable growth . in addition , we offer regional off-patent ais and certain non-crop products , including animal health products , such as honey bee protective miticides and certain veterinary vaccines . we employ approximately 3,700 personnel with a significant presence on high-growth regions such as africa and the middle east , south asia , latin america and central and eastern europe . our operating segments include significant foreign operations . there are certain risks associated with our foreign operations . see part i , item 1a . risk factors— `` our substantial international operations subject us to risks not faced by domestic competitors . '' and `` we are exposed to fluctuations in currency exchange rates , which may adversely affect our operating results and may significantly affect the comparability of our results between financial periods . '' global economic and industry conditions our products are sold in industries that we believe are sensitive to changes in general economic conditions . accordingly , net sales , gross profit and financial condition depend significantly on general economic conditions and the impact of these conditions on demand for our dynamic chemistries and services in the markets in which we compete .
| omg 's electronic chemicals business is similar to the legacy macdermid electronic chemical and surface treatment businesses , as it develops , produces and supplies chemicals for electronic and industrial applications . omg 's photomasks products are used by customers to produce semiconductors and related products . in june 2015 , we completed the june 2015 equity offering of 18,226,414 shares of our common stock , which resulted in gross proceeds of approximately $ 483 million , before deducting underwriting discounts and commission and offering expenses . the june 2015 equity offering was a registered offering with the sec . all of the shares sold in this offering were sold by platform , and the proceeds were used to fund working capital and acquisition activity , including the consideration and fees paid for the omg acquisition . in february 2015 , we completed the arysta acquisition for approximately $ 3.50 billion , consisting of $ 2.86 billion in net cash and the issuance of $ 600 million of series b convertible preferred stock . arysta is a leading global provider of crop solutions with expertise in agrochemical and biological products . in february 2015 , we entered into amendment no . 3 , which further amended our amended and restated credit agreement in order to borrow an additional $ 500 million ( less original issue discount of 1 % ) through the establishment of the arysta u.s. dollar tranche b-2 term loan , 83.0 million ( less original issue discount of 2 % ) through the establishment of the arysta euro tranche c-1 term loan , and $ 160 million through an increase to our revolving credit facility , which borrowings were used to fund a portion of the cash consideration for the arysta acquisition . in february 2015 , we completed the february 2015 notes offering of $ 1.10 billion aggregate principal amount of 6.50 % usd notes due 2022 ( plus original issue premium of $ 1.0 million ) and 350 million aggregate principal amount of 6.00 % eur notes due
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additionally , through cogeneration facilities at our sugarcane mills , we produced electricity from the burning of sugarcane bagasse ( the fibrous portion of the sugarcane that remains after the extraction of sugarcane juice ) in boilers , which enabled our mills to meet their energy requirements . any surplus electricity was sold to the local grid or other large third-party users of electricity . all of these activities were assumed by our bp bunge bioenergia joint venture . following the formation of the joint venture , we accounted for our interest in the joint venture under the equity method of accounting and ceased to consolidate our sugar and bioenergy operations in brazil in our consolidated financial statements . profitability in this segment is affected by the profitability of the joint venture and , therefore the value of our investment and the amount and timing of distributions we receive , if any . in turn , the profitability of the joint venture is affected by the availability and quality of sugarcane , which impacts capacity utilization rates and the amount of sugar that can be extracted from the sugarcane , and by market prices of sugar and ethanol . the availability and quality of sugarcane is affected by many factors , including weather , geographical factors such as soil quality and topography , and agricultural practices . once planted , sugarcane may be harvested for several continuous years , but the yield decreases with each subsequent harvest . as a result , the current optimum economic cycle is generally five to seven consecutive harvests , depending on location . the joint venture owns and or has partnership agreements to manage farmland on which it grows and harvests sugarcane , and also purchases sugarcane from third parties . prices of sugarcane in brazil are established by consecana , the state of são paulo sugarcane , sugar and ethanol council , and are based on the sucrose content of the cane and the market prices of sugar and ethanol . demand for the joint venture 's products is affected by such factors as changes in global or regional economic conditions , the financial condition of customers and customer access to credit , worldwide consumption of food products , population growth rates , changes in per capita income and demand for and governmental support of renewable fuels produced from agricultural commodities , including sugarcane . fertilizer in the fertilizer segment , demand for our products is affected by the profitability of the agricultural sectors we serve , the availability of credit to farmers , agricultural commodity prices , the types of crops planted , the number of acres planted , the quality of the land under cultivation and weather-related issues affecting the success of the harvests . our profitability is impacted by international selling prices for fertilizers and fertilizer raw materials , such as phosphate , sulfur , ammonia and urea , ocean freight rates and other import costs , as well as import volumes at the port facilities we manage . as our operations are in south america , primarily argentina , our results in this segment are typically seasonal , with fertilizer sales normally concentrated in the third and fourth quarters of the year due to the timing of the south american agricultural cycle . reported volumes in this segment reflect third-party sales of our finished products . in addition to these industry related factors which impact our business areas , our results of operations in all business areas and segments are affected by the following factors : foreign currency exchange rates due to the global nature of our operations , our operating results can be materially impacted by foreign currency exchange rates . both translation of our foreign subsidiaries ' financial statements and foreign currency transactions can affect our results . on a monthly basis , for subsidiaries whose functional currency is a currency other than the u.s. dollar , subsidiary statements of income and cash flows must be translated into u.s. dollars for consolidation purposes based on weighted-average exchange rates in each monthly period . as a result , fluctuations of local currencies compared to the u.s. dollar during each monthly period impact our consolidated statements of income and cash flows for each reported period ( per quarter and year-to-date ) and also affect comparisons between those reported periods . subsidiary balance sheets are translated using exchange rates as of the balance sheet date with the resulting translation adjustments reported in our consolidated balance sheets as a component of accumulated other comprehensive income ( loss ) . additionally , we record transaction gains or losses on monetary assets and liabilities that are not denominated in the functional currency of the entity . these amounts are remeasured into their respective functional currencies at exchange rates as 27 of the balance sheet date , with the resulting gains or losses included in the entity 's statement of income and , therefore , in our consolidated statements of income as foreign exchange gains ( losses ) . we primarily use a combination of equity and intercompany loans to finance our subsidiaries . intercompany loans that are of a long-term investment nature with no intention of repayment in the foreseeable future are considered permanently invested and as such are treated as analogous to equity for accounting purposes . as a result , any foreign currency translation gains or losses on such permanently invested intercompany loans are reported in accumulated other comprehensive income ( loss ) in our consolidated balance sheets . in contrast , foreign currency translation gains or losses on intercompany loans that are not of a permanent nature are recorded in our consolidated statements of income as foreign exchange gains ( losses ) . income taxes as a bermuda exempted company , we are not subject to income taxes on income in our jurisdiction of incorporation . however , our subsidiaries , which operate in multiple tax jurisdictions , are subject to income taxes at various statutory rates ranging from 0 % to 35 % . story_separator_special_tag the jurisdictions that significantly impact our effective tax rate are brazil , the united states , argentina and bermuda . determination of taxable income requires the interpretation of related and often complex tax laws and regulations in each jurisdiction in which we operate , and the use of estimates and assumptions regarding future events . non-u.s. gaap financial measures total segment earnings before interest and taxes ( `` ebit '' ) is an operating performance measure used by bunge 's management to evaluate segment operating activities . bunge 's management believes total segment ebit is a useful measure of operating profitability , since the measure allows for an evaluation of the performance of its segments without regard to its financing methods or capital structure . in addition , ebit is a financial measure that is widely used by analysts and investors in bunge 's industries . total segment ebit is a non-u.s. gaap financial measure and is not intended to replace net income attributable to bunge , the most directly comparable u.s. gaap financial measure . story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; '' > $ 1,623 million in 2019 , primarily due to $ 1,673 million in charges associated with the contribution of our brazilian sugar and bioenergy operations to our newly formed joint venture , bp bunge bioenergia , in december 2019. fertilizer segment ebit increased $ 15 million to $ 54 million in 2019 , primarily due to higher sales volumes , lower overall expenses , and more favorable foreign exchange results . segment results bunge has five reportable segments ; agribusiness , edible oil products , milling products , sugar and bioenergy , and fertilizer , which are organized based upon similarities in their economic characteristics , products and services offered , production processes , types and classes of customer served , and distribution methods . the agribusiness segment is characterized by both inputs and outputs being agricultural commodities , and thus high volume and low margin . the edible oil products segment involves the manufacturing and marketing of products derived from vegetable oils . the milling products segment involves the manufacturing and marketing of products derived primarily from wheat and corn . the sugar and bioenergy segment primarily comprises our investment in bp bunge bioenergia , a joint venture formed in december 2019 that combined bunge 's brazilian sugar and bioenergy operations , through which we produced and sold sugar and ethanol derived from sugarcane , as well as energy derived from the sugar and ethanol production process , together with the brazilian biofuels business of bp . the fertilizer segment includes the activities of our port operations in brazil and argentina and blending and distribution operations in argentina . 29 a summary of certain items in our consolidated statements of income and volumes by reportable segment for the periods indicated is set forth below . replace_table_token_5_th 30 replace_table_token_6_th ( 1 ) in december 2019 , we contributed our brazilian sugar and bioenergy operations forming the majority of our sugar and bioenergy segment into the bp bunge bioenergia joint venture . as a result of this transaction , as of december 2019 , we no longer consolidate our sugar and bioenergy operations in brazil in our consolidated financial statements . we account for our interest in the joint venture under the equity method of accounting . ( 2 ) we refer to our earnings before interest and taxes in each of our segments as `` segment ebit '' . total segment ebit is an operating performance measure used by bunge 's management to evaluate its segments ' operating activities . total 31 segment ebit is a non-u.s. gaap financial measure and is not intended to replace net income attributable to bunge , the most directly comparable u.s. gaap financial measure . bunge 's management believes segment ebit is a useful measure of its segments ' operating profitability , since the measure allows for an evaluation of the performance of its segments without regard to its financing methods or capital structure . in addition , ebit is a financial measure that is widely used by analysts and investors in bunge 's industries . total segment ebit excludes ebit attributable to noncontrolling interests and is not a measure of consolidated operating results under u.s. gaap and should not be considered as an alternative to net income attributable to bunge or any other measure of consolidated operating results under u.s. gaap . a reconciliation of net income attributable to bunge to total segment ebit follows : replace_table_token_7_th 2019 compared to 2018 net income attributable to bunge — for the year ended december 31 , 2019 , net income attributable to bunge decreased by $ 1,547 million to a loss of $ 1,280 million , from income of $ 267 million in 2018 . this decrease resulted primarily from lower segment ebit of $ 1,628 million , predominantly in sugar and bioenergy , due to $ 1,673 million in charges associated with the sale of our brazilian sugar and bioenergy operations , in edible oils products , due to a $ 108 million goodwill impairment charge , and in agribusiness , due to lower results in our oilseed processing business . income tax expense — in the year ended december 31 , 2019 , income tax expense was $ 86 million compared to income tax expense of $ 179 million in 2018 . the effective tax rate for 2019 was negative 7 % compared to 39 % for 2018. the effective tax rate in 2019 was adversely impacted by non-deductible losses related to the deconsolidation of our brazilian sugar and bioenergy operations , partially offset by a favorable earnings mix . the higher effective tax rate for 2018 was primarily due to an unfavorable earnings mix , coupled with an income tax charge of $ 48 million for valuation allowances established in brazil and china . agribusiness segment — agribusiness segment net sales decreased by 12 % to $ 28.4 billion in 2019 , compared to $ 32.2 billion in 2018 .
| ebit for 2019 included charges of $ 1,673 million associated with the sale of our brazilian sugar and bioenergy operations , a goodwill impairment charge of $ 108 million associated with our 2018 acquisition of ioi loders croklaan ( `` loders '' ) , $ 42 million of severance , employee benefit and other program costs related to our global competitiveness program ( “ gcp ” ) , $ 4 million of severance and other employee benefit costs related to other industrial initiatives , $ 5 million of restructuring charges in our brazilian industrial sugar operations , and $ 38 million of indirect tax charges in brazil . in addition , ebit included $ 159 million of asset impairment charges at various facilities associated with portfolio rationalization initiatives , and a $ 22 million impairment charge associated with the relocation of our global headquarters . ebit also included a $ 6 million loss on the sale of an equity investment , $ 6 million of integration fees , an $ 11 million write-off of a tax indemnification asset associated with the reversal of an uncertain tax position recorded in a previous year , a $ 19 million gain on the sale of assets , and a $ 9 million gain from an arbitration settlement . ebit for 2018 included $ 51 million of severance , employee benefit and other program costs related to the gcp , $ 9 million of severance and other employee benefit costs related to other industrial initiatives , $ 10 million of restructuring charges in our brazilian industrial sugar operations , and $ 10 million of indirect tax credits in brazil . in addition , ebit included $ 10 million of impairment charges related to european port assets , $ 29 million of losses on the disposition of equity interests in brazil and asia , $ 19 million of acquisition fees , and a $ 24 million loss on the extinguishment of debt . 28 agribusiness segment ebit decreased by $ 154 million to $ 491 million in 2019 , from $ 645 million in 2018 , primarily due to lower results in our oilseed processing , grain origination , and grain trading and distribution businesses , driven by lower volumes and margins in most regions , as well as impairment charges at various facilities associated with portfolio rationalization initiatives . these negative impacts were partially offset by better results in our ocean
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the safety and tolerability seen in constant and protect studies were consistent with the known safety profile of sci-b-vac . no new safety risks were identified , and no safety signals were observed in either study cohort . the integrated safety data analysis from both the protect and constant studies is underway . the completed phase iii studies are expected to support the biologics license application ( “ bla ” ) to the fda , the marketing authorization application ( “ maa ” ) to the ema and the new drug submission ( “ nds ” ) to health canada . we plan to submit applications for regulatory approvals in the united states , europe and canada beginning in the fourth quarter of 2020. vbi-2601 : hepatitis b immunotherapeutic candidate vbi-2601 ( brii-179 ) is our novel , recombinant , protein-based immunotherapeutic candidate in development for the treatment of chronic hepatitis b infection , a disease that affects more than 250 million people worldwide . chronic hepatitis b infection can lead to cirrhosis of the liver , hepatocellular cancer , and other liver disease , making it a life-threatening global health problem . vbi-2601 ( brii-179 ) is formulated to induce broad immunity against hepatitis b virus , including t-cell immunity which plays an important role in controlling hepatitis b infection . on december 6 , 2018 , the company announced that it had entered into a collaboration and license agreement ( “ license agreement ” ) with brii bio , pursuant to which , among other things , subject to terms and conditions set forth in the license agreement , we and brii bio agreed to collaborate on the development of a hepatitis b recombinant protein-based immunotherapeutic candidate in china , hong kong , taiwan and macau ( the “ licensed territory ” ) , and to conduct a phase ib/iia collaboration clinical trial for the purpose of comparing vbi-2601 ( brii-179 ) with a novel composition developed jointly with brii bio . on november 14 , 2019 , we announced initiation of enrollment in a phase ib/iia study of vbi-2601 ( brii-179 ) in patients with chronic hepatitis b infection . the phase ib/iia clinical study of vbi-2601 ( brii-179 ) is a randomized , controlled study designed to assess the safety , tolerability , antiviral and immunological activity of vbi-2601 ( brii-179 ) . the study is designed as a two-part dose-escalation study assessing different dose levels of vbi-2601 ( brii-179 ) with and without an immunomodulatory adjuvant , and is expected to enroll up to 65 patients . initial human proof-of-concept data from the clinical study is anticipated in the second half of 2020. the study is sponsored by brii bio and will be conducted at multiple study sites in new zealand , australia , thailand , south korea , hong kong sar , and china . 56 evlp platform the evlp technology enables the synthetic manufacture of an “ enveloped ” virus-like particle , or “ evlp ” . many viruses are “ enveloped ” in that they are surrounded by a lipid bilayer membrane . such viruses display antigenic proteins on the surface of their “ envelope ” which can be targets for vaccine development . the ability to synthetically manufacture an “ enveloped ” virus-like particle is different from previously developed vlp technologies , which did not include the lipid bilayer membrane , and thus these technologies were unable to express antigenic proteins within an “ envelope ” as they occur in nature . vbi-1901 : cancer vaccine immunotherapeutic candidate our gbm brain cancer vaccine immunotherapeutic program , vbi-1901 , targets cmv proteins present in gbm tumor cells . cmv is associated with a number of other solid tumors in addition to gbm , including breast cancer and pediatric medulloblastoma . we initiated dosing in a multi-center phase i/iia clinical study evaluating vbi-1901 , in combination with granulocyte-macrophage colony stimulating factor ( “ gm-csf ” ) , in patients with recurrent gbm in january 2018. enrollment in part a of the study was completed in december 2018. in april 2019 , the independent data safety monitoring board completed reviews of all safety data from our fully-enrolled part a portion of the phase i/iia trial in recurrent gbm subjects , which included 6 subjects in each of 3 different dose cohorts . the data safety monitoring board unanimously recommended the continuation of the study without modification and had no safety concerns about any of the 3 dose levels of vbi-1901 . on april 23 , 2019 , we announced that , based on safety and immunogenicity data , the highest dose tested in part a of the ongoing phase i/iia study in recurrent gbm patients , 10µg , was selected as the optimal dose level to test in part b of the study . where part a was designed as a dose-escalation phase to assess safety , tolerability , and to define the optimal dose level of vbi-1901 , part b is a subsequent extension phase of the optimal dose level defined in part a. on september 10 , 2019 , we entered into a clinical collaboration agreement ( “ collaboration agreement ” ) with glaxosmithkline biologicals s.a. ( “ gsk ” ) pursuant to which we will investigate the use of gsk 's proprietary as01 b adjuvant system in our ongoing study of vbi-1901 . as a result of the collaboration agreement , a second study arm was added to part b of the ongoing phase i/iia clinical study . part b is now a two-arm open-label study , enrolling 20 first recurrent gbm patients to receive vbi-1901 in combination with either granulocyte-macrophage colony-stimulating factor ( “ gm-csf ” ) or as01 b as immunomodulatory adjuvants . story_separator_special_tag enrollment of the 10 patients in the vbi-1901 with gm-csf arm was initiated at the end of july 2019. initiation of enrollment of the 10 patients in the vbi-1901 with as01 b was announced in march 2020. safety , immunologic responses , and clinical and tumor responses from the vbi-1901 with gm-csf in part a and in the gm-csf arm of part b of the study were announced throughout 2019 and early 2020 , respectively . vbi-1901 continues to be well-tolerated , with no vaccine-related safety signals observed . in the high-dose cohort of part a , vaccine response correlated with tumor response , with all three vaccine responders demonstrating stable disease ( “ sd ” ) for greater than 12 weeks . two patients in the high-dose cohort of part a experienced a 60 % reduction in the size of primary tumor – vbi-1901 also induced and expanded robust t cell responses in these two patients . for patients who were vaccines responders , the 12-month overall survival ( “ os ” ) rate was 83 % ( n = 5/6 ) , compared to 33 % ( n = 3/9 ) for vaccine non-responders . similarly , among patients evaluable for response and survival in part a , vaccine responders saw a 6.25-month improvement in median os ( 14.0 months ) compared to vaccine non-responders ( 7.75 months ) . vbi-1901 continues to be safe and well tolerated at al doses tested , with no safety signals observed . based on the data announced in november 2019 , the early the tumor and immunologic responses seen in part b appear similar to the responses and observed in part a of the study . correlations between immunologic biomarkers and tumor/clinical responses will continue to be refined throughout the duration of part b of the study . we expect expanded immunologic data and tumor imaging data from the vbi-1901 with gm-csf arm in part b of the study in the first half of 2020 . 57 vbi-1501 : prophylactic cmv vaccine candidate another of our evlp programs is a vaccine candidate that aims to prevent cmv infections . cmv may cause severe infections in newborn children ( congenital cmv ) and may also cause serious infections in people with weakened immune systems , such as solid organ or bone marrow transplant recipients . our prophylactic cmv vaccine candidate uses the evlp platform to express a modified form of the cmv glycoprotein b ( “ gb ” ) antigen , and is adjuvanted with alum , an adjuvant used in fda-approved products . in may 2018 , we announced positive top-line results from the randomized , placebo-controlled phase i study of vbi-1501 . the final phase i study results demonstrated that vbi-1501 was safe and well-tolerated at all doses , with and without the adjuvant alum . the highest dose of vbi-1501 , 2.0µg , with alum , elicited cmv-neutralizing antibodies against fibroblast cell infection in 100 % of subjects after the third vaccination , up from 81 % of subjects after the second vaccination , inducing titers comparable to those observed in patients protected as a result of natural infection . neutralizing antibodies against epithelial cell infection were also seen in 31 % of subjects after the third vaccination of vbi-1501 2.0µg with alum . the data also showed the formulation of the vaccine with alum enhanced antibody titers . the highest dose of vbi-1501 tested , 2.0µg with alum , contains approximately 10-fold less antigen content than that used in several other vlp-based vaccines or in previous cmv vaccine candidates developed by other companies . on december 20 , 2018 we announced plans for a phase ii clinical study evaluating vbi-1501 following positive discussions with health canada . we received similarly positive guidance from the fda in july 2019. the phase ii study is expected to assess the safety and immunogenicity of dosages of vbi-1501 up to 20µg with alum . the company is currently evaluating the timing of next steps for the program . we may also seek to in-license clinical-stage vaccines or vaccine-related technologies that we believe complement our product and pipeline portfolio , in addition to technologies that may supplement our therapeutic vaccination efforts in immuno-oncology . 58 at present , our operations are focused on : ● preparing marketing authorization applications for sci-b-vac in the united states , europe and canada ; ● preparing for commercialization of sci-b-vac in additional markets , including the united states , europe , and canada , where we may obtain regulatory approval ; ● conducting the phase i/iia clinical study of our gbm vaccine immunotherapeutic candidate , vbi-1901 ; ● developing vbi-2601 ( brii-179 ) , our protein-based immunotherapeutic candidate for treatment of chronic hepatitis b , in collaboration with brii bio ; ● preparation for further development of vbi-1501 , our preventative cmv vaccine candidate , into the next phase of development ; ● ensuring our recently modernized manufacturing facility in rehovot , israel obtains all required regulatory approvals ; ● increasing sales of sci-b-vac in territories where it is currently registered or available on a named-patient basis ; ● continuing the research and development ( “ r & d ” ) of our pipeline candidates , including the exploration and development of new pipeline candidates , ● implementing operational , financial and management information systems , including through third party partners , to support our commercialization activities ; ● maintaining , expanding and protecting our intellectual property portfolio ; and ● developing our internal systems and processes for regulatory affairs and compliance . vbi 's revenue generating activities have been the sale of sci-b-vac product in markets where it is approved or on a named patient basis where it is not approved , though those markets have generated a limited number of sales to-date , various business development transactions , and r & d services generating fees .
| 2019 were $ 26,332 as compared to $ 38,467 for the year ended december 31 , 2018. the decrease in r & d expenses of $ 12,135 , or 32 % , was primarily due to a decrease in the costs related to the sci-b-vac phase iii clinical studies and our gbm vaccine immunotherapeutic candidate clinical study . with regard to the sci-b-vac clinical studies , we announced top-line results for the sci-b-vac constant study in january 2020 and completed the sci-b-vac protect study during the second quarter of 2019 , as compared to the year ended december 31 , 2018 , during which period both studies were ongoing . for the gbm vaccine immunotherapeutic , there were fewer patients on trial for the year ended december 31 , 2019 compared to year ended december 31 , 2018 as only the high dose cohort of part a of the phase i/iia study was ongoing and part b of the phase i/iia study commenced in july 2019 , as compared to year ended december 31 , 2018 during which period both low and medium dose cohorts of part a of the phase i/iia study were ongoing . this is offset by increased expenses related to increased manufacturing associated with our vaccine candidates during the year ended december 31 , 2019 compared to the year ended december 31 , 2018 . 64 general and administration g & a expenses for the year ended december 31 , 2019 were $ 14,092 as compared to $ 20,509 for the year ended december 31 , 2018. the g & a expense decrease of $ 6,417 , or 31 % , was primarily due to a $ 6 million payment made to re-obtain distribution rights in asia during the year ended december 31 , 2018 with no similar payment made during the year ended december 31 , 2019. other variances include decreased administrative expenses and the allocation to g & a expenses of certain costs of revenues related to the temporary
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we expect the sales of these assets , which will be sold primarily for scrap value , to be completed within one year . key industry factors supply and demand agricultural sales of our agricultural products were approximately 52 % of our total net sales for 2019. the price at which our agricultural products are ultimately sold depends on numerous factors , including the supply and demand for nitrogen fertilizers which , in turn , depends upon world grain demand and production levels , the cost and availability of transportation and storage , weather conditions , competitive pricing and the availability of imports . additionally , expansions or upgrades of competitors ' facilities and international and domestic political and economic developments continue to play an important role in the global nitrogen fertilizer industry economics , including the impact from the phase 1 trade agreement between the u.s and china . these factors can affect , in addition to selling prices , the level of inventories in the market which can cause price volatility and affect product margins . from a farmers ' perspective , the demand for fertilizer is affected by the aggregate crop planting decisions and fertilizer application rate decisions of individual farmers . individual farmers make planting decisions based largely on prospective profitability of a harvest , while the specific varieties and amounts of fertilizer they apply depend on factors such as their financial resources , soil conditions , weather patterns and the types of crops planted . additionally , changes in corn prices and those of soybean , cotton and wheat prices , can affect the number of acres of corn planted in a given year , and the number of acres planted will drive the level of nitrogen fertilizer consumption , likely effecting prices . the usda estimates corn production for the 2020 crop at approximately 13.7 billion bushels , down 5 percent from the 2019 crop . the average yield in the u.s. was estimated at 168.0 bushels per acre , 8.4 bushels below the 2019 crop yield of 176.4 bushels per acre . the following february estimates are associated with the corn market : replace_table_token_4_th ( 1 ) information obtained from wasde reports dated february 11 , 2020 ( february report ) for the 2019/2020 ( “ 2020 crop ” ) , 2018/2019 ( “ 2019 crop ” ) and 2017/2018 ( “ 2018 crop ” ) corn marketing years . the marketing year is the twelve-month period during which a crop normally is marketed . for example , the marketing year for a corn crop is from september 1 of the current year to august 31 of the next year . the marketing year begins at the harvest and continues until just before harvest of the following year . ( 2 ) represents the percentage change between the 2020 crop amounts compared to the 2019 crop amounts . ( 3 ) represents the percentage change between the 2020 crop amounts compared to the 2018 crop amounts . 28 on the supply side , given the low price of natural gas in north america over the last several years , north american fertilizer producers have become the global low-cost producers for delivered fertilizer products to the midwest u.s. several years ago , the market believed that low natural gas prices would continue . that belief , combined with favorable fertilizer pricing , stimulated invest ment in numerous expansions of existing nitrogen chemical facilities and the construction of new nitrogen chemical facilities . following the expansions , global nitrogen fertilizer supply outpaced global nitrogen fertilizer demand causing oversupply in the global and north american markets . in addition , the new domestic supply of ammonia and other fertilizer products changed the physical flow of ammonia in north america placing pressure on nitrogen fertilizer s elling prices as the new capacity was absorbed by the market . more recently , ammonia pricing has been under pressure as a result of inordinately inclement weather in late 2018 and 2019 , which led to limited fertilizer applicati on and resultant elevated ammonia inventory levels in the domestic distribution channel . additionally , uan prices have pulled back in part , to european anti-dumping duties that were imposed on imports from certain countries , including the u.s which has caused imports of uan into the u.s. to increase and exports from the u.s. to decrease increa sing uan supply in the u.s. after a challenging 2019 for u.s. corn farmers , it is expected that final harvested acres and yields for the 2019 harvest year will be lower than expected . these factors have already impacted the price of corn , which has risen to its highest level since 2014. a likely decline in the stock-to-use ratio for corn should lead to an increase in planted acres in the spring 2020 planting season . assuming normal weather conditions , industry reports currently estimate a 5 % increase in corn acres to be planted during 2020 compared to 2019. therefore , for 2020 , we expect overall stronger demand for our products somewhat tempered by continued pricing pressures on these products . industrial sales of our industrial products were approximately 38 % of our total net sales for 2019. our industrial products sales volumes are dependent upon general economic conditions primarily in the housing , automotive , and paper industries . according to the american chemistry council , the u.s. economic indicators point to modest growth in 2020 in the u.s market we serve and export weakness due to the softening global economy and trade tensions . our sales prices generally vary with the market price of ammonia or natural gas , as applicable , in our pricing arrangements with customers . story_separator_special_tag mining sales of our mining products were approximately 10 % of our total net sales for 2019. our mining products are ldan and an solution , which are primary used as an fuel oil and specialty emulsions for usage in the quarry and the construction industries , for metals mining , and to a lesser extent , for coal . in our mining markets , our sales volumes are typically driven by changes in the overall north american consumption levels of mining products that can be impacted by weather . additionally , recent reduction in coal mining activities is increasing competition within the other sectors of this market . while we believe our plants are well located to support the more stable quarry and construction industries and the metals mining industries , our 2019 mining sales volumes were affected by overall lower customer demand in our mining markets . farmer economics the demand for fertilizer is affected by the aggregate crop planting decisions and fertilizer application rate decisions of individual farmers . individual farmers make planting decisions based largely on prospective profitability of a harvest , while the specific varieties and amounts of fertilizer they apply depend on factors such as their financial resources , soil conditions , weather patterns and the types of crops planted . natural gas prices natural gas is the primary feedstock used to produce nitrogen fertilizers at our manufacturing facilities . in recent years , u.s. natural gas reserves have increased significantly due to , among other factors , advances in extracting shale gas , which has reduced and stabilized natural gas prices , providing north america with a cost advantage over certain imports . as a result , our competitive position and that of other north american nitrogen fertilizer producers has been positively affected . we historically have purchased natural gas either on the spot market , through forward purchase contracts , or a combination of both and have used forward purchase contracts to lock in pricing for a portion of our natural gas requirements . these forward purchase contracts are generally either fixed-price or index-price , short-term in nature and for a fixed supply quantity . we are able to purchase natural gas at competitive prices due to our connections to large distribution systems and their proximity to interstate pipeline systems . the following table shows the annual volume of natural gas we purchased and the average cost per mmbtu : replace_table_token_5_th 29 transportation costs costs for transporting nitrogen-based products can be significant relative to their selling price . for example , ammonia is a hazardous gas at ambient temperatures and must be transported in specialized equipment , which is more expensive than other forms of nitrogen fertilizers . in recent years , a significant amount of the ammonia consumed annually in the u.s. was imported . therefore , nitrogen fertilizers prices in the u.s. are influenced by the cost to transport product from exporting countries , giving domestic producers who transport shorter distances an advantage . however , we continue to evaluate the recent rising costs of rail and truck freight domestically . additionally , the magellan ammonia pipeline , which had an annual capacity to transport approximately 900,000 tons per year , most of which was produced in oklahoma and texas and delivered via the pipeline in the midwest , is in the process of being permanently shut down . pipeline closure began at the southern end of the pipeline in september of 2019 and is expected to continue on the northern end of the pipeline in early 2020. without the pipeline in place for ammonia transport , producers will have to rely on other transportation venues , primarily by truck but will also include rail and barge transport of ammonia . higher transportation costs may impact our margins if we are not able to pass through these costs . as a result , we continue to evaluate supply chain efficiencies to reduce or counter the impact of higher logistics costs . key operational factors facility reliability consistent , reliable and safe operations at our chemical plants are critical to our financial performance and results of operations . the financial effects of planned downtime at our plants , including turnarounds , is mitigated through a diligent planning process that considers the availability of resources to perform the needed maintenance and other factors . unplanned downtime of our plants typically results in lost contribution margin from lost sales of our products , lost fixed cost absorption from lower production of our products and increased costs related to repairs and maintenance . all turnarounds result in lost contribution margin from lost sales of our products , lost fixed cost absorption from lower production of our products , and increased costs related to repairs and maintenance , which repair and maintenance costs are expensed as incurred . our pryor facility completed an extensive turnaround during 2019. the pryor facility will continue on a two-year turnaround cycle with the next turnaround planned for the third quarter of 2021. at that time , we will seek to move to a three-year turnaround cycle . in addition , our el dorado facility completed a partial turnaround during 2018. the remaining portion of this turnaround was completed during 2019. the el dorado facility has moved to a three-year turnaround cycle with the next turnaround planned in the third quarter of 2022. our cherokee facility is currently on a three-year turnaround cycle with t he next turnaround to be performed in the third quarter o f 2021. prepay contracts we use forward sales of our fertilizer products to optimize our asset utilization , planning process and production scheduling . these sales are made by offering customers the opportunity to purchase product on a forward basis at prices and delivery dates that are agreed upon . we use this program to varying degrees during the year depending on market conditions and our view of changing price environments .
| during the back half of 2019 selling prices began to decline reflecting a lowering in the southern plains benchmark price for ammonia resulting from elevated inventory levels from the inordinately inclement weather throughout the midwest over the past year and the closure of the magellan ammonia pipeline . in addition , uan selling prices also deteriorated in the second half of 2019 , as import volumes increased while export volumes declined due , in part , to european anti-dumping duties . our 2019 average industrial selling prices for our ammonia decreased compared to the same period of 2018 as a result of the aforementioned elevated ammonia inventory levels . the 2019 average tampa ammonia price declined approximately 21 % as compared to the same period in 2018 , which led to a decrease in industrial selling prices as many of our industrial contracts are indexed to the tampa ammonia benchmark price . with respect to our outlook for 2020 , we expect that agricultural and industrial pricing will continue to be impacted by the aforementioned factors , impacting the agricultural market coupled with excess ammonia inventories weighing on the industrial market , as was the case in the second half of 2019. legal fees for 2019 and 2018 , legal fees were approximately $ 12.8 million and $ 8.3 million , respectively . the change primarily relates to fees incurred as we pursue our claims against leidos to recover damages and losses associated with the construction of the ammonia plant and other assets at our el dorado facility as discussed in footnote b of note 9. we expect to continue to incur legal fees associated with this matter through march 2020 , the scheduled date of the trial . depreciation expense during 2019 and 2018 , depreciation expense was $ 68.3 million and $ 70.3 million , respectively . for 2018 , approximately $ 2.0 million relates to accelerated depreciation at the el dorado facility due to the boiler tube failures caused by a power outage . charge associated with assets held for sale ( 2019 only ) as discussed above under
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story_separator_special_tag style= '' font-family : trade gothic , sans-serif ; font-size:7pt ; color : # 000000 ; font-weight : bold ; '' > mdu resources group , inc. form 10-k 31 part ii 2016 compared to 2015 the natural gas distribution business experienced an increase in earnings of $ 3.5 million ( 15 percent ) compared to the prior year due to higher natural gas retail sales margins resulting from increased retail sales volumes of 4 percent to all customer classes due to customer growth and colder weather in certain regions , as well as final and interim rate increases , partially offset by higher operation and maintenance expense , which includes $ 4.6 million ( after tax ) largely higher payroll-related costs , and higher depreciation , depletion and amortization expense from increased property , plant and equipment balances . the previous table also includes lower nonutility project costs reflected in operation and maintenance expense , as well as the pass-through of lower natural gas prices which are reflected in the decrease in both sales revenue and purchased natural gas sold in 2016 . 2015 compared to 2014 the natural gas distribution business experienced a decrease in earnings of $ 6.9 million ( 23 percent ) compared to the prior year due to : higher depreciation , depletion and amortization expense of $ 6.3 million ( after tax ) , largely resulting from increased property , plant and equipment balances lower natural gas sales margins , primarily lower retail sales volumes of 8 percent to all customer classes due to warmer weather than the prior year , partially offset by approved rate increases effective in 2015 and increased transportation volumes the pass-through of lower natural gas prices is reflected in the decrease in both sales revenue and purchased natural gas sold in 2015. pipeline and midstream replace_table_token_15_th 2016 compared to 2015 pipeline and midstream earnings increased $ 10.1 million ( 77 percent ) largely due to : lower operation and maintenance expense , which includes $ 13.6 million ( after tax ) largely due to the absence in 2016 of impairments of natural gas gathering assets of $ 10.6 million ( after tax ) , as discussed in item 8 - notes 1 and 5 , lower payroll-related costs and lower material costs partially offset by a fair value impairment in 2016 of $ 1.4 million ( after tax ) associated with the sale of pronghorn , as discussed in item 8 - note 2 lower depreciation , depletion and amortization of $ 1.9 million ( after tax ) , largely due to the sale of certain non-strategic natural gas gathering assets in the fourth quarter of 2015 higher storage services earnings , primarily due to higher average interruptible storage balances lower interest expense of $ 1.2 million ( after tax ) , primarily the result of lower debt interest rates and balances partially offsetting the earnings increase was lower gathering and processing earnings of $ 8.0 million ( after tax ) resulting from lower natural gas gathering volumes , primarily due to the sale of certain non-strategic assets , as previously discussed , and lower oil gathering volumes , partially offset by higher oil gathering rates at pronghorn . 2015 compared to 2014 pipeline and midstream earnings decreased $ 11.4 million ( 46 percent ) largely due to : impairments of natural gas gathering assets of $ 10.6 million ( after tax ) included in operation and maintenance expense , as discussed in item 8 - notes 1 and 5 lower gathering and processing earnings of $ 5.2 million ( after tax ) , primarily lower processing prices and natural gas gathering volumes 32 mdu resources group , inc. form 10-k part ii lower storage services earnings , primarily due to lower interruptible storage withdrawal volumes and lower average balances partially offsetting the earnings decrease was higher earnings of $ 5.7 million ( after tax ) due to higher transportation revenue , primarily resulting from higher rates due to a rate case settlement effective in may 2014 , and increased volumes . construction materials and contracting replace_table_token_16_th 2016 compared to 2015 earnings at the construction materials and contracting business increased $ 13.6 million ( 15 percent ) due to : higher earnings of $ 8.1 million ( after tax ) resulting from higher construction margins and revenues due to more available work in most regions a $ 6.7 million ( after tax ) reduction in 2016 to a previously recorded mepp withdrawal liability compared to an increase to a mepp withdrawal liability of $ 1.5 million ( after tax ) in 2015 , as discussed in item 8 - note 14 higher earnings of $ 2.9 million ( after tax ) resulting from higher asphalt volumes and margins , which includes lower asphalt oil and production costs higher earnings of $ 2.3 million ( after tax ) resulting from higher aggregate volumes and margins due to increased demand partially offsetting these increases were : higher effective income tax rates lower earnings of $ 1.3 million ( after tax ) from other product lines lower diesel fuel costs contributed to higher earnings from all product lines . 2015 compared to 2014 earnings at the construction materials and contracting business increased $ 37.6 million ( 73 percent ) due to : higher earnings of $ 9.1 million ( after tax ) resulting from higher ready-mixed concrete margins and volumes higher earnings of $ 7.2 million ( after tax ) resulting from higher asphalt margins and volumes , which includes lower asphalt oil costs an increase to a mepp withdrawal liability of $ 1.5 million ( after tax ) in 2015 , compared to $ 8.4 million ( after tax ) in 2014 , as discussed in item 8 - note 14 higher earnings of $ 6.1 million ( after tax ) resulting from higher construction revenues and margins including the effects of favorable weather higher earnings of $ 1.6 million ( after tax ) resulting from higher aggregate margins and volumes higher earnings resulting from higher other product line margins and volumes story_separator_special_tag partially offsetting these increases were higher selling , general and administrative expense of $ 5.7 million ( after tax ) , largely related to higher payroll-related and other costs . lower diesel fuel costs contributed to higher earnings from all product lines . mdu resources group , inc. form 10-k 33 part ii construction services replace_table_token_17_th 2016 compared to 2015 construction services earnings increased $ 10.1 million ( 43 percent ) largely due to : higher earnings of $ 15.8 million ( after tax ) in the western region largely due to higher workloads and margins resulting from the successful completion of construction projects in certain markets , as well as lower labor costs due to increased efficiencies and lower workers ' compensation claim costs higher earnings of $ 3.5 million ( after tax ) resulting from the sale of a non-strategic asset in 2015 these increases were partially offset by : higher selling , general and administrative expense of $ 4.0 million ( after tax ) , primarily due to higher payroll and benefit-related costs and higher bad debt expense lower equipment sales and rental margins due to decreased customer demand lower earnings of $ 1.6 million ( after tax ) in the central region due to lower margins , largely the result of the loss on a project 2015 compared to 2014 construction services earnings decreased $ 30.7 million ( 56 percent ) due to : lower earnings of $ 25.1 million ( after tax ) largely due to lower workloads and margins in the western region resulting from substantial completion of significant projects in 2014 , lower equipment sales and rental margins , lower margins in the central region and lower electrical supply sales and margins the absence of the favorable resolution of certain income tax matters and higher income tax benefits in 2014 these decreases were partially offset by lower selling , general and administrative expense of $ 3.0 million ( after tax ) , largely related to lower payroll and benefit-related costs . other replace_table_token_18_th included in other are general and administrative costs and interest expense previously allocated to the exploration and production and refining businesses that do not meet the criteria for income ( loss ) from discontinued operations . 2016 compared to 2015 other loss decreased $ 11.8 million compared to the prior year primarily due to lower operation and maintenance expense and interest expense previously allocated to the exploration and production business , due to the sale of that business which included the repayment of long-term debt . also contributing to the decreased loss was lower operation and maintenance expense in 2016 34 mdu resources group , inc. form 10-k part ii due to the absence of a 2015 corporate asset impairment and the absence of a 2015 foreign currency translation loss including the effects of the sale of the company 's remaining interest in the brazilian transmission lines . 2015 compared to 2014 other loss increased $ 7.6 million compared to the prior year primarily due to the absence of prior year income tax benefits ; higher operation and maintenance expense , largely a corporate asset impairment ; as well as a foreign currency translation loss including the effects of the sale of the company 's remaining interest in the brazilian transmission lines . discontinued operations replace_table_token_19_th * includes eliminations for the presentation of income tax adjustments between continuing and discontinued operations . 2016 compared to 2015 the loss from discontinued operations attributable to the company was $ 168.7 million compared to a loss of $ 798.8 million in the prior year . the decreased loss is primarily due to the completion of the sales of company 's exploration and production and refining businesses . the decreased loss was largely the result of the absence in 2016 of a noncash write-down of oil and natural gas properties of $ 315.3 million ( after tax ) and fair value impairments of the exploration and production business 's assets held for sale of $ 475.4 million ( after tax ) , as discussed in item 8 - note 2 , partially offset by a fair value impairment of the refining business of $ 156.7 million ( after tax ) in 2016 , as discussed in item 8 - note 2 . 2015 compared to 2014 discontinued operations attributable to the company recognized a loss of $ 798.8 million compared to income of $ 113.2 million in the prior year . the decrease in income was primarily due to the marketing and sale of the company 's exploration and production business 's assets . the decrease was largely the result of a noncash write-down of oil and natural gas properties of $ 315.3 million ( after tax ) and fair value impairments of the exploration and production business 's assets held for sale of $ 475.4 million ( after tax ) , as discussed in item 8 - note 2 , as well as decreased average realized commodity prices and decreased production . intersegment transactions amounts presented in the preceding tables will not agree with the consolidated statements of income due to the company 's elimination of intersegment transactions . the amounts relating to these items are as follows : replace_table_token_20_th * includes eliminations for the presentation of income tax adjustments between continuing and discontinued operations . for more information on intersegment eliminations , see item 8 - note 13 . prospective information the following information highlights the key growth strategies , projections and certain assumptions for the company and its subsidiaries and other matters for certain of the company 's businesses . many of these highlighted points are `` forward-looking statements . '' there is no assurance that the company 's projections , including estimates for growth and changes in earnings , will in fact be achieved . please refer to assumptions contained in this section , as well as the various important factors listed in item 1a - risk factors . changes in such assumptions and factors could cause actual future results to differ materially from the company 's growth and earnings projections .
| the exploration and production business 's assets of $ 475.4 million ( after tax ) , a $ 315.3 million after-tax noncash write-down of oil and natural gas properties , decreased average realized commodity prices and decreased production lower workloads and margins in the western region and lower equipment rental sales and margins at the construction services business impairments of natural gas gathering assets of $ 10.6 million ( after tax ) at the pipeline and midstream business higher depreciation , depletion and amortization expense due to plant additions and lower natural gas sales volumes offset in part by natural gas retail rate increases at the natural gas distribution business partially offsetting these increases were higher earnings on all product lines at the construction materials and contracting business . financial and operating data following are key financial and operating data for each of the company 's businesses . electric replace_table_token_13_th 2016 compared to 2015 electric earnings increased $ 6.3 million ( 18 percent ) compared to the prior year due to : increased electric retail sales margins , largely due to approved final and interim rate increases reduced in part by decreased electric sales volumes of 2 percent , largely decreased residential customer volumes favorable income tax changes , which includes $ 10.1 million due to higher production tax credits partially offsetting these increase s were : higher operation and maintenance expense of $ 17.1 million ( after tax ) primarily due to higher contract services and higher payroll-related costs higher depreciation , depletion and amortization expense of $ 7.8 million ( after tax ) due to increased property , plant and equipment balances lower other income , which includes $ 7.1 million ( after tax ) primarily related to afudc higher interest expense , which includes $ 4.4 million ( after tax ) largely the result of higher long-term debt 30 mdu resources group , inc. form 10-k part ii certain of the higher operation and
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kidney care is comprised of our u.s. dialysis and related lab services , our ancillary services and strategic initiatives , including our international operations , and our corporate administrative support . our u.s. dialysis and related lab services business is our largest line of business , which is a leading provider of kidney dialysis services in the u.s. for patients suffering from chronic kidney failure , also known as end stage renal disease ( esrd ) . dmg is a patient- and physician-focused integrated healthcare delivery and management company with over two decades of providing coordinated , outcomes-based medical care in a cost-effective manner . our overall financial performance for 2016 in u.s. dialysis and related lab services benefited from increased treatment volume , primarily from non-acquired growth at existing and new dialysis centers , cost control initiatives , and payor mix improvements in our dialysis business . this was partially offset by an increase in labor costs and other center related costs . dmg experienced a decrease in adjusted operating income primarily due to a reduction in medicare advantage reimbursement rates and an increase in medical costs . some of our major accomplishments and financial operating performance indicators in 2016 and year over year were as follows : improved clinical outcomes in our u.s. dialysis operations , including third consecutive year as a leader in cms ' five –star quality rating system ; consolidated net revenue growth of 7.0 % ; 5.7 % total net revenue growth in our u.s. dialysis segment , including an increase of $ 4 per treatment ; improved performance in our normalized non-acquired u.s. dialysis treatment growth of 4.2 % , which contributed to an increase of approximately 4.5 % in the overall number of u.s. dialysis treatments ; net increase of 99 u.s. dialysis centers and 36 international dialysis centers ; an increase in dmg 's net revenue of 7.2 % related to an increase in its fee-for-service ( ffs ) business from the acquisition of the everett clinic medical group ( tec ) ; formation of a strategic joint venture in our asia-pacific market ; an increase in other ancillary services and strategic initiatives net revenue of 17.3 % ; and strong operating cash flows of $ 1.963 billion . we believe that 2017 will be challenging due to the uncertainty around the aca and the ability of our patients to utilize charitable premium assistance , average commercial rate pressure , increases in clinical costs due to inflation , employee turnover and other factors affecting u.s. dialysis and related lab services . in addition , the 2016 presidential and congressional elections have caused the future state of the exchanges and other aca reforms and the healthcare landscape in general to be very unclear . dmg continues to face challenges due to announced decreases in medicare advantage and medicaid reimbursement rates as the government continues to modify the rate structure . we also remain committed to our international expansion plans that will continue to require investment . 64 following is a summary of our consolidated operating results for reference in the discussion that follows . replace_table_token_5_th the following table summarizes our consolidated net revenues : replace_table_token_6_th 65 the following table summarizes consolidated operating income and adjusted consolidated operating income : replace_table_token_7_th ( 1 ) for the year ended december 31 , 2016 , we have excluded goodwill impairment charges of $ 253 million related to our dmg reporting units and $ 28 million related to our vascular access reporting unit , an impairment of $ 15 million related to a minority equity investment , the loss on sale of our dmg arizona business of $ 10 million , estimated accruals for damages and liabilities associated with our dmg nevada hospice business of $ 16 million and our pharmacy business of $ 16 million , an adjustment to reduce receivables associated with the dmg acquisition escrow provision relating to income tax items of $ 31 million , the gain on changes in ownership interest upon the formation of the asia pacific joint venture ( apac jv ) of $ 374 million and the gain related to the sale of a portion of our tandigm ownership interest of $ 40 million . for the year ended december 31 , 2015 , we have excluded estimated goodwill and other intangible asset impairment charges of $ 210 million primarily related to certain dmg reporting units , an estimated accrual of $ 22 million for damages and liabilities associated with our pharmacy business , which is included in general and administrative expenses , and $ 495 million related to a settlement charge in connection with a private civil suit . in addition , for the year ended december 31 , 2014 , we have excluded $ 17 million , related to a loss contingency accrual for the settlement of the 2010 and 2011 u.s. attorney physician relationship investigations . these are non-gaap measures and are not intended as substitutes for the equivalent gaap measures . we have presented these adjusted amounts because management believes that these presentations enhance a user 's understanding of our normal consolidated operating income by excluding certain items which we do not believe are indicative of our ordinary results of operations . as a result , adjusting for these amounts allows for comparison to our normal prior period results . consolidated net revenues consolidated net revenues for 2016 increased by approximately $ 963 million , or 7.0 % , from 2015. this increase in consolidated net revenues was due to an increase in dialysis and related lab services net revenues of approximately $ 496 million , principally due to solid volume growth from additional treatments from non-acquired growth , one additional treatment day in 2016 , and an increase of $ 4 in the average dialysis revenue per treatment , as discussed below . consolidated net revenues also increased due to an increase in dmg 's net revenues of $ 277 million , primarily due to an increase in ffs revenues from acquisitions and an increase in senior capitated revenues , as described below . story_separator_special_tag in addition , revenue increased by approximately $ 239 million in our ancillary services and strategic initiatives driven primarily from growth in our pharmacy services and an increase in net revenues from our expansion in our international business and other strategic initiatives . 66 consolidated net revenues for 2015 increased by approximately $ 987 million , or 7.7 % , from 2014. this increase in consolidated net revenues was due to an increase in dialysis and related lab services net revenues of approximately $ 431 million , principally due to solid volume growth from additional treatments from non-acquired growth and from an increase of $ 6 in the average dialysis revenue per treatment , primarily from an increase in our average commercial payment rates and improvement in our commercial payor mix . consolidated net revenues also increased by $ 335 million as a result of dmg 's growth from acquisitions and timing of the recognition of additional medicaid risk sharing revenue , as described below . in addition , revenue increased by approximately $ 243 million in our ancillary services and strategic initiatives driven primarily from growth in our pharmacy services and our disease management services , as well as expansion in our international operations . these increases were partially offset by an increase in reserves for refunds of prior period pharmacy reimbursements . consolidated operating income consolidated operating income of $ 1.895 billion for 2016 , which includes impairment charges of $ 296 million , estimated accruals for damages and liabilities associated with our pharmacy and dmg nevada hospice businesses of $ 32 million , an adjustment to reduce receivables associated with the dmg acquisition escrow provision of $ 31 million , and the net gain on the apac jv , tandigm and dmg arizona ownership changes of $ 404 million , increased by approximately $ 724 million from 2015 , which included estimated impairment charges of approximately $ 210 million , an estimated pharmacy accrual of $ 22 million and a private litigation settlement charge of $ 495 million . excluding these items from their respective periods , adjusted consolidated operating income for 2016 would have decreased by $ 49 million . adjusted consolidated operating income decreased primarily as a result of a decrease in adjusted operating income related to dmg of $ 105 million , partially offset by an increase in adjusted operating income for the dialysis and related lab services of $ 22 million and a decrease in adjusted operating losses in our ancillary services and strategic initiatives of $ 30 million , each discussed in detail below . consolidated operating income of $ 1.171 billion for 2015 , which included estimated impairment charges of approximately $ 210 million , an estimated pharmacy accrual of $ 22 million and a private litigation settlement charge of $ 495 million , decreased by approximately $ 644 million from 2014 , which included a $ 17 million loss contingency accrual . excluding these items from their respective periods , adjusted consolidated operating income for 2015 would have increased by $ 66 million , or 3.6 % . adjusted consolidated operating income increased primarily as a result of an increase in adjusted operating income in dialysis and related lab services of $ 100 million and an increase in adjusted operating income at dmg of $ 25 million , partially offset by an increase in the amount of adjusted operating losses in our ancillary services and strategic initiatives of $ 53 million , each discussed in detail below . u.s. dialysis and related lab services business our u.s. dialysis and related lab services business is a leading provider of kidney dialysis services through a network of 2,350 outpatient dialysis centers which we own and manage through management services agreements , in 46 states and the district of columbia , serving a total of approximately 187,700 patients . we also provide acute inpatient dialysis services in approximately 900 hospitals . we estimate that we have approximately a 36 % market share in the u.s. based upon the number of patients that we serve . in 2016 , our overall network of u.s. outpatient dialysis centers increased by 99 dialysis centers primarily as a result of opening new dialysis centers and from acquisitions of existing dialysis centers . in addition , the overall number of patients that we serve in the u.s. increased by approximately 4.5 % in 2016 as compared to 2015. our dialysis and related lab services stated mission is to be the provider , partner and employer of choice . we believe our attention to these three stakeholders—our patients , our business partners , and our teammates—represents the major driver of our long-term performance , although we are subject to the impact of several external factors such as government policy , physician practice patterns , commercial payor payment rates and the mix of commercial and government patients . two principal non-financial metrics we track are quality clinical outcomes and teammate turnover . we have developed our own composite index for measuring improvements in our clinical outcomes , which we refer to as the davita quality index ( dqi ) . our clinical outcomes as measured by dqi have improved over each of the past several years which we believe directly decreases patient mortalities . our patient mortality percentages have decreased from 19.0 % in 2001 to 13.8 % in 2015. for the third consecutive year , we continue to be a leader in the industry under both the cms qip and five-star quality rating systems . over the last two years our clinical teammate turnover has increased slightly , causing productivity to slightly decrease ; however , despite this , we have continued to improve our clinical performance . we will continue to focus on these three stakeholders and our clinical outcomes as we believe these are fundamental long-term value drivers .
| dialysis and related lab services net revenues for 2015 increased by approximately $ 431 million , or 5.2 % , from 2014. the increase in net revenues was primarily due to solid volume growth from additional treatments of approximately 4.0 % due to an increase in non-acquired treatment growth at existing and new dialysis centers and an increase in the average dialysis revenue per treatment of approximately $ 6. the increase in the average dialysis revenue per treatment in 2015 , as compared to 2014 , was due to an increase in our average commercial payment rates and improvements in our commercial payor mix , offset by an increase in the provision for uncollectible accounts of $ 53 million . 71 the following table summarizes our u.s. dialysis services revenues by source : replace_table_token_9_th approximately 64 % of our total dialysis and related lab services revenues for the year ended december 31 , 2016 were from government-based programs , principally medicare , medicaid , medicare-assigned and medicaid-assigned plans , representing approximately 88 % of our total patients . over the last two years , the growth of our commercial patients slightly outpaced the growth of our government-based patients as more of our patients are covered by commercial contracted plans . less than 1 % of our dialysis and related lab services revenues are due directly from patients . there is no single commercial payor that accounted for more than 10 % of total dialysis and related lab services revenues for the year ended december 31 , 2016. on average , dialysis-related payment rates from contracted commercial payors are significantly higher than medicare , medicaid and other government program payment rates , and therefore the percentage of commercial patients as a relationship to total patients represents a major driver of our total average dialysis revenue per treatment . for a patient covered by a commercial insurance plan , medicare generally becomes the primary payor after 33 months , which includes the three month waiting period , or earlier if the patient 's commercial insurance plan coverage terminates . when medicare becomes the primary payor , the payment rates we receive for
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although we believe that our portfolio is well-positioned to weather current market conditions , we are not immune to the effects of another downturn in the economy , weak real estate fundamentals , or disruption in the credit markets . if these conditions return , they would likely affect the value of our portfolio , our results of operations , and our liquidity . liquidity and capital resources overview during 2011 , we continued to actively manage our assets and , at the same time , began to explore a variety of strategic opportunities focused on enhancing the composition of our portfolio and the total return potential for the reit . in 2011 , these exploration efforts focused on strategic acquisition and disposition opportunities , managing the composition and maturities of the borrowings within our capital structure , and evaluating additional sources of future capital . to date , these efforts have culminated in the following notable events : on march 7 , 2011 , we acquired the market square buildings , which are located in the capitol hill district of washington , d.c. , for approximately $ 603.4 million ; on april 4 , 2011 , we issued $ 250.0 million of our seven-year , investment-grade , unsecured senior bonds at 99.295 % of their face value . the coupon interest rate of the bonds is 5.875 % per annum , which is subject to adjustment in certain circumstances . we used the bond proceeds to repay amounts drawn on a $ 300.0 million senior unsecured bridge facility with jpmorgan chase bank ( the `` jpmorgan chase bridge loan '' ) that was used to fund a portion of the purchase price of the market square buildings ; on june 30 , 2011 , we closed on a $ 325.0 million mortgage secured by the market square buildings , the net proceeds from which were used to pay down borrowings on the jpmorgan chase credit facility that were used to fund substantially all of the remaining purchase price of the market square buildings ; on september 6 , 2011 , we disposed of the manhattan towers property , an office building located in manhattan beach , california , by transferring the property to an affiliate of its mortgagee through a deed in lieu of foreclosure transaction to settle the manhattan towers building mortgage note . as a result of this transaction , we recognized a property impairment loss of $ 5.8 million and a gain on early extinguishment of debt of $ 13.5 million . on july 8 , 2011 , we closed on an amendment to the jpmorgan chase credit facility to extend the maturity date of the line until may 2015 at more favorable terms ; on december 29 , 2011 , we settled the 222 east 41st street mortgage note , the 80 park place mortgage note and their related swaps for $ 250.0 million , which resulted in a gain on early extinguishment of debt of $ 53.0 million , partially offset by a loss on interest rate swap of $ 15.1 million . in january 2012 , we sold emerald point , a four-story property in dublin , california , for $ 37.3 million , and 5995 opus parkway , a five-story property in minnetonka , minnesota , for $ 22.8 million ; and on february 3 , 2012 , we closed on a $ 375.0 million , four-year unsecured term loan ( the `` $ 375.0 million term loan '' ) , the proceeds from which were used to pay down temporary borrowings on our credit facility that were used to repay mortgages in the third and fourth quarters of 2011. when considered with the contemporaneously executed interest rate swap contract , the $ 375.0 million term loan bears interest at a fixed rate of 2.64 % per annum . the $ 375.0 million term loan contains the same restrictions and financial covenants as those included in our credit facility led by jpmorgan chase bank , n.a. , which is further described in the long-term liquidity and capital resources section below . 29 index to financial statements in determining how and when to allocate cash resources , we initially consider the source of the cash . we use substantially all net operating cash flows to fund distributions to stockholders . the amount of distributions that we pay to our common stockholders is determined by our board of directors and is dependent upon a number of factors , including the funds available for distribution to common stockholders , our financial condition , our capital expenditure requirements , our expectations of future sources of liquidity , and the annual distribution requirements necessary to maintain our status as a reit under the code . when evaluating funds available for stockholder distributions , we consider net cash provided by operating activities , as presented in the accompanying gaap-basis consolidated statements of cash flows , adjusted to exclude certain costs that were incurred for the purpose of generating future earnings and appreciation in value over the long term , including acquisition fees and expenses . we use drp proceeds to fund share redemptions ( subject to the limitations of our share redemption program ) , and make residual drp proceeds available to fund capital improvements for our existing portfolio , additional real estate investments , and other cash needs . short-term liquidity and capital resources during 2011 , we generated net cash flows from operating activities of $ 279.2 million , which consists primarily of receipts from tenants for rent and reimbursements , reduced by payments for operating costs , administrative expenses , and interest expense . such net cash flows from operating activities are also reduced for acquisition-related costs of $ 11.3 million . during the same period , we paid total distributions to stockholders , including $ 130.3 million reinvested in our common stock pursuant to our drp , of $ 270.7 million . we expect to use the majority of our future net cash flow from operating activities to fund distributions to stockholders . story_separator_special_tag in 2011 , we acquired the market square buildings for approximately $ 603.4 million using primarily short-term borrowings , the majority of which were subsequently repaid with long-term , fixed-rate borrowings , including approximately $ 250.0 million from seven-year , unsecured bonds , and approximately $ 325.0 million from a 12-year mortgage secured by the market square buildings . during 2011 , we also generated proceeds from the sale of common stock under our drp , net of acquisition fees and share redemptions , of $ 36.2 million , which was used primarily to fund capital expenditures and leasing costs for our properties . on july 8 , 2011 , we amended our $ 500.0 million unsecured revolving credit facility with a syndicate of lenders led by jpmorgan chase bank , n.a. , as administrative agent ( the `` jpmorgan chase credit facility '' ) to , among other things : ( i ) extend the due date of the facility to may 7 , 2015 ; ( ii ) enable us to increase the jpmorgan chase credit facility amount by an aggregate of up to $ 150.0 million to a total facility amount not to exceed $ 650.0 million on two occasions on or before december 7 , 2014 , upon meeting certain criteria ; and ( iii ) reduce the interest rate and the facility fee as described below . as of december 31 , 2011 , $ 484.0 million was outstanding under the jpmorgan chase credit facility . except as noted below and described above , the terms of the jpmorgan chase credit facility remain materially unchanged . letters of credit that may be issued under the jpmorgan chase credit facility continue to be limited to an aggregate amount of $ 25.0 million . the jpmorgan chase credit facility amendment provides for interest to be incurred based on , at our option , the london interbank offered rate ( `` libor '' ) for one- , two- , three- or six-month periods , plus an applicable margin ranging from 1.25 % to 2.05 % ( the `` libor rate '' ) , or at an alternate base rate , plus an applicable margin ranging from 0.25 % to 1.05 % ( the `` base rate '' ) . the base rate for any day is the greatest of the rate of interest publicly announced by jpmorgan chase bank , as its prime rate in effect in its principal office in new york city for such day , the federal funds rate for such day plus 0.50 % , and the one-month libor rate for such day plus 1.00 % . the margin component of the libor rate and the base rate is determined based on wells reit ii 's corporate credit rating ( as defined in the facility agreement ) . additionally , we must pay a per annum facility fee on the aggregate commitment ( used or unused ) ranging from 0.25 % to 0.45 % based on our applicable credit rating . under the jpmorgan chase credit facility , interest on libor rate loans is payable in arrears on the last day of each interest period ; interest on base rate loans is payable in arrears on the first day of each month . we are required to repay all outstanding principal balances and accrued interest by may 7 , 2015 . 30 index to financial statements our charter prohibits us from incurring debt that would cause our borrowings to exceed 50 % of our assets ( valued at cost before depreciation and other noncash reserves ) unless a majority of the members of the conflicts committee of our board of directors approves the borrowing . our charter also requires that we disclose the justification of any borrowings in excess of the 50 % debt-to-real-estate-asset guideline . in addition , our portfolio debt instruments , the jpmorgan chase credit facility and the unsecured senior notes , contain certain covenants and restrictions that require us to meet certain financial ratios , including the following key financial covenants and respective covenant levels as of december 31 , 2011 : replace_table_token_10_th we are in compliance with all of our debt covenants as of december 31 , 2011 , and expect to continue to meet the requirements of our debt covenants over the short and long term . we also believe that we have adequate liquidity and capital resources to meet our current obligations as they come due . as of february 15 , 2012 , we had access to the borrowing capacity under the jpmorgan chase credit facility of $ 383.0 million . long-term liquidity and capital resources over the long term , we expect that our primary sources of capital will include operating cash flows , proceeds from our drp , proceeds from secured or unsecured borrowings from third-party lenders , and , if and when deemed appropriate , proceeds from strategic property sales . we expect that our primary uses of capital will continue to include stockholder distributions ; redemptions of shares of our common stock under our share redemption program ; capital expenditures , such as building improvements , tenant improvements , and leasing costs ; repaying or refinancing debt ; and selective property acquisitions , either directly or through investments in joint ventures . we have a policy of maintaining our debt level at no more than 50 % of the cost of our assets ( before depreciation ) and , ideally , at significantly less than this 50 % debt-to-real-estate-asset ratio . this conservative leverage goal could reduce the amount of current income we can generate for our stockholders , but it also reduces their risk of loss . we believe that preserving investor capital while generating stable current income is in the best interest of our stockholders . our debt-to-real-estate-asset ratio is calculated using the outstanding debt balance and real estate at cost . as of december 31 , 2011 , our debt-to-real-estate-asset ratio was approximately 25.4 % . our board of directors elected to maintain the quarterly stockholder distribution rate at $ 0.125
| hotel income , net of hotel operating costs , increased from approximately $ 2.8 million for 2010 to $ 3.2 million for 2011 , primarily due to an increase in the average occupancy rate during 2011. hotel income and hotel operating costs are primarily driven by the local economic conditions and , as a result , are expected to fluctuate in the future , primarily based on changes in the supply of , and demand for , hotel and banquet space in cleveland , ohio , similar to that offered by the cleveland marriott downtown at key center . other property income increased from $ 1.4 million for 2010 to $ 11.4 million for 2011 , primarily due to fees earned in connection with lease terminations at 4100-4300 wildwood parkway , bannockburn lake ii , and other properties . fluctuations in other property income in the future are expected to primarily relate to future lease terminations and restructuring activities . asset and property management fees increased from $ 37.2 million for 2010 to $ 39.9 million for 2011 , primarily due to properties acquired and placed into service during 2010 and 2011. future asset and property management fees may fluctuate in response to property dispositions or leasing activities . pursuant to the limitations outlined in the advisory agreement , monthly asset management fees were capped at $ 2.7 million ( or $ 32.5 million annualized ) from april 2011 through december 2011 due to the acquisition of the market square buildings for $ 603.4 million ( see note 10. related-party transactions and agreements ) . 32 index to financial statements depreciation increased from $ 99.6 million for 2010 to $ 117.8 million for 2011 , primarily due to growth in the portfolio in 2010 and the first three months of 2011. depreciation is expected to increase as a result of owning the market square buildings for a full period , and otherwise fluctuate based on future acquisition , disposition , and leasing activities . amortization increased from $ 113.7 million for 2010 to $ 119.8 million for 2011 , primarily due to growth in the portfolio in 2010 and the first three months of 2011. amortization is
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in 2013 , our cost of goods sold increased due primarily to increased sales volume and as a result of a medical device excise tax ( “ mdet ” ) of up to 2.3 % on the sale of certain medical devices in the united states , as well as a $ 1.3 million provision for litigation loss related to an unfavorable jury verdict . research and development expenses our research and development expenses primarily consist of engineering , product development , clinical and regulatory expenses , consulting services , outside prototyping services , internal and external research activities , materials , depreciation , and other costs associated with development of our products . research and development expenses also include related personnel and consultants ' compensation and stock-based compensation expense . we expense research and development costs as they are incurred . we expect to incur additional research and development costs as we continue to develop new products . these costs will increase in absolute terms as we continue to expand our product pipeline and add personnel . 64 selling , general and administrative expenses selling , general and administrative expenses primarily consist of salaries , benefits and other related costs , including stock-based compensation for personnel employed in sales , marketing , finance , legal , compliance , administrative , information technology , medical education and training , quality and human resource departments . our selling , general and administrative expenses also include commissions , generally based on a percentage of sales , to direct sales representatives and distributors . we expect our selling , general and administrative expenses will increase in absolute terms with the continued expansion of our sales force and commercialization of our current and pipeline products . we plan to hire more personnel to support the growth of our business . provision for litigation loss/ ( income ) we record a provision for litigation settlements when a loss is known or considered probable and the amount can be reasonably estimated . income tax provision we are taxed at the rates applicable within each jurisdiction . the composite income tax rate , tax provisions , deferred tax assets and deferred tax liabilities will vary according to the jurisdiction in which profits arise . tax laws are complex and subject to different interpretations by management and the respective governmental taxing authorities , and require us to exercise judgment in determining our income tax provision , our deferred tax assets and liabilities , and the valuation allowance recorded against our net deferred tax assets . deferred tax assets and liabilities are determined using the enacted tax rates in effect for the years in which those tax assets are expected to be realized . a valuation allowance is established when it is more likely than not that the future realization of all or some of the deferred tax assets will not be achieved . critical accounting policies and estimates the preparation of the consolidated financial statements requires us to make assumptions , estimates and judgments that affect the reported amounts of assets and liabilities , the disclosures of contingent assets and liabilities as of the date of the consolidated financial statements , and the reported amounts of sales and expenses during the reporting periods . certain of our more critical accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates . by their nature , these judgments are subject to an inherent degree of uncertainty . on an ongoing basis , we evaluate our judgments , including but not limited to those related to inventories , recoverability of long-lived assets and the fair value of our common stock . we use historical experience and other assumptions as the basis for our judgments and making these estimates . because future events and their effects can not be determined with precision , actual results could differ significantly from these estimates . any changes in those estimates will be reflected in our consolidated financial statements as they occur . as an “ emerging growth company , ” we had elected to delay the adoption of new or revised accounting standards until those standards would otherwise apply to private companies . as a result , our financial statements may not be comparable to those of other public companies . while our significant accounting policies are more fully described in “ item 8. financial statements and supplementary data ; notes to consolidated financial statements ; note 1. background and summary of significant accounting policies ” below in this annual report , we believe that the following accounting policies and estimates are most critical to a full understanding and evaluation of our reported financial results . the critical accounting policies addressed below reflect our most significant judgments and estimates used in the preparation of our consolidated financial statements . we have reviewed these critical accounting policies with the audit committee of our board . 65 revenue recognition . we recognize revenue when persuasive evidence of an arrangement exists , product delivery has occurred , pricing is fixed or determinable , and collection is reasonably assured . we generate a significant portion of our revenue from consigned inventory maintained at hospitals or with sales representatives . for these products , we recognize revenue at the time we are notified the product has been used or implanted . for all other transactions , we recognize revenue when title to the goods and risk of loss transfer to customers , provided there are no remaining performance obligations that will affect the customer 's final acceptance of the sale . our policy is to classify shipping and handling costs billed to customers as sales and the related expenses as cost of goods sold . in general , our customers do not have any rights of return or exchange . accounts receivable and allowance for doubtful accounts . the majority of our accounts receivable is composed of amounts due from hospitals . accounts receivable is carried at cost less an allowance for doubtful accounts . story_separator_special_tag on a regular basis , we evaluate accounts receivable and estimate an allowance for doubtful accounts , as needed , based on various factors such as customers ' current credit conditions , length of time past due , and the general economy as a whole . receivables are written off against the allowance when they are deemed uncollectible . excess and obsolete inventory . we state inventories at the lower of cost or market . we determine cost on a first-in , first-out basis . the majority of our inventory is finished goods , because we primarily utilize third-party suppliers to source our products . we periodically evaluate the carrying value of our inventories in relation to the estimated forecast of product demand , which takes into consideration the estimated life cycle of product releases . when quantities on hand exceed estimated sales forecasts , we record a reserve for excess inventories , which results in a corresponding charge to cost of goods sold . charges incurred for excess and obsolete inventory were $ 8.2 million , $ 6.1 million and $ 10.5 million for the years ended december 31 , 2013 , 2012 and 2011 , respectively . the need to maintain substantial levels of inventory impacts the risk of carrying excess inventory . many of our products come in sets which feature components in a variety of sizes so that the implant or device may be customized to the patient 's needs . in order to market our products effectively , we must often maintain and provide surgeons and hospitals with consignment implant sets , back-up products and products of different sizes . for each surgery , fewer than all of the components of the set are used , and therefore certain portions of the set may be considered excess inventory since they are not likely to be used . one of our primary business goals is to focus on continual product innovation . though we believe this provides us with a competitive advantage , it also increases the risk that our products will become excess or obsolete inventory prior to sale or prior to the end of their anticipated useful lives . when we introduce new products or next-generation products , we may be required to take charges for excess and obsolete inventory that have a significant impact on the value of our inventory or on our operating results . goodwill and intangible assets . goodwill represents the excess purchase price over the fair values of the identifiable assets acquired less the liabilities assumed . we acquired goodwill in connection with the acquisitions completed in 2013 , 2012 and 2011. goodwill is tested for impairment at a minimum on an annual basis . the fair value is estimated using an income and discounted cash flow approach . we completed our annual goodwill and intangible assets impairment test in the fourth quarter of 2013 and determined that there was no impairment . intangible assets consist of purchased in-process research and development ( “ ipr & d ” ) , patents , customer relationships and non-compete agreements . intangible assets with finite useful lives are amortized over the period of estimated benefit using the straight-line method and estimated useful lives ranging from one to ten years . intangible assets are tested for impairment annually or whenever events or circumstances indicate that a carrying amount of an asset ( asset group ) may not be recoverable . if impairment is indicated , 66 we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset . fair value is generally determined using a discounted future cash flow analysis . ipr & d has an indefinite life and is not amortized until completion and development of the project at which time the ipr & d becomes an amortizable asset . if the related project is not completed in a timely manner , we may have an impairment related to the ipr & d , calculated as the excess of the asset 's carrying value over its fair value . long-lived assets . we periodically evaluate the recoverability of the carrying amount of long-lived assets , which include property and equipment , whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable . we assess impairment when the undiscounted future cash flows from the use and eventual disposition of an asset are less than its carrying value . if impairment is indicated , we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset . we base our fair value methodology on quoted market prices , if available . if quoted market prices are not available , we estimate fair value based on prices of similar assets or other valuation techniques including present value techniques . income taxes . we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . we measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the year in which such items are expected to be received or settled . we recognize the effect on deferred tax assets and liabilities of a change in tax rates in the period that includes the enactment date . we establish a valuation allowance to offset any deferred tax assets if , based upon available evidence , it is more likely than not that some or all of the deferred tax assets will not be realized . 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 .
| additionally , a $ 1.3 million provision for litigation loss was recorded as a component of cost of sales related to the unfavorable jury verdict in one of our pending lawsuits ( see provision for litigation loss/ ( income ) below ) . research and development expenses replace_table_token_8_th the decrease in research and development expenses was due to a decrease of $ 1.7 million in supplies , outside services and other costs , offset by an increase of $ 0.4 million in employee compensation due primarily to increased headcount and an increase of $ 0.2 million in clinical trial and other costs . selling , general and administrative expenses replace_table_token_9_th the increase in selling , general and administrative expenses was due primarily to an increase of $ 9.5 million in compensation costs in the united states . this was to support increased sales volume and company growth , including hiring additional sales representatives , and general administrative personnel . additionally , the costs to support international sales growth and expansion into new international territories increased by $ 2.2 million ; and there was an increase of $ 2.0 million of other selling , general and administrative costs . provision for litigation loss/ ( income ) replace_table_token_10_th the increase in provision for litigation loss was due primarily to unfavorable jury verdicts in two lawsuits . on june 14 , 2013 , the jury returned a verdict in a patent infringement case in the u.s. district court in delaware brought by depuy synthes against us . the jury found that prior versions of three products we previously sold did infringe on deputy synthes ' patents and awarded monetary damages . the jury also upheld the validity of depuy synthes ' patents . there was no finding of willful infringement . as a result of the verdict , we recorded $ 18.2 million in damages and other litigation-related costs in addition to the $ 1.3 million recorded as a component of cost of goods sold noted above . additionally , on january 17 , 2014 , the jury returned a verdict in a misappropriation of trade secret suit filed against us in the federal district court for
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and expand our intellectual property portfolio ; ● attract and retain skilled personnel ; and ● create additional infrastructure to support our operations as a public company . we do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates , which we expect will take a number of years and is subject to significant uncertainty . we have no manufacturing facilities , and all of our manufacturing activities are contracted out to third parties . additionally , we currently utilize third-party clinical research organizations , or cros , to carry out our clinical development activities , and we do not yet have a sales organization . if we obtain regulatory approval for any of our product candidates , we expect to incur significant commercialization expenses related to product sales , marketing , manufacturing and distribution . accordingly , we will seek to fund our operations through public or private equity or debt financings or other sources . however , we may be unable to raise additional funds or enter into other arrangements when needed on favorable terms or at all . our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our products . on march 6 , 2014 , we effected a 1.75-for-1 stock split of our outstanding common stock . our historical share and per share information have been retroactively adjusted to give effect to this stock split . shares of common stock underlying outstanding stock options and other equity instruments were proportionately increased and the respective exercise prices , if applicable , were proportionately reduced in accordance with the terms of the agreements governing such securities . shares of common stock reserved for issuance upon the conversion of our series a redeemable convertible preferred stock , series b redeemable convertible preferred stock and series c redeemable convertible preferred stock were proportionately increased , and the respective conversion prices were proportionately reduced . on march 25 , 2014 , we completed our ipo whereby we sold 6,762,000 shares of common stock , including 879,647 shares of common stock pursuant to the full exercise of an over-allotment option granted to the underwriters , at a price of $ 17.00 per share . the shares began trading on the nasdaq global market on march 20 , 2014. the aggregate net proceeds received by us from the offering were $ 104,364,560 , net of underwriting discounts and commissions and estimated offering expenses . upon the closing of the ipo , all of our outstanding shares of convertible redeemable preferred stock converted into 12,115,183 shares of common stock . additionally , we are now authorized to issue 175,000,000 shares of common stock and 25,000,000 shares of preferred stock . financial operations overview revenue to date , we have not generated any revenue from the sales of products or other means . our ability to generate product revenue and become profitable depends upon our ability to successfully develop and commercialize products . we expect to incur losses for the foreseeable future , and we expect these losses to increase as we continue our development of , and seek regulatory approvals for , our product candidates and begin to commercialize any approved products . because of the numerous risks and uncertainties associated with product development , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate revenue from the sale of our products , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , then we may be unable to continue our operations at planned levels and be forced to reduce our operations . 61 research and development expenses research and development expenses consist primarily of costs incurred for the development of our product candidates , which include : ● employee-related expenses , including salaries , benefits , travel and stock-based compensation expense ; ● expenses incurred under agreements with the cros and investigative sites that conduct our clinical studies ; ● the cost of acquiring , developing and manufacturing clinical study materials ; ● facilities , depreciation and other expenses , which include direct and allocated expenses for rent and maintenance of facilities , insurance and other supplies ; and ● costs associated with preclinical and clinical activities . research and development costs are expensed as incurred . costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and our clinical sites . we can not determine with certainty the duration and completion costs of the current or future clinical studies of our product candidates or if , when , or to what extent we will generate revenue from the commercialization and sale of any 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 studies and development of our product candidates will depend on a variety of factors , including : ● the rate of progress of , results of and cost of completing our phase 2 clinical development for akb-6548 for the treatment of anemia in patients undergoing dialysis ; ● assuming the akb-6548 clinical development program for ckd patients not on dialysis advances to phase 3 , the scope , size , rate of progress , results and costs of initiating and completing our phase 3 development program of akb-6548 ; ● the scope , progress , results and costs of preclinical development , laboratory testing and clinical studies for akb-6899 and any other product candidates that we may develop or acquire ; ● the cost of having our product candidates manufactured for story_separator_special_tag clinical trials ; ● difficulties or delays in enrolling patients in our clinical trials ; ● unanticipated changes to laws or regulations applicable to our clinical trials ; and ● the timing of , and the costs involved in , obtaining regulatory approvals for akb-6548 and any other product candidates , if clinical trials are successful . 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 , ema or another regulatory authority were to require us to conduct clinical studies beyond those that we currently anticipate , or if we experience significant delays in enrollment in any of our clinical studies , we could be required to expend significant additional financial resources and time on the completion of clinical development . from inception through december 31 , 2014 , we have incurred $ 77.1 million in research and development expenses . we plan to increase our research and development expenditures for the foreseeable future as we continue the development of akb-6548 and akb-6899 . our current and planned research and development activities include the following : ● we have completed a phase 2b study during 2014 to examine the safety and efficacy of akb-6548 in non-dialysis patients with anemia related to ckd , and we will prepare the data for presentation at the world congress of nephrology meeting in march 2015 and other scientific meetings . ● we plan to initiate a phase 3 development program for akb-6548 in 2015 for anemia secondary to ckd in patients not on dialysis . ● we have begun phase 2 clinical development for akb-6548 for the treatment of anemia in patients undergoing dialysis , the second indication we will pursue . the results from that study are expected in the third quarter of 2015 . ● we intend to file an ind and begin phase 1 studies for akb-6899 . 62 our direct research and development expenses consist principally of external costs , such as startup fees paid to investigators , consultants , central laboratories and cros in connection with our clinical studies , and costs related to acquiring and manufacturing clinical study materials . we currently have two programs to which our research and development costs are attributable . historically , we have not accumulated and tracked our research and development costs or our personnel and personnel-related costs on a program-by-program basis . our employee and infrastructure resources , and many of our costs , were directed to broadly applicable research endeavors . as a result , we are unable to specify precisely the historical costs incurred for each of our programs on a program-by-program basis . general and administrative expenses we obtain from , and provide to , aerpio services under the terms of administrative services agreements between the two companies . see “ certain relationships and related party transactions. ” general and administrative expenses consist primarily of salaries and related costs for personnel , including stock-based compensation and travel expenses . other general and administrative expense include facility-related costs , fees for directors , accounting and legal services fees , recruiting fees and expenses associated with obtaining and maintaining patents . we anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates . we also anticipate increased expenses related to finance , legal , regulatory and tax-related services associated with maintaining compliance with exchange listing and sec requirements , and our other costs associated with being a public company . additionally , we anticipate an increase in payroll and related expenses if and when we prepare for commercial operations , especially in sales and marketing . critical accounting policies and significant judgments and estimates our management 's discussion and analysis of our financial condition and results of operations are based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles . 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 , including those related to accrued expenses and stock-based compensation . we base our estimates on historical experience , known trends and events , and various other factors that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ from these estimates under different assumptions or conditions . while 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 . 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 . 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 confirm the accuracy of our estimates with the service providers and make adjustments if necessary .
| other income ( expense ) , net , was $ 0.9 million for the year ended december 31 , 2014 , compared to $ 2.8 million for the year ended december 31 , 2013. other income ( expense ) , net for the year ended december 31 , 2014 , is primarily related to reimbursements from aerpio for employee-related costs of approximately $ 0.7 million and interest income of approximately 65 $ 0.2 million . other income ( expense ) , net for the year ended december 31 , 2013 included $ 1.0 million in reimbursements from aerpio for employee-related costs and $ 2.4 million gain on the extinguishment of debt , partially offset by net interest expense of $ 0.7 million . the decrease in reimbursements from aerpio for employee-related costs is principally the result of reduced time spent by our employees on aerpio related activities . under the terms of the administrative services agreements entered into upon disposition of aerpio in 2011 , we and aerpio obtain from , and provide to , each other certain services . comparison of the years ended december 31 , 2013 and 2012 replace_table_token_7_th research and development expenses . research and development expenses were $ 10.8 million for the year ended december 31 , 2013 , compared to $ 5.6 million for the year ended december 31 , 2012 , an increase of $ 5.1 million . the increase was primarily due to an increase in akb-6548 clinical trial costs of approximately $ 2.5 million due to the initiation of our phase 2b study in july 2013 and its continued enrollment , an increase of approximately $ 1.3 million in drug substance and drug manufacturing costs and increased patent costs of approximately $ 1.3 million . general and administrative expenses . general and administrative expenses were $ 5.2 million for the year ended december 31 , 2013 , compared to $ 2.9 million for the year ended december 31 , 2012. the increase of $ 2.3 million was primarily due to an increase in stock-based compensation expense of $ 1.4 million and increased professional fees of $ 0.5 million indirectly related to the initial public offering . the remaining increase was due to offsetting increases and decreases in
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income taxes the measurement of deferred income tax assets is adjusted by a valuation allowance , if necessary , to recognize future tax benefits only to the extent , based on available evidence , that it is more likely than not that such benefits will be realized . an increase or decrease in the estimated valuation allowance recorded against the company 's deferred tax assets would increase or decrease net income in the period such determination was made . restructuring historically , the company recorded restructuring charge liabilities in accordance with emerging issues task force ( eitf ) issue no . 94-3. effective december 31 , 2002 , the company adopted statement of financial accounting standard ( sfas ) no . 146 , accounting for costs associated with exit or disposal activities . the company will account for any exit or disposal activities initiated after december 31 , 2002 in accordance with sfas no . 146. in some circumstances , the restructuring liabilities recorded require management to make certain estimates . although no significant changes in estimates are anticipated , actual costs may differ from these estimates . recent accounting pronouncements in june 2002 , the financial accounting standards board issued statement of financial accounting standard ( sfas ) no . 146 , accounting for costs associated with exit or disposal activities . sfas no . 146 provides guidance on the accounting for recognizing , measuring and reporting of costs associated with exit and disposal activities , including restructuring activities . sfas no . 146 adjusts the timing of when a liability for termination benefits is to be recognized based on whether the employee is required to render future service . a liability for costs to terminate an operating lease or other contract before the end of its term is to be recognized when the entity terminates the contract or ceases using the rights conveyed by the contract . all other costs associated with an exit or disposal activity are to be expensed as incurred . sfas no . 146 requires the liability to be measured at its fair value with subsequent changes in fair value to be recognized each reporting period . the pronouncement is effective for exit or disposal activities initiated after december 31 , 2002 and is not expected to have a material impact on the company 's consolidated results of operations or financial position . in november 2002 , fasb issued interpretation no . 45 ( fin 45 ) , guarantor 's accounting and disclosure requirements for guarantees , including indirect guarantees of indebtedness of others . fin 45 requires certain guarantees to be measured at fair value upon issuance and recorded as a liability . in addition , fin 45 expands 15 current disclosure requirements regarding guarantees issued by an entity , including tabular presentation of the changes affecting an entity 's aggregate product warranty liability . the recognition and measurement requirements of the interpretation are effective prospectively for guarantees issued or modified after december 31 , 2002. the disclosure requirements are effective for the company commencing in its annual financial statements for the fiscal year ended march 31 , 2003. the adoption of fin 45 did not have a material impact on the consolidated results of operations or financial position of the company . in december 2002 , the fasb issued sfas no . 148 , accounting for stock-based compensation-transition and disclosure , an amendment of fasb statement no . 123. sfas no . 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation . in addition , sfas no . 148 amends certain provisions of sfas no . 123 to require that disclosure of the pro forma effect of applying the fair value method of accounting for stock-based compensation be prominently displayed in an entity 's accounting policy in annual and interim financial statements . the company is required to follow the prescribed format and provide the additional disclosures required by sfas no . 148 in its annual financial statements for the fiscal year ended march 31 , 2003 , and must also provide the disclosures in its quarterly reports containing condensed financial statements for interim periods beginning with the quarterly period ending june 30 , 2003. the company does not expect sfas no . 148 to have a material impact on its consolidated results of operations or financial position . company history and historical accounting charges amx corporation was formed in march 1982 and began designing , manufacturing and marketing integrated control systems . the company 's control systems enabled the user to automate and integrate a variety of electronic technologies . these systems were marketed into the commercial market through third-party dealers specializing in the company 's products . these same systems were also installed in upscale residential homes . in the late 1980s , the company began to distribute its products to international markets . in 1993 , in order to further enhance the distribution of its products in europe , the company purchased a company in the united kingdom named axcess technology ltd. to serve the european market . subsequently in 1995 , the company established a distribution subsidiary in singapore to serve markets in asia and the pacific rim ( which was subsequently closed in august 2002 ) . as the demand for home installations grew , the company decided to develop a complete home automation system that provided a more affordable option to the end user than those sold in its commercial settings . as a result , in 1995 the company formed a subsidiary in salt lake city named phast ( practical home automation systems technology ) and began the development of a specialized home automation system . story_separator_special_tag this home automation system became known as landmark and began shipping in 1997. ultimately , the company broadened its product offerings to three principal platforms : axcess systems , the company 's initial product offerings used in the commercial and residential marketplaces ; landmark systems , developed by phast and used in the residential marketplace ; and netlinx systems , developed by the company to enhance the networking and internet capabilities of the company 's products . the netlinx system was developed to be a base system around which existing and future hardware will be unified and is the primary focus of other current development efforts . in mid-1999 , the company established the consumer broadband division and began investing in the development of internet appliance products designed specifically for residential use , and began developing a retail distribution strategy for such products . in conjunction with the expanded product offerings and the new retail distribution strategy , the company changed its name to panja inc. during the third quarter of fiscal 2000 , the company announced plans to relocate its operations in salt lake city to its corporate headquarters in dallas in order to reduce costs and centralize its operations . the move was completed during the third quarter of fiscal 2001 and impacted approximately 94 employees . during the third 16 quarter of fiscal 2000 , the company also announced its intention to dispose of its synergy division that had served certain of the company 's educational markets . approximately 26 employees were terminated by this action . the company recorded approximately $ 3.3 million of restructuring expense in the fiscal year ended march 31 , 2000 as a result of this action , of which $ 3.0 million was related to severance and other disposal costs and was recorded in restructuring , and $ 0.3 million was recorded in cost of sales for a write-down of synergy inventory . throughout fiscal 2000 and during the first half of fiscal 2001 , the company invested significant resources on development and marketing efforts related to the consumer broadband strategy . the company introduced two internet appliance products during this timeframe : the panja 1000 and the bmp-100 . these efforts consumed a significant amount of the company 's cash resources . during this same period , the company also spent considerable resources on two additional projects : 1 ) the implementation of a new enterprise resource planning system , and 2 ) the move into new headquarter facilities in richardson , texas . certain aspects of the internet growth segment ultimately began to lose momentum and the company struggled to implement its new consumer broadband strategy . at the same time , the company began to see an erosion of the sales growth of its core product offerings because marketing and development efforts in fiscal 2000 and 2001 had been diverted to focus on the broadband strategy . as a result of these developments , the board of directors and the company 's then president , chief executive officer , and chairman decided on a corporate-wide restructuring plan in the fourth quarter of fiscal 2001 which included the decision to discontinue the consumer broadband division and its retail distribution strategy . in conjunction with the company 's return to its core business strategy , and as a result of customer feedback , the company returned to doing business as amx corporation and formally changed its name at the 2001 shareholder meeting . as a result of the restructuring and other business and economic trends in the fourth quarter of fiscal 2001 , the company recorded charges of approximately $ 5.2 million . these charges included restructuring charges of $ 1.2 million which consisted of employee severance reserves of $ 0.9 million , and $ 0.3 million recorded to write-off miscellaneous assets and to reserve non-cancellable commitments of the consumer broadband division . the severance charge was taken as a result of a reduction in the company 's workforce . this reduction consisted of 44 employees from across the company , but primarily included personnel working in the company 's consumer broadband division and information systems department . the other charges included inventory reserves of $ 2.9 million , receivable reserves of $ 0.6 million , and reserves against other assets of $ 0.5 million . of the inventory reserves recorded , approximately $ 0.7 million related to the disposal of all consumer broadband inventory . the remaining inventory reserves were recorded as a result of : 1 ) faster than anticipated demand for new products which reduced forecasted demand for older products ; 2 ) a change in the company 's sourcing strategy from make to buy , which reduced the company 's requirements for certain raw material component parts ; and 3 ) an overall increase in inventory levels due to difficulties with materials requirement planning which in part prompted the implementation of the jd edwards erp system . the receivable reserves of $ 0.6 million related to the write-off of certain uncollectible accounts related to the consumer broadband strategy and allowances for forecasted returns . the charge against other assets primarily related to reserves taken against amounts due from non-customers which were deemed uncollectible . as a result of these charges , the company also recorded a valuation allowance of approximately $ 2.5 million against its deferred tax assets . this restructuring also included the recruitment of new management in most key functional areas . this new management team continued to improve the company 's infrastructure and repositioned the company for the future based on current market and business trends . as a result , the company recorded additional charges of approximately $ 8.2 million during the second quarter of fiscal 2002. these charges included reserves for inventory obsolescence of $ 2.4 million , a charge of $ 0.7 million taken to write-off certain assets , additional receivable related reserves of $ 0.5 million , a write-off of miscellaneous intangibles of $ 0.3 million , and a valuation allowance against deferred tax assets of $ 4.2
| because typical system integration projects have long lead times and equipment specifications are made early in the design phase , and because the current economic environment is unstable , the company expects that it could take a number of months to realize the growth potential of these new products . however , the company believes its new product introductions will allow the company to recapture market share throughout the market downturn and drive long-term sales growth . gross margins for the year ended march 31 , 2003 were 51 % , up from 47 % in the prior year . the prior year margins were negatively impacted by the aforementioned inventory obsolescence charges of $ 2.4 million taken in september 2001. excluding the prior year obsolescence charges recorded in september 2001 , the year ago margins were 50 % . the margin improvement is a reflection of lower costs in the company 's manufacturing operations as a result of the continued implementation of the company 's outsourcing strategy , vendor consolidation , and management directed operational efficiencies . selling and marketing expenses declined significantly to $ 20.7 million or 25 % of net sales compared to $ 27.8 million or 32 % of net sales for the year ended march 31 , 2002. the decrease in selling and marketing expenses is primarily a result of cost control initiatives launched in the latter half of fiscal 2002 , including reduced headcount in the company 's domestic and international sales organizations . research and development expenses were $ 9.2 million or 11 % of net sales compared to $ 6.9 million or 8 % of net sales for fiscal 2002. as noted above , the company increased its fiscal 2003 research and development spending significantly over prior year levels to expand its product portfolio in order to drive long-term sales growth . general and administrative expenses were $ 8.4 million or 10 % of net sales compared to $ 8.5 million or 10 % of net sales for the year ago period . excluding the aforementioned charges of $ 0.6 million recorded in september 2001 to reserve receivables and write-off certain intangible assets , fiscal 2002 general and administrative expenses were $ 7.9
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the increase in manufacturing revenue was primarily attributed to an 18.4 % increase in the volume of railcar deliveries and a change in product mix . the increase in revenue was also due to a 28.1 % increase in wheels , repair & parts revenue primarily due to 2019 including $ 87.5 million in revenue associated with the repair shops returned to us after discontinuing the gbw joint venture in august 2018. the 16.1 % increase in 2018 as compared to 2017 was primarily due to an 18.5 % increase in manufacturing revenue . the increase in manufacturing revenue was primarily due to a 21.0 % increase in the volume of railcar deliveries and a change in product mix . the increase was also attributed to an 11.0 % increase in wheels , repair & parts revenue primarily as a result of higher wheel set and component volumes due to an increase in demand and an increase in scrap metal pricing . the 26.4 % increase in cost of revenue in 2019 compared to 2018 was primarily due to a 23.7 % increase in manufacturing cost of revenue . the increase in manufacturing cost of revenue was primarily attributed to an 18.4 % increase in the volume of railcar deliveries and operating inefficiencies at some of our manufacturing facilities . the increase in cost of revenue was also due to a 32.2 % increase in wheels , repair & parts cost of revenue primarily due to 2019 including $ 97.3 million in costs associated with the repair shops returned to us after discontinuing the gbw joint venture in august 2018. the 20.7 % increase in cost of revenue for 2018 as compared to 2017 was primarily due to a 25.7 % increase in manufacturing cost of revenue . the increase in manufacturing cost of revenue was primarily due to a 21.0 % increase in the volume of railcar deliveries and a change in product mix . the increase was also attributed to a 10.4 % increase in wheels , repair & parts cost of revenue primarily due to higher wheel set and component costs associated with increased volumes . margin as a percentage of revenue was 12.1 % in 2019 and 16.2 % in 2018. the overall margin as a percentage of revenue was negatively impacted by a decrease in manufacturing margin to 12.1 % from 15.5 % primarily attributed to a change in product mix and operating inefficiencies at some of our manufacturing facilities . the decrease was also due to a decrease in leasing & services margin to 31.1 % from 49.4 % . margin for 2019 was negatively impacted from higher sales of railcars that we purchased from third parties which have lower margin percentages . overall margin as a percentage of revenue was 16.2 % for 2018 and 19.4 % for 2017. the overall margin as a percentage of revenue was negatively impacted by a decrease in manufacturing margin to 15.5 % from 20.4 % primarily attributed to a change in product mix . this was partially offset by an increase in leasing & services margin to 49.4 % from 34.8 % . leasing & services margin percentage in 2018 benefited from fewer sales of railcars that we purchased from third parties which have lower margin percentages , lower maintenance costs , a higher average volume of rent-producing leased railcars for syndication and lower transportation costs . the $ 80.7 million decrease in net earnings attributable to greenbrier in 2019 compared to 2018 was primarily attributable to a decrease in margin , costs associated with the acquisition of the manufacturing business of ari and a $ 10.0 million goodwill impairment charge for which there was no tax benefit related to our repair operations . the $ 35.7 million increase in net earnings attributable to greenbrier in 2018 compared to 2017 was primarily attributable to a higher net gain on disposition of equipment and a reduction in the tax rate due to the tax cuts and jobs act ( tax act ) . 36 the greenbrier companies 2019 annual report manufacturing segment replace_table_token_4_th * not meaningful as of july 26 , 2019 , the manufacturing segment included the results of the manufacturing business of ari which is consolidated for financial reporting purposes . this partially contributed to the increase in manufacturing revenue and cost of revenue in 2019 compared to 2018. manufacturing revenue increased $ 386.9 million or 18.9 % in 2019 compared to 2018 , of which $ 43 million related to the addition of the manufacturing business of ari . the increase in revenue was primarily attributed to an 18.4 % increase in the volume of railcar deliveries and a change in product mix . manufacturing revenue increased $ 319.4 million or 18.5 % in 2018 compared to 2017. the increase in revenue was primarily attributed to a 21.0 % increase in the volume of railcar deliveries and a change in product mix . manufacturing cost of revenue increased $ 410.2 million or 23.7 % in 2019 compared to 2018. the increase in cost of revenue was primarily attributed to an 18.4 % increase in the volume of railcar deliveries and operating inefficiencies at some of our manufacturing facilities . operating inefficiencies include poor manufacturing execution at some of our manufacturing facilities and supplier delivery failures at our european operations . manufacturing cost of revenue increased $ 353.4 million or 25.7 % in 2018 compared to 2017. the increase in cost of revenue was primarily attributed to a 21.0 % increase in the volume of railcar deliveries and a change in product mix . manufacturing margin as a percentage of revenue decreased 3.4 % in 2019 compared to 2018. the decrease was primarily attributed to a change in product mix and operating inefficiencies at some of our manufacturing facilities . operating inefficiencies include poor manufacturing execution at some of our manufacturing facilities and supplier delivery failures at our european operations . story_separator_special_tag these were partially offset by higher volumes of new railcar sales with leases attached which typically result in enhanced sales prices and margins . manufacturing margin as a percentage of revenue decreased 4.9 % in 2018 compared to 2017 primarily due to a change in product mix . manufacturing operating profit decreased $ 23.3 million or 9.7 % in 2019 compared to 2018. the decrease was primarily attributed to a lower margin percentage from a change in product mix and operating inefficiencies at some of our manufacturing facilities . manufacturing operating profit decreased $ 54.4 million or 18.4 % in 2018 compared to 2017 primarily attributed to a lower margin percentage from a change in product mix and increased costs associated with expanded international operations . this was partially offset by an increase in the volume of railcar deliveries . wheels , repair & parts segment replace_table_token_5_th * not meaningful the greenbrier companies 2019 annual report 37 on august 20 , 2018 , 12 repair shops were returned to us as a result of discontinuing our gbw railcar repair joint venture , of which four shops were closed during 2019. beginning on august 20 , 2018 , the results of operations from these repair shops were included in the wheels , repair & parts segment as they are now consolidated for financial reporting purposes . the addition of these repair shops contributed to the increase in wheels , repair & parts revenue and cost of revenue during 2019 compared to 2018. wheels , repair & parts revenue increased $ 97.5 million or 28.1 % in 2019 compared to 2018. the increase was primarily due to 2019 including $ 87.5 million in revenue associated with the repair shops returned to us after discontinuing the gbw joint venture in august 2018. the increase was also due to higher parts revenue due to an increase in demand . wheels , repair & parts revenue increased $ 34.3 million or 11.0 % in 2018 compared to 2017 primarily as a result of higher wheel set and component volumes due to an increase in demand and an increase in scrap metal pricing . wheels , repair & parts cost of revenue increased $ 102.6 million or 32.2 % in 2019 compared to 2018. the increase was primarily due to 2019 including $ 97.3 million in cost of revenue associated with the repair shops returned to us after discontinuing the gbw joint venture in august 2018. the increase was also due to increased parts volumes and costs associated with closing sites in our repair network . wheels , repair & parts cost of revenue increased $ 30.0 million or 10.4 % in 2018 compared to 2017 primarily due to higher wheel set and component costs associated with increased volumes . wheels , repair & parts margin as a percentage of revenue decreased 3.0 % in 2019 compared to 2018. the decrease was primarily attributed to inefficiencies at our repair operations and costs associated with closing sites in our repair network . this was partially offset by a favorable parts product mix . wheels , repair & parts margin as a percentage of revenue increased 0.5 % in 2018 compared to 2017 due to efficiencies from operating at higher wheel set and component volumes and an increase in scrap metal pricing . this was partially offset by a less favorable parts product mix . wheels , repair & parts operating profit decreased $ 19.7 million in 2019 compared to 2018. the decrease was primarily attributed to a $ 10.0 million goodwill impairment charge recognized in 2019 due to challenges at our repair operations and costs associated with closing sites in our repair network . this was partially offset by higher parts revenue and a more favorable parts product mix . wheels , repair & parts operating profit increased $ 1.7 million or 11.7 % in 2018 compared to 2017 primarily attributable to higher margins due to an increase in wheelset and component volumes and an increase in efficiencies . leasing & services segment replace_table_token_6_th * not meaningful the leasing & services segment generates revenue from leasing railcars from its lease fleet , providing various management services , interim rent on leased railcars for syndication , and the sale of railcars purchased from third parties with the intent to resell them . the gross proceeds from the sale of these railcars are recorded in revenue and the costs of purchasing these railcars are recorded in cost of revenue . leasing & services revenue increased $ 29.7 million or 23.3 % in 2019 compared to 2018. the increase was primarily attributed to an increase in the sale of railcars which we had purchased from third parties with the intent to resell them . this was partially offset by a lower average volume of rent-producing leased railcars for syndication . leasing & services revenue decreased $ 3.4 million or 2.6 % in 2018 compared to 2017. the change 38 the greenbrier companies 2019 annual report in revenue was primarily attributed to a decrease in the sale of railcars which we had purchased from third parties with the intent to resell them and a decline in leasing revenue due to fewer railcars on operating leases as we were rebalancing our lease portfolio . this was partially offset by higher management services revenue from new service agreements and a higher average volume of rent-producing leased railcars for syndication . leasing & services cost of revenue increased $ 43.9 million or 67.9 % in 2019 compared to 2018. the increase was primarily due to an increase in the volume of railcars sold that we purchased from third parties and higher transportation costs . leasing & services cost of revenue decreased $ 20.9 million or 24.4 % in 2018 compared to 2017 primarily due to a decline in the volume of railcars sold that we purchased from third parties , lower maintenance and transportation costs and fewer railcars on operating leases as we rebalance our lease portfolio .
| at august 31 , 2019 cash and cash equivalents and restricted cash were $ 338.5 million , a decrease of $ 201.0 million from $ 539.5 million at the prior year end . the change in cash provided by ( used in ) operating activities in 2019 compared to 2018 was primarily due to lower earnings and a net change in working capital due to an increase in production . the change in cash provided by operating activities in 2018 compared to 2017 was primarily due to a net change in working capital , a change in cash flows associated with leased railcars for syndication , a change in deferred revenue , an increase in net gain on disposition of equipment and a change in deferred income taxes as a result of the tax act . the change in cash used in investing activities in 2019 compared to 2018 was primarily attributable to the acquisition of the manufacturing business of ari . the change in cash used in investing activities in 2018 compared to 2017 was primarily attributable to higher proceeds from the sale of assets partially offset by an increase in capital expenditures . capital expenditures totaled $ 198.2 million , $ 176.8 million and $ 86.1 million for the years ended august 31 , 2019 , 2018 and 2017 , respectively . manufacturing capital expenditures were approximately $ 85.1 million , $ 59.7 million and $ 55.0 million for the years ended august 31 , 2019 , 2018 and 2017 , respectively . capital expenditures for manufacturing are expected to be approximately $ 95 million in 2020 and primarily relate to enhancements of our existing manufacturing facilities . wheels , repair & parts capital expenditures were approximately $ 13.3 million , $ 5.2 million and $ 3.1 million for the years ended august 31 , 2019 , 2018 and 2017 , respectively . capital expenditures for wheels , repair & parts are expected to be approximately $ 15 million in 2020 for enhancements of our
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flooring na segment —operating income was $ 540.3 million ( 13.5 % of segment net sales ) for 2017 reflecting an increase of $ 35.2 million , or 7.0 % , compared to operating income of $ 505.1 million ( 13.1 % of segment net sales ) for 2016 . the increase in operating income was primarily attributable to savings from capital investments and cost reduction initiatives of approximately $ 71 million , and the favorable net impact of price and product mix of approximately $ 74 million , partially offset by higher input costs of approximately $ 72 million , including increased material costs of approximately $ 54 million , and the unfavorable impact of higher restructuring , acquisition and integration-related , and other costs of approximately $ 33 million . restructuring , acquisition and integration-related , and other costs were higher primarily due to the absence of approximately $ 90 million received in 2016 related to a contract dispute , partially offset by the approximately $ 48 million charge related to the write-off of the lees tradename that was recorded in 2016. flooring row segment —operating income was $ 329.1 million ( 15.9 % of segment net sales ) for 2017 reflecting a decrease of $ 4.0 million , or ( 1.2 ) % , compared to operating income of $ 333.1 million ( 17.4 % of segment net sales ) for 2016 . the decrease in operating income was primarily attributable to higher input costs of approximately $ 80 million , including increased material costs of approximately $ 76 million , costs associated with investments in expansion of production capacity of approximately $ 7 million , approximately $ 6 million of costs associated with investments in new product development , sales personnel , and marketing , the unfavorable net impact of exchange rates of approximately $ 5 million , and approximately $ 22 million in decreased sales volumes , primarily attributable to lower patent revenue . these decreases in operating income were partially offset by savings from capital investments and cost reduction initiatives of approximately $ 37 million , and the favorable net impact of price and product mix of approximately $ 80 million . interest expense interest expense was $ 31.1 million for 2017 , reflecting a decrease of $ 9.4 million compared to interest expense of $ 40.5 million for 2016 . the decrease was primarily attributable to a shift in the company 's borrowings to lower interest rate instruments . other expense ( income ) other expense was $ 5.2 million for 2017 , reflecting an unfavorable change of $ 6.9 million compared to other income of $ 1.7 million for 2016 . the change was primarily due to the increased unfavorable impact of foreign exchange rates on transactions in the current year . 26 index to financial statements income tax expense for 2017 , the company recorded income tax expense of $ 343.2 million on earnings before income taxes of $ 1,317.9 million for an effective tax rate of 26.0 % , as compared to an income tax expense of $ 307.6 million on earnings before income taxes of $ 1,241.1 million , resulting in an effective tax rate of 24.8 % for 2016 . the increase in the year-over-year effective tax rate was the direct result of the geographic dispersion of the company 's earnings for 2017 , decreased by $ 44.4 million caused by the revaluation of deferred tax liabilities triggered by the belgium corporate income tax reform , and increased by a one-time provisional net tax expense of $ 45.2 million resulting from the u.s. corporate income tax reform . in december of 2017 , the u.s. and belgium enacted tax reform legislation . the u.s. legislation , the tax cuts and jobs act ( “ tcja ” ) , is the most significant and complex change to the u.s. tax law in more than 30 years . the most significant provisions of the tcja , were the reduction of the corporate income tax rate from 35 % to 21 % effective january 1 , 2018 , implementation of a territorial income tax regime , and imposition of a transition tax on the deemed repatriation of the accumulated earnings of the company 's foreign subsidiaries . the most significant provisions of the belgium legislation were the reduction of the corporate income tax rate from 33.99 % to 29.58 % for january 1 , 2018 and january 1 , 2019 , respectively , with a further reduction to 25 % effective january 1 , 2020 , an annual limitation on the utilization of net operating losses , and creation of a consolidated corporate income tax regime . accordingly , for the year ended december 31 , 2017 , the company recorded a net tax expense of $ 0.8 million related primarily to the non-cash tax benefit of the revaluation of its belgian deferred tax liabilities , the non-cash tax benefit of the provisional revaluation of its u.s. deferred tax liabilities , and the tax expense of the provisional accrual associated with the deemed repatriation transition tax . this represents the best estimate of the impact of all tax law changes on the company 's financial statements . the company will continue to evaluate the interpretations of the tcja , the assumptions made within the calculations , and future guidance that may be issued to determine the impact , if any , on these provisional calculations , which may materially change the company 's tax determinations . as for certain other corporate income tax aspects of the tcja , specifically the global intangible low-taxed income ( “ gilti ” ) provision , the company has been unable to quantify the impacts of these provisions due to the inherent complexities involved . accordingly , the company expects to continue to analyze these provisions and their potential impacts and record any such amounts as determined during the course of 2018. see note 12-income taxes . story_separator_special_tag year ended december 31 , 2016 , as compared with year ended december 31 , 2015 net sales net sales for 2016 were $ 8,959.1 million , reflecting an increase of $ 887.5 million , or 11.0 % , from the $ 8,071.6 million reported for 2015 . the increase was primarily attributable to higher sales volume of approximately $ 944 million , or 12 % , which includes sales volumes attributable to acquisitions of approximately $ 509 million and legacy sales volumes of approximately $ 435 million , and the favorable net impact of price and product mix of approximately $ 11 million , partially offset by the unfavorable net impact of foreign exchange rates of approximately $ 69 million , or 1 % . global ceramic segment —net sales increased $ 161.8 million , or 5.4 % , to $ 3,174.7 million for 2016 , compared to $ 3,012.9 million for 2015 . the increase was primarily attributable to higher sales volume of approximately $ 159 million , or 5 % , which includes sales volume attributable to acquisitions of approximately $ 29 million and legacy sales volume of approximately $ 130 million , and the favorable net impact of price and product mix of approximately $ 45 million , or 2 % , offset by the unfavorable net impact of foreign exchange rates of approximately $ 43 million , or 2 % . flooring na segment —net sales increased $ 263.6 million , or 7.3 % , to $ 3,865.7 million for 2016 , compared to $ 3,602.1 million for 2015 . the increase was primarily attributable to higher sales volumes of approximately $ 305 million , or 8 % , which includes sales volume attributable to acquisitions of approximately $ 76 million and legacy sales volume of approximately $ 229 million , partially offset by the unfavorable net impact of price and product mix of $ 42 million , or 1 % flooring row segment —net sales increased $ 461.7 million , or31.7 % , to $ 1,918.6 million for 2016 , compared to $ 1,456.9 million for 2015 .the increase was primarily attributable to higher sales volume of approximately $ 481 million , or 33 % , which includes sales volume attributable to acquisitions of approximately $ 405 million and legacy sales volume of approximately $ 76 million and the favorable net impact of price and product mix of approximately $ 7 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 26 million , or 2 % . 27 index to financial statements quarterly net sales and the percentage changes in net sales by quarter for 2016 versus 2015 were as follows ( dollars in millions ) : replace_table_token_5_th gross profit gross profit for 2016 was $ 2,812.8 million ( 31.4 % of net sales ) , an increase of $ 402.1 million or 16.7 % , compared to gross profit of $ 2,410.7 million ( 29.9 % of net sales ) for 2015 . as a percentage of net sales , gross profit increased 150 basis points . the increase in gross profit dollars was primarily attributable to higher sales volume of approximately $ 254 million , savings from capital investments and cost reduction initiatives of approximately $ 113 million , lower material costs of approximately $ 67 million and the favorable impact of lower restructuring , acquisition and integration-related , and other costs of approximately $ 21 million , partially offset by the net impact of unfavorable foreign exchange rates of approximately $ 28 million , and the unfavorable net impact of price and product mix of approximately $ 11 million . selling , general and administrative expenses selling , general and administrative expenses for 2016 were $ 1,532.9 million ( 17.1 % of net sales ) , a decrease of $ 40.2 million compared to $ 1,573.1 million ( 19.5 % of net sales ) for 2015 . as a percentage of net sales , selling , general and administrative expenses decreased 240 basis points . the decrease in selling , general and administrative expenses in dollars was primarily attributable to savings from capital investments and cost reduction initiatives of $ 27 million , the net impact of favorable foreign exchange rates of approximately $ 9 million , and the favorable impact of lower restructuring , acquisition and integration-related , and other costs of approximately $ 173 million , partially offset by approximately $ 94 million of costs due to higher sales volume , approximately $ 51 million of costs associated with investments in new product development , sales personnel , and marketing , and increased employee costs of approximately $ 18 million . restructuring , acquisition and integration-related , and other costs were lower primarily due to the non-recurring 2015 charge of approximately $ 122 million related to the settlement and defense of the polyurethane foam litigation and the $ 90 million received in the third quarter of 2016 related to a contract dispute , partially offset by a charge for approximately $ 48 million related to the write-off of the lees tradename . operating income operating income for 2016 was $ 1,279.9 million ( 14.3 % of net sales ) reflecting an increase of $ 442.4 million , or 52.8 % , compared to operating income of $ 837.6 million ( 10.4 % of net sales ) for 2015 .
| flooring row segment —net sales increase d $ 156.8 million , or 8.2 % , to $ 2,075.5 million for 2017 , compared to $ 1,918.6 million for 2016 . the increase was primarily attributable to higher sales volume of approximately $ 44 million , or 2 % , the favorable net impact of price and product mix of approximately $ 83 million , or 4 % , and the favorable net impact of foreign exchange rates of approximately $ 30 million , or 2 % . quarterly net sales and the percentage changes in net sales by quarter for 2017 versus 2016 were as follows ( dollars in millions ) : replace_table_token_4_th gross profit gross profit for 2017 was $ 2,996.4 million ( 31.6 % of net sales ) , an increase of $ 183.6 million or 6.5 % , compared to gross profit of $ 2,812.8 million ( 31.4 % of net sales ) for 2016 . as a percentage of net sales , gross profit increased 20 basis points . the increase in gross profit dollars was primarily attributable to the favorable net impact of price and product mix of approximately $ 171 million , savings from capital investments and cost reduction initiatives of approximately $ 154 million , higher sales volume of approximately $ 58 million , and the favorable net impact of foreign exchange rates of approximately $ 17 million , partially offset by higher input costs of approximately $ 194 million , including increased material costs of approximately $ 137 million . selling , general and administrative expenses selling , general and administrative expenses for 2017 were $ 1,642.2 million ( 17.3 % of net sales ) , an increase of $ 109.4 million or 7.1 % compared to $ 1,532.9 million ( 17.1 % of net sales ) for 2016 . as a percentage of net sales , selling , general and administrative expenses increased 20 basis points . the increase in selling , general and administrative expenses in dollars was primarily attributable to approximately $ 50 million of costs
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in general , our direct operating expense increases as our volume of work increases , whereas our selling and marketing expense increases in proportion to our rate of adding new accounts to our network of physician clients . our other expense categories are less directly related to growth of revenues and relate more to our planning for the future , our overall business management activities , and our infrastructure . as our revenues have grown , the difference between our revenue and our direct operating expense also has grown , which has afforded us the ability to spend more in other categories of expense and to experience an increase in operating margin . we manage our cash and our use of credit facilities to ensure adequate liquidity , in adherence to related financial covenants . sources of revenue we derive our revenue from two sources : from business services associated with our revenue cycle and clinical cycle offerings and from implementation and other services . implementation and other services consist primarily of professional services fees related to assisting clients with the initial implementation of our services and for ongoing training and related support services . business services accounted for approximately 97 % , 97 % , and 96 % of our total revenues for the years ended december 31 , 2009 , 2008 , and 2007 , respectively . business services fees are typically 2 % to 8 % of a practice 's total collections depending upon the size , complexity , and other characteristics of the practice , plus a per-statement charge for billing statements that are generated for patients . accordingly , business services fees are largely driven by : the number of physician practices we serve , the number of physicians and other medical providers working in those physician practices , the volume of activity and related collections of those physicians and other medical providers , and our contracted rates . there is moderate seasonality in the activity level of physician practices . typically , discretionary use of physician services declines in the late summer and during the holiday season , which leads to a decline in collections by our physician clients about 30 to 50 days later . none of our clients accounted for more than 10 % of our total revenues for the years ended december 31 , 2009 , 2008 , or 2007. operating expense direct operating expense . direct operating expense consists primarily of salaries , benefits , claim processing costs , other direct costs , and stock-based compensation related to personnel who provide services to clients , including staff who implement new clients . we expense implementation costs as incurred . although 51 we expect that direct operating expense will increase in absolute terms for the foreseeable future , the direct operating expense is expected to decline as a percentage of revenues as we further increase the percentage of transactions that are resolved on the first attempt and as we decrease the cost of implementation for new clients . in addition , over the longer term , we expect to increase our overall level of automation and to reduce our direct operating expense as a percentage of revenues as we become a larger operation , with higher volumes of work in particular functions , geographies , and medical specialties . in 2009 and 2008 , we include in direct operating expense the service costs associated with our athenaclinicals offering , which includes transaction handling related to lab requisitions , lab results entry , fax classification , and other services . we also expect these costs to increase in absolute terms for the foreseeable future but to decline as a percentage of revenue . this decrease will be driven by increased levels of automation and by economies of scale . direct operating expense does not include allocated amounts for rent , depreciation , and amortization , except for amortization related to purchased intangible assets . selling and marketing expense . selling and marketing expense consists primarily of marketing programs ( including trade shows , brand messaging , and on-line initiatives ) and personnel-related expense for sales and marketing employees ( including salaries , benefits , commissions , stock-based compensation , non-billable travel , lodging , and other out-of-pocket employee-related expense ) . although we recognize substantially all of our revenue when services have been delivered , we recognize a large portion of our sales commission expense at the time of contract signature and at the time our services commence . accordingly , we incur a portion of our sales and marketing expense prior to the recognition of the corresponding revenue . we plan to continue to invest in sales and marketing by hiring additional direct sales personnel to add new clients and increase sales to our existing clients . we also plan to expand our marketing activities in certain areas , such as attending trade shows , expanding user groups , and creating new printed materials . as a result , we expect that , in the future , sales and marketing expense will increase in absolute terms but remain relatively consistent over time as a percentage of revenue . research and development expense . research and development expense consists primarily of personnel-related expenses for research and development employees ( including salaries , benefits , stock-based compensation , non-billable travel , lodging , and other out-of-pocket employee-related expense ) and consulting fees for third-party developers . we expect that , in the future , research and development expense will increase in absolute terms but not as a percentage of revenue as new services and more mature products require incrementally less new research and development investment . general and administrative expense . story_separator_special_tag general and administrative expense consists primarily of personnel-related expense for administrative employees ( including salaries , benefits , stock-based compensation , non-billable travel , lodging , and other out-of-pocket employee-related expense ) , occupancy and other indirect costs ( including building maintenance and utilities ) , and insurance , as well as software license fees ; outside professional fees for accountants , lawyers , and consultants ; and compensation for temporary employees . we expect that general and administrative expense will increase in absolute terms for the foreseeable future as we invest in infrastructure to support our growth and incur additional expense related to being a publicly traded company . though expenses are expected to continue to rise in absolute terms , we expect general and administrative expense to decline as a percentage of overall revenues . depreciation and amortization expense . depreciation and amortization expense consists primarily of depreciation of fixed assets and amortization of capitalized software development costs , which we amortize over a two-year period from the time of release of related software code . because our core revenue cycle application is relatively mature , we expense those costs as incurred , and , as a result , in 2009 approximately 85 % of our software development expenditures were expensed rather than capitalized . in the year ended december 31 , 2008 , approximately 87 % were expensed rather than capitalized . in the year ended december 31 , 2007 , approximately 85 % were expensed rather than capitalized . as we grow , we will continue to make capital investments in the infrastructure of the business , and we will continue to develop software that we capitalize . at the same time , because we are spreading fixed costs over a larger client base , we expect related depreciation and amortization expense to decline as a percentage of revenues over time . 52 other income ( expense ) . interest expense consists primarily of interest costs related to our former working capital line of credit , our equipment-related term leases , our term loan and revolving loans under our credit facility , and our former subordinated term loan , offset by interest income on investments . interest income represents earnings from our cash , cash equivalents , and investments . the gain or loss on interest rate derivative contract represents the change in the fair market value of a derivative instrument that is not designated a hedge under the authoritative accounting guidance . although this derivative has not been designated for hedge accounting , we believe that such instrument is correlated with the underlying cash flow exposure related to variability in interest rate movements on our term loan . in 2007 , the unrealized loss on warrant liability represents the change in the fair value of our warrants to purchase shares of our preferred stock at the end of each reporting period . this warrant liability and associated accounting to recognize this liability at its fair value , ceased upon the completion of our initial public offering , at which time the associated liability converted to additional paid-in-capital . acquisitions 2009 acquisition in october 2009 , the company acquired anodyne health partners , inc. , a software as a service business intelligence company based in alpharetta , georgia . we believe that the acquisition of anodyne provides us with expanded service offerings that will better enable us to compete in the large medical group market . the anodyne software as a service business intelligence tool enhances customers ' ability to view all facets of its revenue cycle information and to access and extract critical operational and administrative information from various data systems . consideration for this transaction was $ 22.3 million plus potential additional consideration of $ 7.7 million which will be paid over a three-year period if anodyne achieves certain business and financial milestones . 2008 acquisition in september 2008 , we acquired specified assets and assumed specified liabilities of crest line technologies , llc ( d.b.a . medicalmessaging.net ) . medicalmessaging is a provider of live and automated calling services for healthcare professionals . the purpose of the acquisition is to augment our core business service offering with medicalmessaging 's automated and live communication services . we believe the purchase of medicalmessaging gave us access to a developed technology that could speed the time to market versus internal development of our own similar product . in addition , we plan to leverage its existing customer base to increase revenues of the medicalmessaging services . consideration for this transaction was $ 7.1 million plus potential additional consideration of $ 1.0 million which will be paid over a three-year period if medicalmessaging achieves certain financial milestones . as of december 31 , 2009 , we have paid $ 0.7 million of the additional consideration . critical accounting policies our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements , which have been prepared in accordance with generally accepted accounting principles in the united states ( gaap ) . in connection with the preparation of our consolidated financial statements , we are required to make assumptions and estimates about future events , and apply judgments that affect the reported amounts of assets , liabilities , revenue , expenses , and the related disclosures . we base our assumptions , estimates and judgments on historical experience , current trends and other factors we believe to be relevant at the time we prepared our consolidated financial statements . on a regular basis , we review the accounting policies , assumptions , estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with gaap . however , because future events and their effects can not be determined with certainty , actual results could differ from our assumptions and estimates , and such differences could be material . the preparation of our consolidated financial statements in conformity with gaap requires us to make estimates and assumptions .
| the number of physicians using our revenue cycle management service , athenacollector , at december 31 , 2009 , was 15,719 , an increase of 3,130 , or 25 % , from 12,589 physicians at december 31 , 2008. the number of active medical providers using our revenue cycle management service , athenacollector , at december 31 , 2009 , was 23,366 , an increase of 4,598 , or 24 % , from 18,768 active medical providers at december 31 , 2008. the number of physicians using our clinical cycle management service , athenaclinicals , at december 31 , 2009 , was 920 , an increase of 435 , or 90 % , from 485 physicians at december 31 , 2008. the number of active medical providers using our clinical cycle management service , athenaclinicals , at december 31 , 2009 , was 1,471 , an increase of 673 , or 84 % , from 798 active medical providers at december 31 , 2008. also contributing to this increase was the growth in related collections on behalf of these physicians and medical providers . total collections generated by these physicians and other medical providers that was posted for the year ended december 31 , 2009 , was $ 4.9 billion , an increase of $ 1.2 billion , or 32 % , over posted collections of $ 3.7 billion for the year ended december 31 , 2008. implementation and other revenue . revenue from implementations and other sources was $ 5.3 million for the year ended december 31 , 2009 , an increase of $ 0.9 million , or 20 % , over revenue of $ 4.4 million for the year ended december 31 , 2008. this increase was driven by new client implementations and increased professional services for our larger client base . as of december 31 , 2009 , the numbers of accounts live on our revenue cycle management service , athenacollector , increased by 366 accounts since december 31 , 2008. as of december 31 , 2009 , the numbers of accounts live on our clinical cycle management service , athenaclinicals , increased by 116 accounts since december 31 , 2008. the increase in implementation and other revenue is the result of the increase in the volume of our business . year ended december 31 , 2009 2008 change amount amount amount percent direct operating costs $ 79,017 $ 59,947 $ 19,070 32 % direct operating costs . direct operating costs for the year ended december 31 , 2009 , was $ 79.0 million , an increase of $ 19 million , or 32 % , over direct operating costs of $ 60.0 million for
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our gross profit margin , as a percentage of net sales , decreased to 12.5 % for fiscal 2011 from 16.9 % for fiscal 2010. the decrease in gross profit margin was almost entirely attributable to significantly higher acquisition costs for tree nuts , beginning in the second quarter of fiscal 2011 , to the extent they were not offset by price increases until the third quarter of fiscal 2011. our gross profit margin improved during the fourth quarter of fiscal 2011. we successfully integrated all ovh activities with the rest of our business with the goal of achieving the greatest efficiencies possible . we incurred $ 0.8 million of expenses relocating all ovh processing from its original modesto , california location to our locations in gustine , california and elgin , illinois . the relocation is complete and no material adverse impact has occurred or is anticipated to occur from this integration . going forward , we expect to realize certain additional efficiencies through our integration efforts . operating expenses for fiscal 2011 included goodwill impairment of $ 5.7 million . goodwill was assigned to our single reporting unit as a result of the ovh acquisition . during the fourth quarter of fiscal 2011 , we experienced a significant decline in the market value of our company , which was indicative of the potential for goodwill impairment . during the fourth quarter of fiscal 2011 , we performed our annual impairment analysis using the two step impairment test set forth in accounting standards codification ( asc ) 350. after conducting the two step impairment test , we concluded that the entire goodwill balance of $ 5.7 million was impaired . 22 story_separator_special_tag impairment test set forth in asc 350. in evaluating the recoverability of goodwill pursuant to asc 350 , we took into consideration current and anticipated future operating results including the likelihood that future gross profit margins will continue to be pressured by historically high tree nut acquisition costs , which it expects to be driven by increasing tree nut consumption in emerging markets . after conducting the two step impairment test , we concluded that the entire goodwill balance of $ 5.7 million was impaired . the impairment was primarily due to the significant decline in the market value and operating results of the company in fiscal 2011 , which have been negatively impacted by challenging market conditions . income from operations . due to the factors discussed above , our income from our operations was $ 10.3 million , or 1.5 % of net sales , for fiscal 2011 , compared to $ 29.7 million , or 5.3 % of net sales , for fiscal 2010. interest expense . interest expense was $ 6.4 million for fiscal 2011 compared to $ 5.7 million for fiscal 2010. the increase in interest expense resulted from higher average short-term debt levels during both periods , which were driven by significantly higher acquisition costs for tree nuts . rental and miscellaneous expense , net . net rental and miscellaneous expense was $ 1.0 million for fiscal 2011 compared to $ 1.1 million for fiscal 2010. the reduction in net expense was due to a $ 0.2 million increase in rental income for space at the office building on the elgin site , partially offset by higher operating expenses . income tax ( benefit ) expense . income tax benefit was ( $ 0.05 ) million , or ( 1.8 % ) of income before income taxes , for fiscal 2011 compared to income tax expense of $ 8.4 million , or 36.9 % of income before income taxes for fiscal 2010. the impact of the rate reconciling items for fiscal 2011 is greater than fiscal 2010 primarily because income before income taxes is lower in fiscal year 2011. the 2011 effective tax rate was impacted by the following : ( i ) $ 0.5 million favorable impact of state tax benefits due to favorable resolution of state tax audit , expected utilization of state investment tax credits , state tax rate changes and other tax provision adjustments ; ( ii ) $ 0.2 million favorable impact due to recognizing current year research and development credit and reinstatement of the prior year credit ; ( iii ) $ 0.3 million favorable impact related to the domestic producers deduction which increased to 9 % in 2011 from 6 % in 2010 ; and ( iv ) $ 0.1 million favorable impact due to a lower level of current year federal taxable income which is taxed at 34 % . net income . net income was $ 2.8 million , or $ 0.27 basic and $ 0.26 diluted per common share , for fiscal 2011 , compared to $ 14.4 million , or $ 1.36 basic and $ 1.34 diluted per common share , for fiscal 2010 , due to the factors discussed above . fiscal 2010 compared to fiscal 2009 net sales . net sales increased to $ 561.6 million for fiscal 2010 from $ 553.8 million for fiscal 2009 , an increase of $ 7.8 million , or 1.4 % . ovh net sales from may 21 , 2010 to june 24 , 2010 represented $ 4.0 million of the $ 7.8 million increase . sales volume , measured as pounds shipped , increased by 3.0 % for the same time period . net sales , measured in dollars , increased in our consumer distribution channel and decreased in our industrial , food service , contract 25 packaging and export distribution channels . sales volume , measured in terms of pounds shipped , increased in the consumer and food service distribution channels and decreased in the industrial , contract packaging and export distribution channels . the following table shows a comparison of sales by distribution channel , and as a percentage of total net sales ( dollars in thousands ) : replace_table_token_7_th the following table shows an annual comparison of sales by product type as a percentage of total gross sales . story_separator_special_tag the table is based on gross sales , rather than net sales , because certain adjustments , such as promotional discounts , are not allocable to product type . replace_table_token_8_th net sales in the consumer distribution channel increased by 4.5 % in dollars and 6.4 % in volume in fiscal 2010 compared to fiscal 2009. private label consumer sales volume , excluding the effect of ovh private label sales , increased by 8.4 % in sales volume , or $ 13.3 million in gross sales , in fiscal 2010 compared to fiscal 2009 primarily due to ( i ) a $ 31.5 million increase at a customer , primarily in snack and trail mixes and ( ii ) a $ 9.9 million increase in gross sales to a customer that was added during the last half of fiscal 2009. these increases were partially offset by ( i ) a loss of $ 17.9 million and $ 4.8 million in business at two former private label customers and ( ii ) a $ 7.7 million decline in business at a customer . fisher brand sales volume increased by 4.5 % in sales volume , or $ 3.8 million in gross sales , in fiscal 2010 compared to fiscal 2009 primarily due to a $ 8.0 million increase in baking nut sales to a customer . this increase was partially offset by a $ 4.1 million decrease in overall fisher snack sales . net sales in the industrial distribution channel decreased by 1.1 % in dollars and 2.8 % in volume in fiscal 2010 compared to fiscal 2009. for both the quarterly and annual comparisons , sales volume increases for almonds , macadamias and walnuts were offset by a decrease in pecan sales due to a limited supply of pecans available for sale through the industrial distribution channel . net sales in the food service distribution channel decreased by 2.3 % in dollars , but increased 4.3 % in volume in fiscal 2010 compared to fiscal 2009. the increase in volume was due primarily to a $ 2.0 million increase in peanut butter business at certain food service distributors . net sales in the contract packaging distribution channel decreased by 6.1 % in dollars and 2.2 % in volume in fiscal 2010 compared to fiscal 2009. the sales volume decrease was due to lower sales to our major contract packaging customer . this decrease was partially offset during the first half of fiscal 2010 by increased sales to a separate contract packaging customer . net sales in the export distribution channel decreased by 2.3 % in dollars and 2.5 % in volume in fiscal 2010 compared to fiscal 2009. the decrease in volume was due primarily to lower walnut sales to industrial export customers . 26 gross profit . gross profit increased 30.9 % to $ 94.8 million for fiscal 2010 from $ 72.4 million for fiscal 2009. gross profit margin increased to 16.9 % of net sales for fiscal 2010 from 13.1 % for fiscal 2009. the increase in the gross profit margin was due primarily to lower commodity costs during the first half of fiscal 2010 and improvements in manufacturing efficiencies . gross profit margins improved on the sales of all major products except walnuts due to lower acquisition costs in the first half of fiscal 2010. walnut gross profit margins declined in the fiscal year comparison because of higher acquisition costs during the last three quarters of fiscal 2010. we experienced some pressure on gross profit margin during the last half of fiscal 2010 due to higher tree nut costs because of increasing exports of united states origin nuts resulting from a weaker dollar and increasing demand for tree nuts in china , especially for walnuts and pecans . operating expenses . selling expenses for fiscal 2010 were $ 40.5 million , an increase of $ 4.0 million , or 11.0 % , from fiscal 2009. this increase was primarily due to ( i ) a $ 1.3 million increase in salaries due primarily to the expansion of our sales and marketing teams , ( ii ) a $ 1.0 million increase in incentive compensation expense due to improved operating results and a higher number of participants , and ( iii ) a $ 1.3 million increase in marketing and advertising expenditures . administrative expenses for fiscal 2010 were $ 24.6 million , an increase of $ 3.9 million , or 19.0 % , from fiscal 2009. this increase was primarily due to ( i ) a $ 0.8 million increase in compensation expense , ( ii ) a $ 2.1 million increase in incentive compensation expense from improved operating results and a higher number of participants , and ( iii ) a $ 0.7 million increase in legal and other advisory fees related to the amendment of our credit facility and transaction costs associated with the ovh acquisition . these increases were partially offset by a $ 0.6 million decrease in recall costs . while the ovh acquisition contributed to the increase in operating expenses for fiscal 2010 compared to fiscal 2009 , the effect was not significant . amortization expense related to the ovh acquisition was $ 0.2 million in fiscal 2010. operating expenses were reduced by $ 0.3 million during the first quarter of fiscal 2009 for the difference between our previously estimated cost of withdrawal from the multiemployer pension plan and the actual cost determined by the multiemployer pension plan . income from operations . due to the factors discussed above , the income from our operations was $ 29.7 million , or 5.3 % of net sales , for fiscal 2010 , compared to $ 15.6 million , or 2.8 % of net sales , for fiscal 2009. interest expense . interest expense decreased to $ 5.7 million for fiscal 2010 from $ 7.6 million for fiscal 2009. the decrease was primarily due to lower average debt levels during fiscal 2010 compared to fiscal 2009. rental and miscellaneous ( expense ) income , net .
| 23 net sales in the consumer distribution channel increased by 25.0 % in dollars and 7.5 % in volume in fiscal 2011 compared to fiscal 2010. excluding ovh sales , sales volume decreased by 2.0 % in fiscal 2011 compared to fiscal 2010. private label consumer sales volume increased by 8.2 % in fiscal 2011 compared to fiscal 2010 due to ovh business . sales volume would have decreased slightly if ovh sales were excluded , primarily due to business lost at a significant customer that represented $ 9.4 million in sales in fiscal 2010. fisher brand sales volume decreased by 7.4 % in fiscal 2011 compared to fiscal 2010 , primarily due to decreases in fisher snack nut and fisher peanut butter business . net sales in the industrial distribution channel increased by 12.2 % in dollars , but decreased 14.3 % in sales volume in fiscal 2011 compared fiscal 2010. the sales volume decrease was primarily due to lower pecan and walnut sales mainly from a limited supply of pecans and walnuts available for the industrial distribution channel and lower peanut sales to other peanut processors . net sales in the food service distribution channel increased by 15.5 % in dollars and 3.4 % in volume in fiscal 2011 compared to fiscal 2010. the sales volume increase was primarily due to higher peanut butter sales at food service distributors . net sales in the contract packaging distribution channel increased by 22.3 % in dollars and 18.9 % in volume in fiscal 2011 compared to fiscal 2010. the sales volume increase was due to increased sales of chocolate covered products and peanuts to our major contract packaging customer . net sales in the export distribution channel decreased by 4.0 % in dollars and 10.4 % in volume in fiscal 2011 compared to fiscal 2010. the decrease in sales volume was due primarily to lost business at a major export retail customer . gross profit . gross profit decreased 11.2 % to $ 84.2 million in fiscal 2011 from $ 94.8 million in fiscal 2010. our gross profit margin , as a percentage of net sales ,
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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 as of the date of the financial statements , as well as the reported revenue generated and expenses incurred 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 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 . we believe that the accounting policies discussed below are critical to understanding our historical and future performance , as these policies relate to the more significant areas involving management 's judgments and estimates . revenue recognition revenue is recognized when the four basic criteria of revenue recognition are met : ( 1 ) persuasive evidence of an arrangement exists ; ( 2 ) delivery has occurred or services have been rendered ; ( 3 ) the fee is fixed or determinable ; and ( 4 ) collectability is reasonably assured . where the revenue recognition criteria are not met , we defer the recognition of revenue by recording deferred revenue until such time that all criteria are met . collaborative arrangements and multiple element arrangements we generate revenue from collaboration and license agreements for the development and commercialization of product candidates . collaboration and license agreements may include non-refundable upfront payments , partial or complete reimbursement of research and development costs , supply arrangement , contingent payments based on the occurrence of specified events under our collaborative arrangements , license fees and royalties on sales of product candidates if they are successfully approved and commercialized . our performance obligations under the collaborations may include the transfer of intellectual property rights in the form of licenses , obligations to provide research and development services and related materials , supply of active pharmaceutical ingredient ( `` api '' ) and or drug product , and obligations to participate on certain development and or commercialization committees with the collaborative partners . we make judgments that affect the periods over which we recognize revenue . we periodically review our estimated periods of performance based on the progress under each arrangement and account for the impact of any changes in estimated periods of performance on a prospective basis . on january 1 , 2011 , we adopted an accounting standards update that amends the guidance on accounting for new or materially modified multiple-element arrangements that we enter into subsequent to january 1 , 2011. this guidance removed the requirement for objective and reliable evidence of fair value of the undelivered items in order to consider a deliverable a separate unit of 39 accounting . it also changed the allocation method such that the relative-selling-price method must be used to allocate arrangement consideration to all the units of accounting in an arrangement . this guidance established the following hierarchy that must be used in estimating selling price under the relative-selling-price method : ( 1 ) vendor-specific objective evidence of fair value of the deliverable , if it exists , ( 2 ) third-party evidence of selling price , if vendor-specific objective evidence is not available or ( 3 ) vendor 's best estimate of selling price ( `` besp '' ) if neither vendor-specific nor third-party evidence is available . we may determine that the selling price for the deliverables within collaboration and license arrangements should be determined using besp . the process for determining besp involves significant judgment on our part and includes consideration of multiple factors such as estimated direct expenses and other costs , and available data . we have determined besp for license units of accounting based on market conditions , similar arrangements entered into by third parties and entity-specific factors such as the terms of previous collaborative agreements , our pricing practices and pricing objectives , the likelihood that clinical trials will be successful , the likelihood that regulatory approval will be received and that the products will become commercialized . we have also determined besp for services-related deliverables based on the nature of the services to be performed and estimates of the associated effort as well as estimated market rates for similar services . for each unit of accounting identified within an arrangement , we determine the period over which the performance obligation occurs . revenue is then recognized using either a proportional performance or straight-line method . we recognize revenue using the proportional performance method when the level of effort to complete our performance obligations under an arrangement can be reasonably estimated . direct labor hours or full time equivalents are typically used as the measurement of performance . any changes in the remaining estimated performance obligation periods under these collaborative arrangements will not have a significant impact on the results of operations , except for a change in estimated performance period resulting from the termination of a collaborative arrangement , which would result in immediate recognition of the related deferred revenue . the gsk agreements were entered into prior to january 1 , 2011. the delivered items under these collaborative agreements did not meet the criteria required to be accounted for as separate accounting units for the purposes of revenue recognition . as a result , revenue from non-refundable , upfront fees and development contingent payments were recognized ratably over the expected term of our performance of research and development services under the agreements . these upfront or contingent payments received , pending recognition as revenue , were recorded as deferred revenue and recognized over the estimated performance periods . story_separator_special_tag under the gsk agreements , we recognized revenue of $ 54.0 million , $ 8.4 million and $ 4.5 million for the years ended december 31 , 2015 , 2014 and 2013. the remaining deferred revenue under the gsk strategic alliance agreement is $ 4.0 million as of december 31 , 2015. any change in the estimated performance period , which is predominantly based on gsk 's development timeline , will not have a significant impact on the results of operations , except for a change in estimated performance period resulting from the termination of the maba program that would result in immediate recognition of the deferred revenue . on january 1 , 2011 , we also adopted an accounting standards update that provides guidance on revenue recognition using the milestone method . payments that are contingent upon achievement of a substantive milestone are recognized in their entirety in the period in which the milestone is achieved . milestones are defined as events that can be achieved based on our performance and as to which , as of the inception of the arrangement , there is substantive uncertainty about whether the milestone will be achieved . events that are contingent only on the passage of time or only on third-party performance are not considered milestones subject to this guidance . further , the amounts received must relate solely to prior performance , be reasonable relative to all of the deliverables and payment terms in the 40 agreement and commensurate with our performance to achieve the milestone after commencement of the agreement . total contingent payments that may become payable to us under our collaborative agreements were up to $ 363.0 million as of december 31 , 2015 and are considered non-substantive . under the gsk agreements , royalty revenue earned is reduced by amortization expense resulting from the fees paid to gsk , which were recognized as capitalized fees paid to a related party . when amortization expense exceeds amounts recognized for royalty revenues from gsk , negative revenue would be reported in our consolidated statements of operations . royalties we recognize royalty revenue on licensee net sales of products with respect to which we have royalty rights in the period in which the royalties are earned and reported to us and collectability is reasonably assured . royalties are recognized net of amortization of capitalized fees paid to a related party associated with any approval and launch milestone payments made to gsk . capitalized fees paid to a related party we capitalize fees paid to licensors related to agreements for approved products or commercialized products . we capitalize these fees as capitalized fees paid to a related party ( `` capitalized fees '' ) and amortize these capitalized fees on a straight-line basis over their estimated useful lives upon the commercial launch of the product , which is expected to be shortly after regulatory approval of such product . the estimated useful lives of these capitalized fees are based on a country-by-country and product-by-product basis , as the later of the expiration or termination of the last patent right covering the compound in such product in such country and 15 years from first commercial sale of such product in such country , unless the agreement is terminated earlier . consistent with our policy for classification of costs under the research and development collaborative arrangements , the amortization of these capitalized fees is recognized as a reduction of royalty revenue . we review our capitalized fees for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable . the recoverability of capitalized fees is measured by comparing the asset 's carrying amount to the expected undiscounted future cash flows that the asset is expected to generate . the determination of recoverability typically requires various estimates and assumptions , including estimating the useful life over which cash flows will occur , their amount , and the asset 's residual value , if any . we derive the required cash flow estimates from near-term forecasted product sales and long-term projected sales in the corresponding market . our gross capitalized fees of $ 220.0 million as of december 31 , 2015 consist of registrational and launch-related to milestone fees paid to gsk ( see `` collaborative arrangements with gsk '' above for more information ) . these capitalized fees are amortized over their estimated useful lives using the straight-line method commencing upon commercial launch . fair value of stock-based compensation awards we use the black-scholes-merton option pricing model to estimate the fair value of options as of the date of grant . the black-scholes-merton option valuation model requires the use of assumptions , including the expected term of the award and the expected stock price volatility . we use the `` simplified '' method as described in staff accounting bulletin no . 107 , `` share based payment , '' for the expected option term because the usage of our historical option exercise data is limited due to post-ipo exercise restrictions . beginning april 1 , 2011 , we have used our historical volatility to estimate expected stock price volatility . prior to april 1 , 2011 , we used our peer company price volatility to estimate expected stock price volatility due to our limited historical common stock price volatility since our initial public offering in 2004. the estimated fair value of the option is expensed on a straight-line basis over the expected term of the grant . 41 we estimated the fair value of restricted stock units ( `` rsus '' ) and restricted stock awards ( `` rsas '' ) based on the fair market values of the underlying stock on the dates of grant . the estimated fair value of time-based rsus and rsas is expensed on a straight-line basis over the expected term of the grant .
| our announcement of the share repurchase program does not obligate us to repurchase any specific dollar amount or number of shares of common stock . we will determine when , if and how to proceed with any repurchase transactions under the program , as well as the amount of any such repurchase transactions , based upon , among other things , the results of the tender offer and our evaluation of our liquidity and capital needs ( including for strategic and other opportunities ) , our business , results of operations , and financial position and prospects , general financial , economic and market conditions , prevailing market prices for our shares of common stock , corporate , regulatory and legal requirements , and other conditions and factors deemed relevant by our management and board of directors from time to time . the share repurchase program may be suspended or discontinued at any time . there can be no assurance as to the actual volume of any share repurchases in any given period or over the term of the program or as to the manner or terms of any such repurchases . on october 30 , 2015 , we commenced a `` modified dutch auction '' tender offer as a component of the share repurchase plan to purchase up to $ 75 million of our common stock , at a price per share of not less than $ 8.50 and not greater than $ 9.25. the tender offer expired on december 1 , 2015 and we purchased an aggregate of 2,576,236 shares of our common stock at a purchase price of $ 9.25 per share for a total value of approximately $ 23.8 million , excluding fees and expenses relating to the tender offer . from december 1 , 2015 to december 31 , 2015 , we purchased 100,000 shares of our common stock at a purchase price of $ 9.95 per share for a total value of approximately $ 1.0 million in the open market . recent highlights in january 2016 , we announced
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additionally , we expect to produce 26,700 tons of molybdenum , in line with 2019 production of 26,885 tons . ● cost : our operating costs and expenses for the three years ended december 31 , 2019 have increased in total in each of the years . our comparison of costs for the three year period is as follows : replace_table_token_30_th operating costs and expenses in 2019 increased $ 317.1 million , compared to 2018 , mainly due to higher cost of sales in all our operating segments , as well as higher depreciation , amortization and depletion at our peruvian operations due to the completion of the toquepala expansion project . operating costs and expenses in 2018 increased $ 179.9 million , compared to 2017 , mainly due to higher cost of sales in all our operating segments , as well as higher depreciation , amortization and depletion at our mexican operations . this was partially offset by lower depreciation , amortization and depletion at our peruvian operations , lower exploration expenses and a $ 10.2 million credit related to a previously accrued environmental remediation cost at our mexican operations which was reversed in the first quarter of 2017 . 67 ● capital investments : capital investments were $ 707.5 million for 2019. this is 36.9 % lower than in 2018 , and represented 47.0 % of net income . our growth program to develop the full production potential of our company is underway . we are currently developing a new organic growth plan to increase our copper volume production to 1.5 million tons by 2028 with the development of new projects . for 2020 , the board of directors approved a capital investment program of $ 1,146.7 million . key matters we discuss below several matters that we believe are important to understand our results of operations and financial condition . these matters include ( i ) earnings , ( ii ) production , ( iii ) “ operating cash costs ” as a measure of our performance , ( iv ) metal prices , ( v ) business segments , ( vi ) the effect of inflation and other local currency issues and ( vii ) our capital investment and exploration program . earnings : the table below highlights key financial and operational data of our company for the three years ended december 31 , 2019 ( in millions , except copper price and per share amounts ) : replace_table_token_31_th net sales in 2019 of $ 7.3 billion were the highest in our history and were higher than in 2018 by $ 188.9 million . this increase was mainly the result of higher copper ( +11.3 % ) , molybdenum ( +21.7 % ) and silver ( +5.7 % ) sales volumes , partially offset by lower copper ( −8.1 % ) and molybdenum ( −5.0 % ) prices . net sales in 2018 were higher than in 2017 by $ 442.2 million . this increase was mainly the result of higher copper ( +5.7 % ) and molybdenum ( +45.9 % ) prices and higher sales volumes of silver ( +15.3 % ) and molybdenum ( +3.3 % ) , partially offset by lower silver prices ( −8.1 % ) and lower zinc sales volume ( −1.0 % ) . the two largest components of operating costs and expenses are cost of sales and depreciation , amortization and depletion , both of which increased in each of the years in the periods above . in 2019 , cost of sales increased by $ 197.4 million and depreciation , amortization and depletion increased by $ 90.1 million . the increase in cost of sales in 2019 was mainly due to higher repairing materials and operating contractors ' costs , as well as lower capitalized leachable material . this was partially offset by a lower cost of metals purchased from third parties . in 2018 , cost of sales increased by $ 156.2 million and depreciation , amortization and depletion increased by $ 3.2 million . the increase in cost of sales in 2018 was mainly due to higher fuel costs , higher workers ' participation expense and inventory consumption . despite the higher sales volumes reported at competitive costs , net income attributable to scc in 2019 was 3.6 % lower than in 2018 mainly due to lower prices for copper and molybdenum , as mentioned previously . net income attributable to scc in 2018 was 111.8 % higher than in 2017 mainly due to the one-time , non-cash income tax adjustment of $ 785.9 million recorded in 2017 as result of the u.s. income tax legislation enacted in the fourth quarter of 2017. see note 7 “ income taxes ” , of our consolidated financial statements . production : the table below highlights , mine production data of our company for the three years ended december 31 , 2019 : 68 replace_table_token_32_th the table below highlights copper production data at each of our mines for the three years ended december 31 , 2019 : replace_table_token_33_th 2019 compared to 2018 : copper mine production in 2019 increased 12.5 % to 2,191.0 million pounds from 1,948.2 million pounds in 2018. this increase was due to : ● higher production at the toquepala mine ( +51.5 % ) , as a result of additional copper production of 93,108 tons from the successful ramping up of the new concentrator . ● higher production at the buenavista mine ( +5.8 % ) due to operating improvements at our new buenavista plants , the sx/ew ( +12.2 % ) and concentrator ( +4.0 % ) . ● higher production at the immsa operations ( +32.9 % ) , as result of the restoration of the san martin mine operations . story_separator_special_tag molybdenum production increased 22.3 % in 2019 compared to 2018 due to higher production at all of our mines , principally at the toquepala mine ( +75 % ) due to the successful ramping up of the new molybdenum plant that started production in april 2019 . zinc production increased 4.4 % in 2019 , as a result of higher production at our santa barbara mine due to higher grades and recoveries , as well as the restored production of 5,837 tons from our san martin mine . mined silver production increased 17.1 % in 2019 compared to 2018 , mainly due to higher production at our toquepala ( +60.5 % ) , immsa ( +22.9 % ) and buenavista ( +11.5 % ) operations , partially offset by lower production at the la caridad ( -6.6 % ) and cuajone ( -3.2 % ) mines . 2018 compared to 2017 : copper mine production in 2018 increased 0.8 % to 1,948.2 million pounds from 1,933.4 million pounds in 2017. this increase was due to : ● higher production at the toquepala and cuajone mines due to higher ore grades and recoveries , which was partially offset by ● lower production at the buenavista mine due to lower sx-ew copper production ( −20.1 % ) . in 2018 , the company initiated a 12-month corrective program to overcome this temporary reduction in production . the program includes depositing the minerals in different leaching pads depending on the characteristics of the ore. also , the company 69 has implemented improvements and controls in the ore fragmentation that occurs in the blasting , to avoid the fine materials that may cause clogging in the recovery process . molybdenum production increased 3.1 % in 2018 compared to 2017 , principally due to higher production at the buenavista mine due to higher recoveries . this increase was partially offset by lower production at our peruvian mines due to lower ore grades and recoveries . zinc production increased 3.1 % in 2018 , due to higher production at our santa eulalia and santa barbara mines due to higher mineral milled . mined silver production increased 8.7 % in 2018 compared to 2017 , as we had increased silver production at all of our mines , except for our cuajone mine . operating cash costs : an overall benchmark used by us and a common industry metric to measure performance is operating cash costs per pound of copper produced . operating cash cost is a non-gaap measure that does not have a standardized meaning and may not be comparable to similarly titled measures provided by other companies . this non-gaap information should not be considered in isolation or as substitute for measures of performance determined in accordance with gaap . a reconciliation of our operating cash cost per pound of copper produced to the cost of sales ( exclusive of depreciation , amortization and depletion ) as presented in the consolidated statement of earnings is presented under the subheading , “ non-gaap information reconciliation ” on page 91. we disclose operating cash cost per pound of copper produced , both before and net of by-product revenues . we define operating cash cost per pound of copper produced before by-product revenues as cost of sales ( exclusive of depreciation , amortization and depletion ) , plus selling , general and administrative charges , treatment and refining charges net of sales premiums ; less the cost of purchased concentrates , workers ' participation and other miscellaneous charges , including royalty charges , and the change in inventory levels ; divided by total pounds of copper produced by our own mines . in our calculation of operating cash cost per pound of copper produced , we exclude depreciation , amortization and depletion , which are considered non-cash expenses . exploration is considered a discretionary expenditure and is also excluded . workers ' participation provisions are determined on the basis of pre-tax earnings and are also excluded . additionally excluded from operating cash costs are items of a non-recurring nature and the mining royalty charge as it is based on various calculations of taxable income , depending on which jurisdiction , peru or mexico , is imposing the charge . we believe these adjustments will allow our management and stakeholders to see a presentation of our controllable cash cost , which we consider is one of the lowest of copper producing companies of similar size . we define operating cash cost per pound of copper produced net of by-product revenues as operating cash cost per pound of copper produced , as defined in the previous paragraph , less by-product revenues and net revenue ( loss ) on sale of metal purchased from third parties . in our calculation of operating cash cost per pound of copper produced , net of by-product revenues , we credit against our costs the revenues from the sale of all our by-products , including , molybdenum , zinc , silver , gold , etc . and the net revenue ( loss ) on sale of metals purchased from third parties . we disclose this measure including the by-product revenues in this way because we consider our principal business to be the production and sale of copper . as part of our copper production process , much of our by-products are recovered . these by-products , as well as the processing of copper purchased from third parties , are a supplemental part of our production process and their sales value contribute to cover part of our incurred fixed costs . we believe that our company is viewed by the investment community as a copper company , and is valued , in large part , by the investment community 's view of the copper market and our ability to produce copper at a reasonable cost . we believe that both of these measures are useful tools for our management and our stakeholders .
| the table below provides our metal sales as a percentage of our total net sales : replace_table_token_40_th 79 the table below provides our copper sales by type of product ( in million pounds ) : replace_table_token_41_th the table below provides our copper sales volume by type of product as a percentage of our total copper sales volume : replace_table_token_42_th operating costs and expenses the table below summarizes the production cost structure by major components for the three years ended 2019 as a percentage of total production cost : replace_table_token_43_th 2019-2018 : operating costs and expenses in 2019 increased $ 317.1 million , compared to 2018 , primarily due to : operating cost and expenses for 2018 $ 4,215.5 plus : higher cost of sales ( exclusive of depreciation , amortization and depletion ) mainly due to lower capitalized leachable material , higher repairing materials costs , operating contractors and power costs , partially offset by lower cost of metals purchased from third parties and lower inventory consumption . 197.4 higher depreciation , amortization and depletion expense due to our expansion and maintenance investments . 90.1 higher selling , general and administrative expenses . 29.2 higher exploration expense . 0.4 operating cost and expenses for 2019 $ 4,532.6 80 2018-2017 : operating costs and expenses in 2018 increased $ 179.9 million , compared to 2017 , primarily due to : operating cost and expenses for 2017 $ 4,035.6 plus : higher cost of sales ( exclusive of depreciation , amortization and depletion ) mainly due to higher inventory consumption , foreign currency transaction effect , higher workers ' participation expense and higher fuel costs , partially offset by lower power costs , and higher capitalized ore stockpiles on leach pads . 156.2 reversal in 2017 of over-accrual of sonora river remediation costs . 10.2 higher selling , general and administrative expenses . 9.5 < p style= '' font-family : 'times new
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our management believes that the accounting policies which involve more significant judgments and estimates used in the preparation of our consolidated financial statements , include revenue recognition , inventories , liability related to certain warrants , and accounting for production lines and its related useful life and impairment . revenue recognition we derive revenues from the sale of our device-specific disposables test strip cartridges , lancets and our dario smart meters through distributors or directly to end users . the dario software application is offered for a free download and we do not have a recurring hosting commitment with our end users relating specifically to the application . revenues from product sales are recognized in accordance with asc 605-10 , “ revenue recognition ” , when delivery has occurred , persuasive evidence of an agreement exists , the vendor 's fee is fixed or determinable , no further obligation exists and collectability is probable . we generally do not grant a right of return . we assess whether the fee is fixed or determinable based on the nature of the fee charged for the products delivered , the existing contractual arrangements and the distributor 's consistency of payments . when evaluating collectability , we consider whether we have sufficient history to reliably estimate the distributor 's payment patterns . through december 31 , 2015 , product sales to distributors are only recognized as revenues upon receipt of payment . we will apply this policy until we will have sufficient historical experience with each distributor in order to conclude that fee is fixed or determinable and collectability is probable . 49 we also generate revenues from arrangements with health care providers which include supply of dario smart meters and software platform that requires certain customization followed by monthly service , support and maintenance . when a sales arrangement contains multiple elements , such as software and non-software components , we allocate revenue to each element based on a selling price hierarchy as required according to asc 605-25 , “ multiple-element arrangements ” , or asc 605-25. the selling price for a deliverable is based on its vendor specific objective evidence , or vsoe , or , if available , third party evidence , or tpe , if vsoe is not available , or estimated selling price , or esp , if neither vsoe nor tpe is available . the best estimate of selling price is established considering several internal factors including , but not limited to , historical sales , pricing practices and geographies in which we offer our products . the determination of esp is judgmental . revenues from software components in sales arrangements containing multiple elements are recognized when all criteria outlined in asc 985-605 , “ software revenue recognition ” , or asc 985-605 , are met ( when persuasive evidence of an arrangement exists , delivery of the product has occurred or the services have been rendered , the fee is fixed or determinable and collectability is probable ) . for multiple element arrangements within asc 985-605 , revenues are allocated to the different elements in the arrangement under the “ residual method ” when vsoe of fair value exists for all undelivered elements and no vsoe exists for the delivered elements . under the residual method , at the outset of the arrangement with the customer , we defer revenue for the fair value of its undelivered elements and recognize revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement when the basic criteria in asc 985-605 have been met . any discount in the arrangement is allocated to the delivered element . since vsoe does not exist for undelivered elements , revenues are recognized as one unit of accounting , on a straight-line basis over the term of the last deliverable based on asc 605-15 and asc 985-605. liability related to certain warrants the fair value of the liability for certain warrants issued to investors and our previous placement agents in connection with our financings to date was calculated using the binomial option-pricing model . we accounted for these warrants according to the provisions of asc 815 , “ derivatives and hedging - contracts in entity 's own equity ” and , based on the anti-dilution protections contained in part of the warrants and net settlement cash feature contained in other warrants , we classified them as non-current liabilities , measured at fair value each reporting period until they will be exercised or expired , with changes in the fair values being recognized in our statement of comprehensive loss as financial income or expense . the anti-dilution protections feature for certain warrants was valued by calculating a put option . the value of these warrants was calculated using the call option value in addition with the put option value , which reflects the anti-dilution protection , multiplied by the probability that a down round will occur . the value of warrants with net settlement cash feature and liquidated damages penalties which do not include anti-dilution provision was calculated using a call option value . fair value for each reporting period was calculated based on the following assumptions : ( 1 ) risk-free interest rate - based on yield rates of non-index linked u.s. federal reserve treasury bonds . ( 2 ) expected volatility - was calculated based on actual historical stock price movements of the company together with companies in the same industry over a term that is equivalent to the expected term of the option . ( 3 ) expected life - the expected life was based on the expiration date of the warrants . ( 4 ) expected dividend yield - was based on the fact that the company has not paid dividends to its shareholders in the past and does not expect to pay dividends to its shareholders in the future . story_separator_special_tag our net loss for the year ended december 31 , 2015 and 2014 included finance income in the amount of $ 571,000 and $ 2,194,000 , respectively , with connection to the above-mentioned warrants . 50 inventories inventory write-down is also measured as the difference between the cost of the inventory and net realized value based upon assumptions about future demand , and is charged to the cost of sales . at the point of the loss recognition , a new , lower-cost basis for that inventory is established , and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis . if there were to be a sudden and significant decrease in demand for our products or if there were a higher incidence of inventory obsolescence because of rapidly changing technology and customer requirements , we could be required to increase our inventory write-downs and our gross margin could be adversely affected . inventory and supply chain management remain areas of focus as we balance the need to maintain supply chain flexibility , to help ensure competitive lead times with the risk of inventory obsolescence . during the year ended december 31 , 2015 , total inventory write-off expenses amounted to $ 193,000. production lines capitalization of costs . we capitalize direct incremental costs of third party manufacturers related to the equipment in our production lines . we cease construction cost capitalization relating to our production lines once they are ready for its intended use and held available for occupancy . all renovations and betterments that extend the economic useful lives of assets and or improve the performance of the production lines are capitalized . useful lives of assets . we are required to make subjective assessments as to the useful lives of our production lines for purposes of determining the amount of depreciation to record on an annual basis with respect to our construction of the production lines . these assessments have a direct impact on our net income ( loss ) . production lines are usually depreciated on a straight-line basis over a period of up to five years , except any renovations and betterments which are depreciated over the remaining life of the production lines . impairment of production lines . we are required to review our production lines for impairment in accordance with asc 360 , “ property , plant and equipment , ” whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable . recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets . if such assets are considered to be impaired , the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets . based on such review , during the year ended december 31 , 2014 , we recorded a non-cash charge with respect to an impairment of production equipment in the amount of $ 489,000. during the year ended december 31 , 2015 , no impairment losses have been recorded . extended transition period for “ emerging growth companies ” we have elected to use the extended transition period for complying with new or revised accounting standards under section 102 ( b ) ( 1 ) of the jobs act . this election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies . as a result of this election , our financial statements may not be comparable to companies that comply with public company effective dates . because our financial statements may not be comparable to companies that comply with public company effective dates , investors may have difficulty evaluating or comparing our business , performance or prospects in comparison to other public companies , which may have a negative impact on the value and liquidity of our common stock . 51 story_separator_special_tag in accordance with gaap , it is required that a deferred tax asset be reduced by a valuation allowance if , based on the weight of available evidence it is more likely than not ( a likelihood of more than 50 percent ) that some portion or all of the deferred tax assets will not be realized . the valuation allowance should be sufficient to reduce the deferred tax asset to the amount which is more likely than not to be realized . as a result , we recorded a valuation allowance with respect to our deferred tax asset . under sections 382 and 383 of the internal revenue code , if an ownership change occurs with respect to a “ loss corporation ” ( as defined in the internal revenue code ) , there are annual limitations on the amount of the net operating loss and other deductions which are available to us . liquidity and capital resources as of december 31 , 2015 , we had approximately $ 2,671,000 in cash and cash equivalents compared to $ 1,453,000 at december 31 , 2014. we have experienced cumulative losses of $ 43,354,000 from inception ( august 11 , 2011 ) through december 31 , 2015 , and have a stockholders ' deficiency of $ 1,580,000 at december 31 , 2015. in addition , we have not completed our efforts to establish a stable recurring source of revenues sufficient to cover our operating costs and expect to continue to generate losses for the foreseeable future . there is no assurances that we will be able to obtain an adequate level of financing needed for our near term requirements or the long-term development and commercialization of our product . these conditions raise substantial doubt about our ability to continue as a “ going concern ” .
| research and development expenses our research and development expenses decreased by $ 1,378,000 to $ 2,565,000 for the year ended december 31 , 2015 compared to $ 3,943,000 for the year ended december 31 , 2014. this decrease was mainly due to decreases in employee payroll and related costs , stock-based compensation expenses , development costs and other costs due to our product launch in 2015. research and development expenses consist mainly of payroll expenses to employees involved in research and development activities , expenses related to our dario software application and related smart meter device , labor contractors and engineering expenses , depreciation and maintenance fees related to equipment and software tools used in research and development , clinical trials performed in the united states to satisfy the fda product approval requirements and facilities expenses associated with and allocated to research and development activities . sales , marketing and pre-production costs our sales , marketing and pre-production costs increased by $ 267,000 to $ 1,330,000 for the year ended december 31 , 2015 compared to $ 1,063,000 for the year ended december 31 , 2014. this increase was mainly due to an increase in headcount of marketing personnel and public relations efforts towards initiation of sales in the united states in connection with the receipt of fda certification in december 2015. sales and marketing expenses consist mainly of payroll expenses , trade show expenses and on-line marketing . general and administrative expenses our general and administrative expenses decreased by $ 692,000 to $ 2,948,000 for the year ended december 31 , 2015 compared to $ 3,640,000 for the year ended december 31 , 2014. the decrease is mainly due to decreases in employee payroll and related costs due to a change in management structure , stock-based compensation expenses of employees and directors , office maintenance and employee welfare , legal and professional expenses and other expenses . 52 our general and administrative expenses consist mainly of payroll and stock-based compensation expenses for management , employees , directors and consultants , legal fees ,
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we expect to continue to conduct the international phase 3 mpowered clinical trial of octreotide capsules in acromegaly that we initiated in march 2016 to support potential regulatory approval in europe and plan to continue our phase 3 chiasma optimal clinical trial of octreotide capsules in acromegaly that we initiated in september 2017 to support potential regulatory approval in the united states . we expect the release of top-line chiasma optimal data by the end of 2019 and we expect the release of top-line mpowered data in 2020. clinical development timelines , the probability of success and development costs can differ materially from expectations . in june and august 2016 , we announced two separate corporate restructuring plans intended to focus our resources on the continued development of octreotide capsules for the maintenance treatment of adult acromegaly patients . as a result of the august 2016 reduction in workforce , we eliminated our research and discovery functions and are currently not investing in those areas . because of the numerous risks and uncertainties facing our company and associated with developing and commercializing pharmaceutical products generally , we are unable to predict the extent of any future losses or when we will become profitable , if at all . until such time , if ever , as we can generate substantial product revenues , we expect to finance our cash needs through a combination of equity offerings and debt financings , and we may also opportunistically consider license and collaboration agreements with potential partners . we may be unable to raise capital when needed or on attractive terms , or to enter into collaboration agreements , which could force us to delay , limit , reduce or terminate our product development or future commercialization efforts . we will need to generate significant revenues to achieve profitability , which we may not be able to achieve . roche license agreement in december 2012 , we signed a license agreement with roche , which went into effect on january 2013. pursuant to the license agreement , we granted roche an exclusive , non-transferable license to all intellectual property related to octreotide capsules . under the terms of the license , roche obtained worldwide rights to research , develop , make , import , export , sell , market or distribute the commercial product . we retained certain responsibilities for research and development activities under a joint development plan . in july 2014 , roche terminated the license agreement . pursuant to the termination of the license agreement , we are not entitled to further payments from roche , roche has no remaining rights to octreotide capsules and we retain all rights to octreotide capsules and all related intellectual property . subsequent to the termination , we purchased from roche active pharmaceutical ingredient , or api , supplies to continue the development and manufacturing of octreotide capsules , together with roche 's proposed trade name , mycapssa for octreotide capsules , for an aggregate amount of $ 5.1 million , payable in three annual installments of $ 1.7 million beginning in 2016. we made the $ 1.7 million annual payments in march of 2018 , 2017 , and 2016. other than these payments , we have no further financial or operational obligations to roche . 95 financial overview research and development research and development expenses consist of expenses incurred in performing research and development activities , including compensation and benefits for full-time research and development employees , an allocation of facilities expenses , overhead expenses , nonclinical pharmacology studies , manufacturing process-development and scale-up activities , clinical trial and related clinical manufacturing expenses , fees paid to contract research organizations , or cros , investigative sites , and other external expenses . in the early phases of development , our research and development costs included expanding our technology platform as well as early development of specific product candidates . the majority of our research and development expenses has been spent on the development of octreotide capsules , including the manufacturing of clinical trial material , manufacturing process development and validation regulatory and clinical activities , and our tpe platform . we expense research and development costs as incurred . as a result of the august 2016 reduction in workforce , we eliminated our research and discovery functions and are currently not investing in those areas . we continue to invest in the clinical development of octreotide capsules . product candidates in late stages of development generally have higher development costs than those in earlier stages of development , primarily due to the increased size and duration of late-stage clinical trials . we plan to continue our international phase 3 chiasma optimal clinical trial of octreotide capsules in acromegaly that we initiated in september 2017 to support potential regulatory approval in the united states . we also expect to continue to conduct our international phase 3 mpowered clinical trial of octreotide capsules in acromegaly that we initiated in march 2016 to support potential regulatory approval in europe . the successful development of octreotide capsules are highly uncertain . general and administrative general and administrative expenses consist primarily of salaries and related benefits , including stock-based compensation , related to our executive , finance , legal , marketing and support functions . other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses , travel expenses for our general and administrative personnel and professional fees for auditing , tax , and corporate and intellectual property legal services . marketing expenses consist of professional fees related to preparation for the potential commercialization of octreotide capsules , if approved , as well as salaries and related benefits for commercial employees . in anticipation of marketing approval of our nda , and prior to the receipt of the crl in april 2016 , we accelerated our preparation for commercialization of octreotide capsules . story_separator_special_tag following the june 2016 restructuring plan and the termination of primarily all of our commercial personnel , these expenses were significantly reduced throughout 2016. our marketing expenses in 2017 were immaterial and are expected to continue to be immaterial while our primary business activity involves the conduct of clinical trials . restructuring charges restructuring charges consist of employee severance benefits and related costs , contract termination fees , asset write-offs resulting from restructuring plans , suspension fees associated with commercial manufacturing agreements , lease termination fees , and other expenses associated with restructuring our operations . other ( income ) expenses , net other income , net consists mainly of interest income earned on our investments , net of interest incurred on our obligation related to the acquisition of api and trade name mycapssa from roche . 96 provision for income taxes we are subject to federal and state income taxes for earnings generated in the united states , and foreign taxes on earnings of our wholly-owned israeli subsidiary . our consolidated tax expense is primarily affected by the mix of our foreign subsidiary permanent items , discrete items , and unrecognized tax benefits and to a lesser extent our taxable income ( loss ) in the united states . story_separator_special_tag font-size:10pt ; font-family : times new roman '' > during the year ended december 31 , 2016 , our marketing expenses increased by $ 0.4 million to $ 7.7 million . this increase was primarily due to pre-commercial activities related to octreotide capsules and greater compensation-related expenses associated with our expanded u.s. marketing and sales leadership team hired in anticipation of our expected fda approval of octreotide capsules in april 2016 for commercialization in the united states , which did not occur . during the year ended december 31 , 2016 , our general and administrative expenses increased by $ 5.0 million to $ 14.1 million . this increase was primarily due to greater compensation-related expenses associated with our expanded u.s. office as well as increased professional and consulting fees associated with being a public company . restructuring charges in june 2016 , we announced a corporate restructuring plan , including an immediate reduction of approximately 33 % of our workforce , including substantially all of our commercial personnel . in august 2016 , we announced a second corporate restructuring plan , including an immediate reduction of approximately 44 % of our remaining workforce . in aggregate , these restructuring plans resulted in a reduction to our workforce of more than 60 % since may 1 , 2016. as a result of the august reduction in force , we no longer required the research lab and additional office space of the israel facility and we were able to early terminate the israel lease in november 2016. accordingly , we recorded restructuring charges totaling $ 8.2 million during the year ended december 31 , 2016 which consisted of employee severance benefits and related costs of $ 2.2 million , manufacturing commitment-related suspension fees of $ 4.5 million , non-cash restructuring charges of $ 0.8 million resulting from the impairment of leasehold improvements of $ 1.7 million offset by the forgiveness of tenant allowances received under the lease of $ 0.9 million and non-cash restructuring charges related to the impairment of capitalized commercial software and laboratory equipment of $ 0.7 million . other ( income ) expense , net other income totaled $ 0.5 million for the year ended december 31 , 2016 , compared to $ 0.3 million of other expenses for the year ended december 31 , 2015. the improvement was driven by interest income generated from the investment of our ipo proceeds and a decrease in the imputed interest associated with the long-term obligation related to the acquisition of api and trade name mycapssa from roche . provision for income taxes our total tax provision was $ 0.3 million for the year ended december 31 , 2016 , representing an effective tax rate of ( 0.6 % ) , as compared to a tax provision of $ 0.2 million for the year ended december 31 , 2015 , representing an effective tax rate of ( 0.5 % ) . our deferred tax assets at december 31 , 2016 and 2015 were approximately $ 86,000 and $ 70,000 , respectively . deferred tax assets were reported net of valuation allowances of $ 49.1 million and $ 24.8 million at december 31 , 2016 and 2015 , respectively , primarily as a result of the recording of a full valuation allowance against nol carryforwards , as we believe it is more likely than not that we will not be able to generate sufficient future 99 taxable income to absorb them . at december 31 , 2016 , we had federal nol carryforwards of $ 126.9 million . the federal nol carryforwards expire at various dates through 2035. at december 31 , 2016 , we had no israeli nol carryforwards . at december 31 , 2016 , we had approximately $ 1.0 million of federal alternative minimum tax credit carryforwards that do not expire . our effective tax rate differs from the statutory rate each year mainly due to a full valuation allowance maintained against u.s. deferred tax assets and due to lower tax rates applied to income of our israeli subsidiary . liquidity and capital resources since our inception and through december 31 , 2017 , we have raised an aggregate of $ 366.2 million to fund our operations , of which $ 86.3 million was through our license agreement with roche , approximately $ 106.5 million was from selling shares of common stock in our ipo , $ 161.4 million was from the issuance of private securities , and $ 12.0 million was from borrowings under a loan agreement . in march 2013 , using proceeds from the roche license agreement , we repaid all outstanding borrowings under our loan agreement and paid an aggregate of $ 55.0 million in cash as partial consideration for the redemption of certain shares of our preferred stock .
| as a result , we recorded approximately $ 1.0 million of restructuring expenses during the year ended december 31 , 2017 , which consisted of a lease termination payment of $ 1.0 million , the write-off of office furniture and equipment of $ 0.4 million offset by the release of deferred rent liabilities of $ 0.4 million associated with the terminated lease . in june 2016 , we announced a corporate restructuring plan , including an immediate reduction of approximately 33 % of our workforce , including substantially all of our commercial personnel . in august 2016 , we announced a second corporate restructuring plan , including an immediate reduction of approximately 44 % of our remaining workforce . in aggregate , these restructuring plans resulted in a reduction to our workforce of more than 60 % since may 1 , 2016. as a result of the august reduction in force , we no longer required the research lab and additional office space of the israel facility and we were able to early terminate the israel lease in november 97 2016. accordingly , we recorded restructuring charges totaling $ 8.2 million during the year ended december 31 , 2016 which consisted of employee severance benefits and related costs of $ 2.2 million , manufacturing commitment-related suspension fees of $ 4.5 million , non-cash restructuring charges of $ 0.8 million resulting from the impairment of leasehold improvements of $ 1.7 million offset by the forgiveness of tenant allowances received under the lease of $ 0.9 million and non-cash restructuring charges related to the impairment of capitalized commercial software and laboratory equipment of $ 0.7 million . other ( income ) expense , net other income totaled $ 0.7 million for the year ended december 31 , 2017 , compared to $ 0.5 million for the year ended december 31 , 2016. the improvement was driven by interest income generated from increased yields on our cash equivalents and marketable securities and a decrease in the imputed interest expense associated with the lower remaining obligation related to the acquisition of api and trade name mycapssa from roche . provision ( benefit ) for income taxes our total
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data solutions segment : our data solutions segment is and has been relatively more insulated from the effects of the virus , due to its high proportion of recurring license revenue . however , service offerings in this segment that rely on face-to-face interactions or are dependent on in-person gatherings , events , or conferences may experience significant disruption . mitigation strategies : in light of the current situation , we have initiated proactive cost management strategies . these include , among other things , hiring restrictions , reductions in third-party costs , and certain compensation adjustments . we have also implemented proactive cash conservation initiatives , including delaying some capital expenditures and halting voluntary debt repayments . liquidity position : we believe that we have a strong liquidity position , which includes cash on hand and access to our revolving credit facility . we are currently subject to two debt covenants in our senior secured credit facility : requirement : as of december 31 , 2020 total indebtedness to ebitda ≤ 4.25x 1.15x interest expense to ebitda ≥ 3.00x 13.01x we continue to monitor the rapidly evolving situation and guidance from international and domestic authorities , including federal , state and local public health authorities and may take additional actions based on their recommendations . in these circumstances , there may be developments outside our control requiring us to adjust our operating plan . as such , given the dynamic nature of this situation , we can not reasonably estimate the impacts of covid-19 on our financial condition , results of operations , or cash flows in the future . how we assess the performance of our business we are managed through two reportable segments , ( i ) clinical research and ( ii ) data solutions . our chief operating decision maker uses segment profit as the primary measure of each segment 's operating results in order to allocate resources and in assessing the company 's performance . in addition to our gaap financial measures , we review various financial and operational metrics . for our clinical research segment we review new business awards , cancellations , and backlog . our gross new business awards for the years ended december 31 , 2020 and 2019 were $ 3,320.8 million and $ 3,024.0 million , respectively . new business awards arise when a client selects us to execute its trial and is documented by written or electronic correspondence or for our strategic solutions offering when the amount of revenue expected to be recognized is measurable . the number of new business awards can vary significantly from year to year , and awards can have terms ranging from several months to several years . for our strategic solutions offering , the value of a new business award is the anticipated service revenue to be recognized in the corresponding quarter of the next fiscal year . for the remainder of our business , the value of a new award is the anticipated service revenue over the life of the contract , which does not include reimbursement activity or investigator fees . in the normal course of business , we experience contract cancellations , which are reflected as cancellations when the client provides us with written or electronic correspondence that the work should cease . during the years ended december 31 , 2020 and 2019 , we had $ 404.2 million and $ 360.4 million , respectively , of cancellations for which we received correspondence from the client . the number of cancellations can vary significantly from year to year . the value of the cancellation is the remaining amount of unrecognized service revenue , less the estimated effort to transition the work back to the client . our backlog consists of anticipated service revenue from new business awards that either have not started or are in process but have not been completed . backlog varies from period to period depending upon new business awards and contract modifications , cancellations , and the amount of service revenue recognized under existing contracts . our backlog at december 31 , 2020 and 2019 was $ 5.4 billion and $ 4.7 billion , respectively . 36 industry trends isr estimated in its 2020 market report that the size of the worldwide cro market was approximately $ 41 billion in 2019 and will grow at a 6.9 % cagr to $ 57 billion in 2024. this growth will be driven by an increase in the amount of research and development expenditures and higher levels of clinical development outsourcing by biopharmaceutical companies . sources of revenue total revenue is comprised of revenue from the provision of our services , and revenue from reimbursable expenses and reimbursable investigator grants , that are incurred while providing our services . we do not have any material product revenue . costs and expenses our costs and expenses are comprised primarily of our direct costs , selling , general and administrative costs , depreciation and amortization , and income taxes . in addition , we monitor and measure costs as a percentage of revenue , excluding reimbursement revenue from reimbursable expenses , rather than total revenue , as we believe this is a more meaningful comparison and better reflects the operations of our business . direct costs ( exclusive of depreciation and amortization ) for our clinical research segment , direct costs consist primarily of labor‑related charges . they include elements such as salaries , benefits , and incentive compensation for our employees . in addition , we utilize staffing agencies to procure primarily part time individuals to perform work on our contracts . labor-related charges as a percentage of the clinical research segment 's total direct costs were 97.2 % and 96.4 % for the years ended december 31 , 2020 and 2019 , respectively . the cost of labor procured through staffing agencies is included in these percentages and represents 3.2 % and 3.1 % of the clinical research segment 's total direct costs for the years ended december 31 , 2020 and 2019 , respectively . story_separator_special_tag our remaining direct costs are items such as travel , meals , postage and freight , patient costs , medical waste , and supplies . the total of all these items as a percentage of the clinical research segment 's total direct costs was 2.8 % and 3.6 % for the years ended december 31 , 2020 and 2019 , respectively . historically , direct costs have increased with an increase in revenue . the future relationship between direct costs and revenue may vary from historical relationships . several factors will cause direct costs to decrease as a percentage of revenue . deployment of our billable staff in an optimally efficient manner has the greatest impact on our ratio of direct cost to revenue . the most effective deployment of our staff is when they are fully engaged in billable work and are accomplishing contract related activities at a rate that meets or exceeds budgeted targets . we also seek to optimize our efficiency by performing work using the employee with the lowest cost . generally , the following factors may cause direct costs to increase as a percentage of revenue : our staff are not fully deployed , as is the case when there are unforeseen cancellations or delays ; our staff are accomplishing tasks at levels of effort that exceed budget , such as rework ; and pricing pressure from increased competition . for our data solutions segment , direct costs consist primarily of data costs . data costs as a percentage of the data solutions segment 's total direct costs were 76.2 % and 73.3 % for the years ended december 31 , 2020 and 2019 , respectively . labor-related charges , such as salaries , benefits , and incentive compensation for our employees , were 18.8 % and 20.2 % of the data solutions segment 's total direct costs for the years ended december 31 , 2020 and 2019 , respectively . our remaining direct costs are items such as travel , meals , and supplies , and were 5.0 % and 6.5 % of the data solutions segment 's total direct costs for the years ended december 31 , 2020 and 2019 , respectively . reimbursable expenses we incur out-of-pocket costs that are reimbursable by our customers . as is customary in our industry , we also routinely enter into separate agreements on behalf of our clients with independent physician investigators in connection with clinical trials . we do not pay independent physician investigators until funds are received from the applicable clients . we include these out-of-pocket costs and investigator fees as reimbursable expenses in our consolidated statements of operations . reimbursable expenses are not included in our backlog because they are pass-through costs to our clients . we believe that the fluctuations in reimbursable expenses are not meaningful to our economic performance given that such costs are passed through to the client . the reimbursable expenses are included in our measure of progress for our long-term contracts . 37 selling , general and administrative expenses selling , general and administrative expenses consist of administration payroll and benefits , marketing expenditures , and overhead costs such as information technology and facilities costs . these expenses also include central overhead costs that are not directly attributable to our operating business and include certain costs related to insurance , professional fees and property . transaction-related costs transaction-related costs include fees associated with our secondary offerings , stock-based compensation expense related to the transfer restrictions on vested options , costs associated with acquisition related earn-out liabilities , and expenses associated with our acquisitions . loss on modification or extinguishment of debt loss on modification or extinguishment of debt consists of costs incurred in connection with debt refinancing or incremental borrowings under our credit facilities and the write-off of previously unamortized debt financing costs that were expensed as a result of voluntary debt repayments . depreciation and amortization depreciation represents the depreciation charged on our fixed assets . the charge is recorded on a straight‑line method , based on estimated useful lives of three to seven years for computer hardware and software and five to seven years for furniture and equipment . leasehold improvements are depreciated over the lesser of the life of the lease term or the useful life of the improvements . amortization expense consists of amortization recorded on acquisition‑related intangible assets . customer relationships , backlog , databases , and finite‑lived trade names are amortized on an accelerated basis , which coincides with the period of economic benefit we expect to receive . all other finite‑lived intangibles are amortized on a straight‑line basis . in accordance with gaap , we do not amortize goodwill and indefinite‑lived intangible assets . income taxes because we conduct operations on a global basis , our effective tax rate has and will continue to depend upon the geographic distribution of our pre‑tax earnings among several different taxing jurisdictions . our effective tax rate can also vary based on changes in the tax rates of the different jurisdictions . our effective tax rate is also impacted by tax credits and the establishment or release of deferred tax asset valuation allowances and tax reserves , as well as significant non‑deductible items such as portions of transaction‑related costs . foreign subsidiaries are taxed separately in their respective jurisdictions . we have foreign net operating loss carryforwards in some jurisdictions . the carryforward periods for these losses vary from four years to an indefinite carryforward period depending on the jurisdiction . our ability to offset future taxable income with the net operating loss carryforwards may be limited in certain instances , including changes in ownership . business combinations we have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas . in january 2020 , we acquired care innovations , inc. , or care innovations , which expanded our ability to serve customers with technologies that enhance our mobile health platform and provide expanded remote patient monitoring support .
| data costs in our data solutions segment increased by $ 19.9 million due to increased costs on the renewal of existing contracts and the addition of new sources of data to expand our data offerings . both of these increases were offset by a decrease in travel and other project-related costs of $ 10.1 million due to the impact the covid-19 pandemic had on our operations and a favorable impact of $ 8.8 million from foreign currency exchange rate fluctuations . direct costs as a percentage of revenue increased from 50.2 % during the year ended december 31 , 2019 to 51.8 % during the year ended december 31 , 2020. reimbursable expenses increased by $ 15.7 million from $ 650.1 million during the year ended december 31 , 2019 to $ 665.8 million during the year ended december 31 , 2020. we believe that the fluctuations in reimbursable costs from period to period are not meaningful to our underlying performance over the full terms of the relevant contracts . selling , general and administrative expenses increased by $ 58.1 million , or 14.7 % , from $ 394.9 million during the year ended december 31 , 2019 to $ 453.0 million during the year ended december 31 , 2020. the increase in selling , general and administrative expenses is primarily due to an increase in salaries and related benefits , including stock-based compensation expense , due to increased headcount and additional office space added prior to march 2020 when covid-19 began to have an adverse impact on our operations . selling , general and administrative expenses as a percentage of revenue increased from 12.9 % during the year ended december 31 , 2019 to 14.2 % during the year ended december 31 , 2020. transaction-related costs are primarily related to changes in the fair value of contingent consideration and other expenses incurred in conjunction with our recent acquisitions and fees associated with our secondary offerings . during the year ended december 31 , 2020 , we recorded a $ 44.5 million decrease in the fair value of the earn-out
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in 2015 we secured the first sale of our underwater inspection system to a foreign port in asia and we expect to sell a number of systems to this port for the next three years . we have also made progress in expanding the markets ( and applications ) into which we sell our real time 3d sonars . recently , we have sold a number of systems to mining companies . increasingly , our customers involved in energy and renewables are adopting the technology as the primary tool for scour management , subsea cable installation and associated cable protection tasks . in addition , in recent years we have started to rent our real time 3d solutions with engineering services . given the contraction in the o & g market , rental is increasingly becoming an important part of the composition of the company 's revenues . the following brief overview highlights some of the major issues that currently impact the company 's business . the group 's business is subject to influence from a number of factors including : a. the price of commodities , in particular o & g . the decline in the o & g price has resulted in large scale reduction in capital and operational expenditures budgets , which directly impact on the sales of our products into these and related markets ; b. the allocation of funds to defense procurement by governments in the usa and uk ; c. volatility of the markets including the currency market ; d. uncertainty on the impact of the united kingdom decision to terminate its current membership of the european union ; e. a significant percentage of the company revenues are generated by the company 's subsidiaries in the united kingdom . the decline of the value of sterling is likely to impact our overall revenues which are reported in usd . f. in the event that the united kingdom does not secure access to the european union single market , this is likely to directly impact our cost basis as currently we do not pay export duty on products that we sell to customers in the single market ; g. global-political uncertainties affecting the markets into which we sell our goods and services ; and h. the general global economic environment . the group has very limited external sources of capital available , and as such is reliant upon its ability to sell its products and services to provide sufficient working capital for its operations and obligations . the company 's operations are split between the united states , united kingdom , australia and norway . a large proportion of our revenues and costs are incurred outside of the usa with a significant part of that in the united kingdom ( “ uk ” ) . on june 23 , 2016 , the united kingdom voted to exit the european union . this resulted in significant currency exchange rate fluctuations and volatility in global stock markets . the british government is expected to commence negotiations to determine the terms of brexit . the united kingdom 's separation could , among other things , disrupt trade and the free movement of goods , services and people between the united kingdom and the european union or other countries as well as create legal and global economic uncertainty . currencies could remain volatile for the foreseeable future . we have already suffered adverse currency movements affecting our uk businesses subsequent to the reporting period as a result of brexit . given the lack of comparable precedent , the implications of brexit or how such implications might affect the company in the medium to long term are unclear . critical accounting policies this discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements that have been prepared under accounting principles generally accepted in the united states of america ( “ gaap ” ) . the preparation of financial statements in conformity with us gaap requires our management to make estimates and assumptions that affect the reported values of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported levels of revenue and expenses during the reporting period . actual results could materially differ from those estimates . below is a discussion of accounting policies that we consider critical to an understanding of our financial condition and operating results and that may require complex judgment in their application or require estimates about matters which are inherently uncertain . a discussion of our significant accounting policies , including further discussion of the accounting policies described below , can be found in note 1 , “ summary of significant accounting policies ” of our consolidated financial statements . 19 revenue recognition we record revenue in accordance fasb asc topic 605 - revenue recognition . revenue is derived from our products sold by our subsidiaries , coda octopus products inc. and coda octopus products ltd. , from sales of underwater technologies and equipment for imaging , mapping , defense and survey applications . revenue is also derived through service contracts gained by our martech and colmek businesses . in 2014 we opened a sales office in australia , under the name coda octopus products pty limited . revenue is recognized when conclusive evidence of firm arrangement exists , delivery has occurred or services have been rendered , the contract price is fixed or determinable , and collectability is reasonably assured . no right of return privileges are granted to customers after shipment . for arrangements with multiple deliverables , we recognize product revenue by allocating the revenue to each deliverable based on the fair value of each deliverable in accordance with asc 605 , and recognize revenue for equipment upon delivery and for installation and other services as performed . asc 605 was effective for revenue arrangements entered into in fiscal periods beginning after june 15 , 2003. our contracts typically require customer payments in advance of revenue recognition . story_separator_special_tag these deposit amounts are reflected as liabilities and recognized as revenue when the company has fulfilled its obligations under the respective contracts . revenues derived from our software license sales are recognized in accordance with fasb asc topic 985 - software . for software license sales for which any services rendered are not considered essential to the functionality of the software , we recognize revenue upon delivery of the software , provided ( 1 ) there is evidence of an arrangement , ( 2 ) collection of our fee is considered probable and ( 3 ) the fee is fixed and determinable . recoverability of deferred costs we defer costs on projects for service revenue . deferred costs consist primarily of direct and incremental costs to customize and install systems , as defined in individual customer contracts , including costs to acquire hardware and software from third parties and payroll costs for our employees and other third parties . we recognize such costs in accordance with our revenue recognition policy by contract . for revenue recognized under the completed contract method , costs are deferred until the products are delivered , or upon completion of services or , where applicable , customer acceptance . for revenue recognized under the percentage of completion method , costs are recognized as products are delivered or services are provided in accordance with the percentage of completion calculation . for revenue recognized ratably over the term of the contract , costs are recognized ratably over the term of the contract , commencing on the date of revenue recognition . at each balance sheet date , we review deferred costs , to ensure they are ultimately recoverable . any anticipated losses on uncompleted contracts are recognized when evidence indicates the estimated total cost of a contract exceeds its estimated total revenue . stock based compensation the company accounts for stock-based compensation in accordance with fasb asc topic 718 “ compensation - stock compensation ” ( “ asc 718 ” ) . under the fair value recognition provisions of this statement , share-based compensation cost is measured at the grant date based on the value of the award . this value is expensed ratably over the vesting period for time-based awards and when the achievement of performance goals is probable in our opinion for performance-based awards . determining the fair value of share-based awards at the grant date requires judgment ; including volatility , terms , and estimating the amount of share-based awards that are expected to be forfeited . if actual results differ significantly from these estimates , stock based compensation expense and the company 's results of operations could be materially impacted . income taxes deferred income taxes are provided using the asset and liability method for financial reporting purposes in accordance with the provisions of fasb asc 740 - income taxes . under this method , deferred tax assets and liabilities are recognized for temporary differences between the tax bases of assets and liabilities and their carrying values for financial reporting purposes and for operating loss and tax credit carry forwards . 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 removed or settled . the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of operations in the period that includes the enactment date . 20 purchase price allocation and impairment of intangible and long-lived assets intangible and long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of such assets may not be recoverable . determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset , and its eventual disposition . measurement of an impairment loss for intangible and long-lived assets that management expects to hold and use is based on the fair value of the asset as estimated using a discounted cash flow model . we measure the carrying value of goodwill recorded in connection with the acquisitions for potential impairment in accordance with asc 350 - intangibles - goodwill and other . to apply asc 350 , a company is divided into separate “ reporting units ” , each representing groups of products that are separately managed . for this purpose , we have one reporting unit . to determine whether or not goodwill may be impaired , a test is required at least annually , and more often when there is a change in circumstances that could result in an impairment of goodwill . if the market capitalization of our common stock is below book carrying value for a sustained period , or if other negative trends occur in our results of operations , a goodwill impairment test will be performed by comparing book value to estimated market value . to the extent goodwill is determined to be impaired an impairment charge is recorded in accordance with asc 350. story_separator_special_tag font : 10pt times new roman , times , serif '' > operating loss we incurred a loss from operations of $ 2,810,333 in the 2010 period against $ 6,741,072 in the 2009 period . this decrease of 58.3 % of the operating loss is attributable to the cost cutting program we embarked on from february 2009. interest expense interest expense increased by 8.6 % in the 2010 period to $ 2,005,836 from the 2009 period interest expense , which were $ 1,846,883. in both years , we have included amortization of the 30 % redemption premium for the senior secured our convertible notes , at a cost of $ 514,285 for both the 2010 period and the 2009 period . other income this category of income was $ 1,751,477 in the 2010 period as compared to $ 201,748 in the 2009 period .
| a significant factor in the decline of our revenues during the 2010 period was the general downturn in the global economy which directly impacted on our sales in both the contracting and products segments . gross margins margins were weaker in the 2010 period at 46.3 % ( gross profit of $ 5,334,300 ) compared to 52.2 % ( $ 6,908,474 ) in the 2009 period , reflecting a different mix of sales in our businesses ( products segment versus contracting segment ) . the downturn in global economy resulted in fall in revenues which also impacted on gross margins . research and development ( r & d ) r & d expenditures decreased by 33.6 % from $ 2,652,713 in the 2009 period to $ 1,762,035 in the 2010 period . the reduction is a reflection in the continued implementation of restructuring of the group by containing and reducing costs across the group , which largely involved reduction in headcount and termination of consultancy arrangements across the group . selling , general and administrative expenses ( sg & a ) . sg & a expenses for the 2010 period decreased to $ 6,382,598 from $ 10,996,833 for the 2009 period , a reduction of 42 % reflecting the activities under the cost reduction plan that was executed during the 2009 and 2010 periods . the reduction is a reflection in the continued implementation of restructuring of the group by containing and reducing costs across the group , which largely involved reduction in headcount and termination of consultancy arrangements across the group . 21 a breakdown of corporate ( hq ) sg & a is in the table below : replace_table_token_3_th key areas of 2010 period expenditure include : ● wages and salaries , where we spent $ 3,807,884 or 49.8 % of our sg & a costs during the 2010 period against $ 6,835,266 or 60.8 % of our sg & a cost during the 2009 period ; ● legal and professional fees , including accounting , audit and investment banking services , where we spent $ 853,955 or 11.2 % in the 2010 period of our sg & a costs against $ 3,293,878 or 29.3 % of our sg & a costs in the 2009
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as a result , actual results could differ from such estimates and assumptions . the significant accounting policies and estimates which we believe are the most critical in fully understanding and evaluating the reported consolidated financial results include the following : revenue recognition we recognize revenue from product sales at the time of passage of title and risk of loss to the customer either at fob shipping point or fob destination , based upon terms established with the customer . any customer acceptance provisions , which are related to product testing , are satisfied prior to revenue recognition . we have no further obligations subsequent to revenue recognition except for returns of product from customers . we do accept returns of products , if properly requested , authorized and approved . we continuously monitor and track such product returns and record the provision for the estimated amount of such future returns at point of sale , based on historical experience and any notification we receive of pending returns . sales incentives we offer sales incentives to our customers in the form of ( 1 ) co-operative advertising allowances ; ( 2 ) market development funds ; ( 3 ) volume incentive rebates ; and ( 4 ) other trade allowances . we account for sales incentives in accordance with asc 605-50 `` customer payments and incentives '' ( `` asc 605-50 '' ) . except for other trade allowances , all sales incentives require the customer to purchase our products during a specified period of time . all sales incentives require customers to claim the sales incentive within a certain time period ( referred to as the `` claim period '' ) . all costs associated with sales incentives are classified as a reduction of net sales . the accrual balance for sales incentives at february 28 , 2015 and february 28 , 2014 was $ 14,097 and $ 17,401 , respectively . although we make our best estimate of sales incentive liabilities , many factors , including significant unanticipated changes in the purchasing volume and the lack of claims from customers could have a significant impact on the liability for sales incentives and reported operating results . we reverse earned but unclaimed sales incentives based upon the expiration of the claim period of each program . unclaimed sales incentives that have no specified claim period are reversed in the quarter following one year from the end of the program . for the years ended february 28 , 2015 , february 28 , 2014 and february 28 , 2013 , reversals of previously established sales incentive liabilities amounted to $ 1,302 , $ 1,990 and $ 3,350 , respectively . these reversals include unearned and unclaimed sales incentives . unearned sales incentives are volume incentive rebates where the customer did not purchase the required minimum quantities of product during the specified time . volume incentive rebates are reversed into income in the period when the customer did not reach the required minimum purchases of product during the specified time . reversals of unearned sales incentives for the years ended february 28 , 2015 , february 28 , 2014 and february 28 , 2013 amounted to $ 1,294 , $ 1,935 and $ 2,933 , respectively . unclaimed sales incentives are sales incentives earned by the customer but the customer has not claimed payment within the claim period ( period after program has ended ) . reversals of unclaimed sales incentives for the years ended february 28 , 2015 , february 28 , 2014 and february 28 , 2013 amounted to $ 8 , $ 55 and $ 417 , respectively . accounts receivable we perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and current credit worthiness , as determined by a review of current credit information . we continuously monitor collections from our customers and maintain a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified . while such credit losses have historically been within management 's expectations and the provisions established , we can not guarantee that we will continue to experience the same credit loss rates that have been experienced in the past . since our accounts receivable are concentrated in a relatively few number of large customers , a significant change in the liquidity or financial position of any one of these customers could have a material adverse impact on the collectability of accounts receivable and our results of operations . the company has supply chain financing agreements ( `` factoring agreements '' ) with certain financial institutions for the purpose of accelerating receivable collection and better managing cash flow . under the factoring agreements , the company has agreed to sell certain of its accounts receivable balances to these institutions , who have agreed to advance amounts equal to the net accounts receivable balances due , less a discount as set forth in the respective agreements . the factored balances under these agreements 23 are accounted for as sales of accounts receivable , as they are sold without recourse . total balances factored , net of discounts , for the year ended february 28 , 2015 were approximately $ 182,000 , $ 100,000 and $ 77,000 , respectively . fees incurred in connection with the factoring agreements totaled $ 866 , $ 258 and $ 213 for the years ended february 28 , 2015 , february 28 , 2014 and february 28 , 2013 , respectively . inventories we value our inventory at the lower of the actual cost to purchase ( primarily on a weighted moving average basis , with a portion valued at standard cost , which approximates actual costs on the first in , first out basis ) and or the current estimated market value of the inventory . market value of inventory does not exceed the net realizable value of the inventory and is not less than the net realizable value of such inventory , less an allowance for a normal profit margin . story_separator_special_tag we regularly review inventory quantities on-hand and record a provision in cost of sales for excess and obsolete inventory based primarily on selling prices , indications from customers based upon current price negotiations , and purchase orders . our industry is characterized by rapid technological change and frequent new product introductions that could result in an increase in the amount of obsolete inventory quantities on-hand . in addition , and as necessary , specific reserves for future known or anticipated events may be established . during the years ended february 28 , 2015 , february 28 , 2014 and february 28 , 2013 , we recorded inventory write-downs of $ 2,877 , $ 3,602 and $ 4,300 , respectively . estimates of excess and obsolete inventory may prove to be inaccurate , in which case we may have understated or overstated the provision required for excess and obsolete inventory . although we make every effort to ensure the accuracy of our forecasts of future product demand , any significant unanticipated changes in demand or technological developments could have a significant impact on the carrying value of inventory and our results of operations . asset impairments as of february 28 , 2015 , intangible assets totaled $ 158,455 and property , plant and equipment totaled $ 65,989 ( excluding venezuelan investment properties of $ 3,794 , which are discussed below ) . management makes estimates and assumptions in preparing the consolidated financial statements for which actual results will emerge over long periods of time . this includes the recoverability of long-lived assets employed in the business , including assets of acquired businesses . these estimates and assumptions are closely monitored by management and periodically adjusted as circumstances warrant . for instance , expected asset lives may be shortened or an impairment recorded based upon a change in the expected use of the asset or performance of the related asset group . at the present time , management intends to continue the development , marketing and selling of products associated with its intangible assets and there are no known restrictions on the continuation of their use . no impairment losses were recorded related to indefinite lived intangible assets during fiscal 2015. certain indefinite lived trademarks were impaired during our prior fiscal year , resulting in a total impairment charge of $ 21,715 for fiscal 2014. no additional impairments of long-lived assets were recorded other than the abandonment noted below . during the fourth quarter of fiscal 2014 , the company made a business decision to abandon its technuity business and restructure the marketing and use of the company 's domain name . these decisions resulted in an impairment charge of $ 3,683 of the related definite and indefinite lived intangible assets ( tradename and customer relationship ) , as well as the long-lived assets during fiscal 2014. the cost of other intangible assets with definite lives and long-lived assets are amortized on a straight-line basis over their respective lives . management has determined that the current lives of these assets are appropriate . management has determined that there were no other indicators of impairment that would cause the carrying values related to intangible assets with definite lives to exceed their expected future cash flows at february 28 , 2015 . approximately 84.3 % percent of our indefinite-lived trademarks ( $ 92,562 ) are at risk of impairment as of february 28 , 2015. as a result of the impairment charges recorded in fiscal 2014 , the carrying values of certain indefinite-lived trademarks were adjusted to their respective fair values as of february 28 , 2014. the company uses an income approach , based on the relief from royalty method , to value the indefinite-lived trademarks as part of its impairment test . this impairment test involves the use of accounting estimates and assumptions , changes in which could materially impact our financial condition or operating performance if actual results differ from such estimates and assumptions . the critical assumptions in the discounted cash flow model include revenues , long-term growth rates , royalty rates , and discount rates . management exercises judgment in developing these assumptions . certain of these assumptions are based upon industry projections , facts specific to the trademarks and consideration of our long-term view for the trademark and the markets we operate in . if we were to experience sales declines , a significant change in operating margins which may impact estimated royalty rates , an increase in our discount rates , and or a decrease in our projected long-term growth rates , there would be an increased risk of impairment of these indefinite-lived trademarks . 24 voxx 's goodwill totaled approximately $ 105,874 as of february 28 , 2015. goodwill is tested for impairment as of february 28 each year at the reporting unit level . application of the goodwill impairment test requires judgment , including the identification of reporting units , assignment of assets and liabilities to reporting units , assignment of goodwill to reporting units , and estimation of the fair value of each reporting unit . based on the company 's goodwill impairment assessment , all the reporting units with goodwill had estimated fair values as of february 28 , 2015 that exceeded their carrying values . as a result , no impairment charges were recorded related to goodwill during fiscal 2015. as a result of the impairment test in the prior year , an impairment charge of $ 32,163 was recorded for goodwill for fiscal 2014 within the premium audio segment . the above impairment charges were the result of various indicators that occurred during the fourth quarter of fiscal 2014. specifically , certain of our consumer electronic and premium audio product lines experienced significantly lower than expected performance . in addition , indications of near-term shortfalls for certain products within these lines were apparent . taking these factors into account , along with long-term industry forecasts , the company had re-evaluated its projections .
| this was completed during the third quarter of the fiscal year and relaunched in november 2014. in addition , the company experienced load in sales from its bentley project in the prior year , which leveled out early in fiscal 2015 , and also saw decreases in satellite radio fulfillment sales , as more cars are being manufactured with satellite radio , and a decrease in portable dvd sales due to the planned exit of this product type , for the year ended february 28 , 2015 . there was also a significant drop in foreign exchange for euro translation to the u.s. dollar during the fiscal year , particularly in the fourth quarter , which negatively impacted the company . finally , the company continues to experience significantly lower sales in venezuela due to current economic and political conditions . as an offset to these decreases , the company saw an increase in remote start sales for the year ended february 28 , 2015 due to new product offerings and enhancements , as well as an increase in sales of devices for the new car connection program to retailers and new models of the company 's multi-media products . premium audio sales represented 21.9 % of net sales for the year ended february 28 , 2015 as compared to 23.4 % in the prior year . sales in premium audio decreased 12.4 % for the year ended february 28 , 2015 , as a result of lower sales for soundbars , music centers and bluetooth speakers due to lower selling prices and lower sales of headphones due to competition . there was also a significant drop in foreign exchange for euro translation to the u.s. dollar during the fiscal year , particularly in the fourth quarter , which negatively impacted the company . these decreases were offset by increases in sales of certain high end separates , as well as commercial and custom installations . consumer accessories represented 25.6 % of our net sales for the year ended february 28 , 2015 , compared to 25.5 % in the prior year . the consumer accessories group experienced decreases for the year ended february 28 , 2015 as a result of the continued decline in sales
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we have in-licensed our two proprietary product candidates that are in clinical development that address large market opportunities , including our most advanced product candidate , ven 307. ven 307 is a pre-mixed and pre-packaged proprietary topical formulation of the drug diltiazem which we are developing for the treatment of anal fissures . ven 308 is intended to treat fecal incontinence . our development partner , s.l.a . pharma , conducted a phase iii trial of ven 307 in europe , the positive results of which we announced in may 2012. based on those results , we initiated a second pivotal phase iii clinical trial of ven 307 in anal fissures in the fourth quarter of 2012 , and expect to report top line data in the fourth quarter of 2013. we intend to undertake technical development to create a twice daily patentable formulation of ven 307 after which we will determine whether to pursue further development of an extended release formulation of ven 307. based on disappointing results of our phase iii trial of ven 309 for the treatment of hemorrhoids , which we reported in june 2012 , we have ceased all activity related to ven 309 other than the winding down of the program . . 43 since our inception , we have had no revenue from product sales , and have funded our operations principally through debt financings , our initial public offering in 2010 , a public offering of our common stock in july 2011 , sales of our common stock in mid-2012 pursuant to an at-the-market program , and a public offering of our common stock and series a non-voting convertible preferred stock in february 2013. our operations to date have been primarily limited to organizing and staffing our company , licensing our product candidates , developing clinical trials for our product candidates , establishing manufacturing for our product candidates , maintaining and improving our patent portfolio and raising capital . we have generated significant losses to date , and we expect to continue to generate losses as we progress towards the commercialization of ven 307 and ven 308. as of december 31 , 2012 , we had a deficit accumulated during the development stage of $ 92,319,514. because we do not generate revenue from any of our product candidates , our losses will continue as we advance our product candidates towards regulatory approval and eventual commercialization . we do not anticipate fda approval and launch of ven 307 until at least late 2014 or early 2015. as a result , our operating losses are likely to be substantial over the next two years as we continue the development and undertake commercialization of ven 307 and thereafter if approval is not received or ven 307 is not successfully launched . we are unable to predict the extent of any future losses or when we will become profitable , if at all . we believe that our existing cash will be sufficient to fund our projected operating requirements through fda approval of ven 307 and its initial launch and commercialization . thereafter , we will need revenue from commercial sales of ven 307 , if any , or additional capital to continue operations . financial operations overview critical accounting policies our management 's discussion and analysis of our financial condition and results of operations is based on our financial statements , which have been prepared in accordance with u.s. generally accepted accounting principles , or gaap . our significant accounting policies are more fully described in note 2 to the december 31 , 2012 audited financial statements included in this report . the following accounting policies are critical to fully understanding and evaluating our financial results . use of estimates the preparation of financial statements in conformity with u.s. gaap requires our 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 as well as the reported revenue , if any , and expenses during the reporting periods . on an ongoing basis , management evaluates their estimates and judgments . management bases estimates on historical experience and on various other factors that they believe are reasonable under the circumstances , the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources . actual results might differ from these estimates under different assumptions or conditions . stock-based compensation we account for stock options granted to employees , measured at grant date , based on the estimated fair value of the award , which is recognized as expense over the employee 's requisite service period on a straight-line basis . we account for stock options and warrants granted to non-employees on a fair value basis . the initial non-cash charge to operations for nonemployee options and warrants with vesting are revalued at the end of each reporting period based upon the change in the fair value of the options and recognized as consulting expense over the related service period . for the purpose of valuing options and warrants granted to employees and non-employees , we use the black-scholes option pricing model . to determine the risk-free interest rate , we utilize the u.s. treasury yield curve in effect at the time of grant with a term consistent with the expected term of the awards . we estimate the expected life of the options granted based on anticipated exercises in the future periods assuming the success of our business model as currently forecasted . story_separator_special_tag for warrants and non-employee options , we use the contractual term of the warrant , the length of the note or option as the expected term . the expected dividend yield reflects our current and expected future policy for dividends on our common stock . the expected stock price volatility for our stock options will be calculated by examining historical volatilities for publicly traded industry peers as we do not now and for the near future will not have any significant trading history for our common stock . forfeiture rates will be calculated based on the expected service period for our employees . 44 research and development expense research and development expenses consist primarily of costs associated with : ( i ) internal costs associated with our development activities ; ( ii ) payments we make to third party contract research organizations , contract manufacturers , and consultants ; ( iii ) technology and intellectual property license costs ; and ( iv ) patent reimbursements . all research and development is expensed as incurred . license fees and pre-approved milestone payments due under each research and development arrangement that are paid prior to regulatory approval are expensed when the license is entered into or the milestone is achieved . conducting a significant amount of research and development is central to our business model . since our inception on october 7 , 2005 to december 31 , 2012 , we incurred $ 59,043,406 in research and development expenses . product candidates in later-stage clinical development generally have higher development costs than those in earlier stages of development , primarily due to the significantly increased size and duration of the clinical trials . included in research and development expense is the full $ 12.5 million purchase price we paid in 2011 for ven 309. we plan to continue research and development expenses for the at least the next two years in order to complete development of our most advanced product candidate , ven 307. on june 25 , 2012 , we reported that a phase iii , randomized , double-blind , placebo-controlled clinical trial of ven 309 for the treatment of symptomatic hemorrhoids did not meet its endpoints . based on the disappointing results of that phase iii trial , we have determined that our current resources would be better allocated toward the planned completion of ven 307 development program in anal fissures . consequently , we have no immediate plans to continue development of ven 309 and have ceased all activity related to ven 309 other than the winding down of the program . the following table summarizes the research and development expenses incurred since inception . replace_table_token_6_th the process of conducting pre-clinical studies and clinical trials necessary to obtain fda approval is costly and time consuming . the probability of success for each product candidate and clinical trial may be affected by a variety of factors , including , among others , the quality of the product candidate 's clinical data , regulatory conversations with fda , manufacturing capabilities and commercial viability . as a result of the uncertainties discussed above , the uncertainty associated with clinical trial enrollments and the risks inherent in the development and regulatory process , we are unable to determine with certainty the duration and completion costs of current or future clinical stages of our product candidate or when , or to what extent , we will generate revenues from the commercialization and sale of our product candidate . based on its current status , we anticipate that to complete the clinical trial process and commercialize our lead product candidate ven 307 will cost approximately $ 15 million . this estimate could change significantly depending on the progress , timing and results of non-clinical and clinical trials associated with ven 307. we believe the company currently has sufficient funds to meet its operating requirements and scheduled regulatory and development activities through fda approval and initial launch and commercialization of diltiazem . assuming such approval and launch , thereafter , if the company can not generate significant cash from its operations , it intends to obtain any additional funding it requires through strategic relationships , public or private equity or debt financings , or other arrangements and it can not assure such funding will be available on reasonable terms , or at all . our significant accounting policies are described in more detail in note 1 to our audited financial statements included in this report . 45 off-balance sheet arrangements since our inception , we have not engaged in any off-balance sheet arrangements , including the use of structured finance , special purpose entities or variable interest entities . contractual obligations the following table summarizes our future contractual obligations and commercial commitments at december 31 , 2012. less than 1 year 1-2 years sla pharma $ 498,000 $ - regus ( office lease ) $ 74,046 $ 58,800 total contractual obligations $ 572,046 $ 58,800 story_separator_special_tag 2012 , we raised $ 4,166,000 in net proceeds under the at-the-market common equity sales program . in february 2013 , we raised approximately $ 20.7 million in net proceeds in a public offering of our common stock and our series a non-voting convertible preferred stock , all of which shares were sold off of the shelf registration statement . net cash used in operating activities net cash used in operating activities was $ 21,379,790 for the year ended december 31 , 2012 and funded our research and development program build out and general and administrative expenses .
| ended december 31 , 2011. interest income was $ 65,066 for the year ended december 31 , 2012 compared to $ 76,334 for the year ended december 31 , 2011. comparison of the years ended december 31 , 2011 and december 31 , 2010 research and development expense research and development expense was $ 25,277,682 for the year ended december 31 , 2011 , an increase of $ 23,427,016 , or 1265 % , from $ 1,850,666 for the year ended december 31 , 2010. the primary reason for the increase was the increased development activities of ven 309 , which commenced after we received the proceeds from our initial public offering in december 2010. we have incurred higher development costs due to initiation of the phase iii clinical trial as well as product development and manufacturing costs to support the clinical study . additionally , we expensed $ 12,500,000 relating to the acquisition of title and rights to ven 309 from sam amer . general and administrative expense . general and administrative , or g & a , expense was $ 8,724,391 for the year ended december 31 , 2011 , an increase of $ 5,808,801 , or approximately 199 % , from $ 2,915,590 for the year ended december 31 , 2010. we had limited operations and related operating expenses in the first half of 2010 due to the lack of funds . we began increasing our operating activities in the second half of 2010. the largest g & a expense incurred in the year 2011 was associated with stock-based compensation expense for employees , consultants and directors which increased by $ 3,550,080 as well as g & a salaries of $ 1,331,211 which did not exist in 2010 . 46 interest expense interest expense of $ 116,664 in 2011 consisted of interest incurred on related party note which was paid in full in july 2011. additionally , there was $ 302,327 of amortization of debt discount and deferred financing
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for more information about factors that could negatively impact our compliance with capital requirements , which depending on the severity of adverse outcomes could result in material non-compliance with capital requirements , see our risk factors titled “ we are defendants in private and government litigation and are subject to the risk of additional private litigation , government litigation and regulatory proceedings in the future , ” “ we have reported net losses for the last five years , expect to continue to report annual net losses , and can not assure you when we will return to profitability ” and “ the settlement agreement we reached with the internal revenue service , relating to significant proposed adjustments to our taxable income for 2000 through 2007 , may not be finalized ” in item 1a . as discussed below , in accordance with accounting standards codification ( “ asc ” ) 450-20 , we have not accrued an estimated loss in our financial statements to reflect possible adverse developments in litigation or other dispute resolution proceedings . an accrual , if one was required and depending on the amount , could result in material non-compliance with capital requirements . although we currently meet the capital requirements of the jurisdictions in which we write business , in december 2009 , the office of the commissioner of insurance of the state of wisconsin ( “ oci ” ) issued an order waiving , until december 31 , 2011 , its capital requirements . on january 23 , 2012 , the oci issued an order ( the “ new order ” ) waiving , until december 31 , 2013 , its capital requirements . in place of the capital requirements , the new order provides , as did the prior order , that mgic can write new business as long as it maintains regulatory capital that the oci determines is reasonably in excess of a level that would constitute a financially hazardous condition . pursuant to the new order , mgic contributed $ 200 million to mgic indemnity corporation ( “ mic ” ) , a direct subsidiary of mgic , in january 2012 , as part of the plan discussed below to write new mortgage insurance in mic in certain jurisdictions . the new order requires mgic investment corporation , beginning january 1 , 2012 and continuing through the earlier of december 31 , 2013 and the termination of the new order ( the “ covered period ” ) , to make cash equity contributions to mgic as may be necessary so that its “ liquid assets ” are at least $ 1 billion ( this portion of the new order is referred to as the “ keepwell provision ” ) . “ liquid assets ” , which include those of mgic as well as those held in certain of our subsidiaries , excluding mic and its reinsurance affiliates , are the sum of ( i ) the aggregate cash and cash equivalents , ( ii ) fair market value of investments and ( iii ) assets held in trusts supporting the obligations of captive mortgage reinsurers to mgic . as of december 31 , 2011 , “ liquid assets ” were approximately $ 6.4 billion . although we do not expect that mgic 's liquid assets will fall below $ 1 billion during the covered period , we do expect the amount of liquid assets to continue to decline materially after december 31 , 2011 and through the end of the covered period as mgic 's claim payments and other uses of cash continue to exceed cash generated from operations . for more information about factors that could negatively impact mgic 's liquid assets , see our risk factors titled “ we are defendants in private and government litigation and are subject to the risk of additional private litigation , government litigation and regulatory proceedings in the future , ” “ we have reported net losses for the last five years , expect to continue to report annual net losses , and can not assure you when we will return to profitability ” and “ the settlement agreement we reached with the internal revenue service , relating to significant proposed adjustments to our taxable income for 2000 through 2007 , may not be finalized ” in item 1a . 71 mgic previously applied for waivers in all jurisdictions besides wisconsin that have capital requirements and received waivers from some of them . most of the waivers that mgic received expired december 31 , 2011. we expect to reapply for waivers in all other jurisdictions that have capital requirements , and whose laws allow waivers ( “ waiver jurisdictions ” ) , before they are needed . some jurisdictions denied our original request for a waiver and others may deny future requests . the oci and insurance departments of other jurisdictions , in their sole discretion , may modify , terminate or extend their waivers . any modification or extension of the keepwell provision requires our written consent . if the oci or another insurance department modifies or terminates its waiver , or if it fails to grant a waiver or renew its waiver after expiration , depending on the circumstances , mgic could be prevented from writing new business anywhere , in the case of the waiver from the oci , or in the particular jurisdiction , in the case of the other waivers , if mgic does not comply with the capital requirements unless mgic obtained additional capital to enable it to comply with the capital requirements . story_separator_special_tag new insurance written in the jurisdictions that have capital requirements represented approximately 50 % of new insurance written in each of 2010 and 2011. if we were prevented from writing new business in all jurisdictions , our insurance operations in mgic would be in run-off ( meaning no new loans would be insured but loans previously insured would continue to be covered , with premiums continuing to be received and losses continuing to be paid on those loans ) until mgic either met the capital requirements or obtained a necessary waiver to allow it to once again write new business . we can not assure you that all waiver jurisdictions will grant a waiver of their capital requirements , the oci or any other jurisdiction that has granted a waiver of its capital requirements will not modify or revoke the waiver , or will renew the waiver when it expires , or that mgic could obtain the additional capital necessary to comply with the capital requirements . depending on the circumstances , the amount of additional capital we might need could be substantial . see our risk factor titled “ your ownership in our company may be diluted by additional capital that we raise or if the holders of our outstanding convertible debt convert that debt into shares of our common stock. ” we have implemented a plan to write new mortgage insurance in mic in selected jurisdictions in order to address our expectation that in the future mgic will not meet the capital requirements discussed above and may not be able to obtain appropriate waivers of these requirements in all jurisdictions in which capital requirements are present . as of december 31 , 2011 , mic had statutory capital of $ 234 million ( which does not include the $ 200 million contribution that was made in january 2012 , in accordance with the new order ) . mic has received the necessary approvals , including from the oci , to write business in all of the jurisdictions in which mgic would be prohibited from continuing to write new business in the event of mgic 's failure to meet capital requirements and obtain waivers of those requirements . depending on the level of losses that mgic experiences in the future , however , it is possible that regulatory action by one or more jurisdictions , including those that do not have specific capital requirements , may prevent mgic from continuing to write new insurance in some or all of the jurisdictions in which mic is not eligible to insure loans purchased or guaranteed by fannie mae or freddie mac . if this were to occur , we would need to seek the gses ' approval to allow mic to write business in those jurisdictions . mic has obtained the appropriate licenses to write business in all jurisdictions . 72 in october 2009 , we , mgic and mic entered into an agreement with fannie mae under which mgic agreed to contribute $ 200 million to mic ( which mgic did in 2009 ) and fannie mae approved mic as an eligible mortgage insurer through december 31 , 2011. on january 23 , 2012 , we , mgic and mic , entered into a new agreement with fannie mae ( the “ fannie mae extension ” ) under which we agreed to contribute $ 200 million to increase the statutory capital of mgic ( our $ 200 million contribution in december 2011 met this requirement ) , mgic agreed to contribute $ 200 million to mic on or before january 31 , 2012 , which mgic did , and fannie mae extended its approval of mic as an eligible mortgage insurer through december 31 , 2013. under the fannie mae extension , mic will be eligible to write mortgage insurance only in those jurisdictions ( other than wisconsin ) in which mgic can not write new insurance due to mgic 's failure to meet capital requirements and if mgic fails to obtain relief from those requirements or a specific waiver of them . the fannie mae extension , including certain conditions and restrictions to its continued effectiveness , is summarized more fully in , and included as an exhibit to , our form 8-k filed with the securities and exchange commission ( the “ sec ” ) on january 24 , 2012. such conditions include the continued effectiveness of the oci 's new order and the continued applicability of the keepwell provisions in the new order . as noted above , we can not assure you that the oci will not modify or revoke the new order , or that it will renew it when it expires . on february 11 , 2010 , freddie mac notified mgic that it may utilize mic to write new business in jurisdictions in which mgic does not meet capital requirements and does not obtain appropriate waivers of those requirements . freddie mac 's approval , scheduled to expire december 31 , 2012 , contained various conditions to mic 's eligibility , including that mic could not be capitalized with more than the $ 200 million contribution made in 2009 , without prior approval from freddie mac . on january 23 , 2012 , freddie mac agreed to modify its approval in order to allow the $ 200 million contribution from mgic to mic that is provided for in the new order and the fannie mae extension ( the “ freddie mac approval ” ) . under the freddie mac approval , mic may write business only in those jurisdictions where mgic does not meet the capital requirements and does not obtain appropriate waivers of those requirements . freddie mac anticipates that mgic will obtain waivers of the minimum capital requirements of most jurisdictions that have such requirements . therefore , as of the date of the freddie mac approval , approval of mic as an eligible mortgage insurer is only given for new york , kansas , kentucky , idaho and puerto rico .
| the change in net assumptions for 2011 is primarily related to higher estimated ultimate premiums , somewhat offset by higher estimated ultimate losses . the $ 135 million premium deficiency reserve as of december 31 , 2011 reflects the present value of expected future losses and expenses that exceeds the present value of expected future premiums and already established loss reserves . · underwriting and other expenses underwriting and other expenses for 2011 decreased when compared to 2010. the decrease reflects our reductions in headcount as well as our lower contract underwriting volume . · interest expense interest expense for 2011 increased when compared to 2010. the increase is due to the issuance of our 5 % convertible senior notes in april 2010 as well as an increase in amortization on our junior debentures , somewhat offset by lower interest on our senior notes due to repayments and repurchases . 86 · provision for income taxes the effective tax rate provision on our pre-tax loss was 0.3 % in 2011 , compared to the effective tax rate provision of 1.2 % in 2010. during those periods , the benefit from income taxes was eliminated or reduced by the recognition of a valuation allowance . results of consolidated operations new insurance written the amount of our primary new insurance written during the years ended december 31 , 2011 , 2010 and 2009 was as follows : replace_table_token_18_th the increase in new insurance written in 2011 , compared to 2010 , was partially due to a modest increase in the private mortgage insurance industry market share . based on the latest public data the industry market share approximated 6 % for 2011 compared to 4 % in 2010. our industry continued to regain market share from the fha throughout 2011 but the pace of that recovery is slower than we expected given the continued differences in underwriting guidelines , loan level price adjustments by the gses and the secondary
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to offset the impact these regulatory and investigative activities have had on the u.s. for-profit education clients , we have broadened our product set from our traditional lead business with the addition of better qualified and matched clicks , leads or inquiries , and calls ; we believe these new enhanced products better match u.s. for-profit education client needs in the current regulatory environment . we have also broadened our markets in education to include not-for-profit schools and international markets in brazil and india . moreover , we have entered into strategic partnerships and acquisitions to increase and diversify our access to quality media and client budgets . development , acquisition and retention of high quality targeted media one of the primary challenges of our business is finding or creating media that is high quality and targeted enough to attract prospects for our clients at costs that provide a sound financial outcome for us . in order to grow our business , we must be able to find , develop , or acquire and retain quality targeted media on a cost-effective basis . consolidation of media sources , changes in search engine algorithms and increased competition for available media has , during some periods , limited and may continue to limit our ability to generate revenue at acceptable margins . to offset this impact , we have developed new sources of media , including entering into strategic partnerships with other marketing and media companies and acquisitions . such partnerships include takeovers of performance marketing functions for large web media properties ; backend monetization of unmatched traffic for clients with large media buys ; and white label products for other performance marketing companies . we have also focused on growing our revenue from call center , email , mobile and social media traffic sources . seasonality our results are subject to significant fluctuation as a result of seasonality . in particular , our quarters ending december 31 ( our second fiscal quarter ) are typically characterized by seasonal weakness . in our second fiscal quarters , there is generally lower availability of media during the holiday period on a cost effective basis and some of our clients have lower budgets . in our quarters ending march 31 ( our third fiscal quarter ) , this trend generally reverses with better media availability and often new budgets at the beginning of the year for our clients with fiscal years ending december 31. our results are also subject to fluctuation as a result of seasonality in our clients ' business . for example , revenue in our clients ' lending businesses is subject to cyclical and seasonal trends . home sales typically rise during the spring and summer months and decline during the fall and winter months , while refinancing and home equity activity is principally driven by mortgage interest rates as well as real estate values . other factors affecting our clients ' businesses include macro factors such as credit availability in the market , the strength of the economy and employment . regulations our revenue has fluctuated in part as a result of federal , state and industry-based regulations and developing standards with respect to the enforcement of those regulations . our business is affected directly because we operate websites and conduct telemarketing and email marketing , and indirectly affected as our clients adjust their operations as a result of regulatory changes and enforcement activity that affect their industries . clients in our financial services vertical have been affected by laws and regulations and the increased enforcement of new and pre-existing laws and regulations . in addition , our education client vertical has been significantly affected by the adoption of regulations affecting u.s. for-profit education institutions over the past several years , and a high level of governmental scrutiny is expected to continue . the effect of these regulations , or any future regulations , may continue to result in fluctuations in the volume and mix of our business with these clients . 34 an example of a regulatory change that may affect our business is the amendment of the telephone consu mer protection act ( the “ tcpa ” ) that affects telemarketing calls . our clients may make business decisions based on their own experiences with the tcpa regardless of our products and compliance practices . those decisions may negatively affect our revenue an d profitability . basis of presentation net revenue our business generates revenue from fees earned through the delivery of qualified clicks , leads , inquiries , calls , applications , customers and , to a lesser extent , display advertisements , or impressions . we deliver targeted and measurable results through a vertical focus that we classify into the following client verticals : financial services , education and “ other ” ( which includes home services and business-to-business technology ) . cost of revenue cost of revenue consists primarily of media and marketing costs , personnel costs , amortization of intangible assets , depreciation expense and amortization of internal software development costs related to revenue-producing technologies . media and marketing costs consist primarily of fees paid to third-party publishers , media owners or managers , or to strategic partners that are directly related to a revenue-generating event and of pay-per-click , or ppc , ad purchases from internet search companies . we pay these third-party publishers , media owners or managers , strategic partners and internet search companies on a revenue-share , a cost-per-lead , or cpl , cost-per-click , or cpc , or cost-per-thousand-impressions , or cpm , basis . personnel costs include salaries , stock-based compensation expense , bonuses , commissions and employee benefit costs . personnel costs are primarily related to individuals associated with maintaining our servers and websites , our call center operations , our editorial staff , client management , creative team , content , compliance group and media purchasing analysts . costs associated with software incurred in the development phase or obtained for internal use are capitalized and amortized to cost of revenue over the software 's estimated useful life . story_separator_special_tag operating expenses we classify our operating expenses into three categories : product development , sales and marketing , and general and administrative . our operating expenses consist primarily of personnel costs and , to a lesser extent , professional services fees , facilities fees and other costs . personnel costs for each category of operating expenses generally include salaries , stock-based compensation expense , bonuses , commissions and related taxes , and employee benefit costs . product development . product development expenses consist primarily of personnel costs , facilities fees and professional services fees related to the development and maintenance of our products and media management platform . we are constraining expenses generally to the extent practicable . sales and marketing . sales and marketing expenses consist primarily of personnel costs , facilities fees and professional services fees . we are constraining expenses generally to the extent practicable . general and administrative . general and administrative expenses consist primarily of personnel costs of our finance , legal , employee benefits and compliance , technical support and other administrative personnel , as well as bad debt expense , accounting and legal professional services fees and facilities fees . we are constraining expenses generally to the extent practicable . interest and other ( expense ) income , net interest and other ( expense ) income , net , consists primarily of interest expense , interest income , and other income and expense . interest expense is related to imputed interest on post-closing payments related to our business acquisitions and revolving loan facility which matured in june 2017. interest income represents interest earned on our cash and cash equivalents , which may increase or decrease depending on market interest rates and the amounts invested . other income and expense includes gains and losses on foreign currency exchange , gains and losses on sales of websites and domain names that were not considered to be strategically important to our business , impairment of investment and other non-operating items . 35 benefit from ( provision for ) income taxes we are subject to tax in the united states as well as other tax jurisdictions or countries in which we conduct business . earnings from our limited non-u.s. activities are subject to local country income tax and may be subject to u.s. income tax . story_separator_special_tag due to income from the sale of other assets and domain names that were not considered strategically important to our business of $ 0.7 million in fiscal year 2018 and the impairment of our investment in a privately held entity of $ 2.5 million in fiscal year 2017 . 38 benefit from ( provision for ) income taxes replace_table_token_14_th we recorded a valuation allowance against the majority of our deferred tax assets at the end of fiscal year 2014. in the second quarter of fiscal year 2019 , due to the preponderance of positive evidence , including our cumulative profit before taxes and future forecasts of continued profitability in the united states , we determined that sufficient positive evidence existed to conclude that substantially all of our valuation allowance was no longer needed . accordingly , we recorded a one-time non-cash benefit from income taxes of $ 49.4 million related to the release of the valuation allowance for the majority of our federal and states deferred tax assets . we recorded a provision for income taxes of $ 0.6 million in fiscal year 2018 , primarily as a result of current state and foreign income taxes . we recorded a benefit from income taxes of $ 1.1 million in fiscal year 2017 , primarily as a result of a tax refund from an amended state tax return filing . our effective tax rate was ( 482.9 % ) , 3.5 % and 8.1 % in fiscal years 2019 , 2018 and 2017. the change in the effective tax rate in fiscal year 2019 was primarily due to the release of the valuation allowance related to the united states federal and state deferred tax assets with the exception of california research and development tax credits and the benefit of excess share-based compensation tax deductions . 39 selected quarterly financial data the following table sets forth our unaudited quarterly condensed consolidated statements of operations for the eight quarters ended june 30 , 2019. we have prepared the statements of operations for each of these quarters on the same basis as the audited consolidated financial statements included elsewhere in this report and , in the opinion of management , each statement of operations includes all adjustments , consisting solely of normal recurring adjustments , necessary for the fair statement of the results of operations for these periods . this information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this report . these quarterly operating results are not necessarily indicative of our operating results for any future period . replace_table_token_15_th ( 1 ) net income per share for the four quarters of each fiscal year may not sum to the total for the fiscal year as a result of the different number of shares outstanding during each period . adjusted ebitda we include adjusted ebitda in this report because ( i ) we seek to manage our business to a level of adjusted ebitda as a percentage of net revenue , ( ii ) is used internally by management for planning purposes , including preparation of internal budgets ; to allocate resources ; to evaluate the effectiveness of operational strategies and capital expenditures as well as the capacity to service debt , ( iii ) it is a key basis upon which management assesses our operating performance , ( iv ) it is one of the primary metrics investors use in evaluating internet marketing companies , ( v ) it is a factor in determining compensation , and ( vi ) it is an element of certain financial covenants under our historical borrowing arrangements .
| net revenue increased by $ 104.6 million , or 35 % , in fiscal year 2018 compared to fiscal year 2017. our financial services client vertical revenue increased by $ 98.3 million , or 53 % , primarily due to our enhanced product set that provides greater segmentation , matching , transparency , and right pricing of media which have enabled access to more media and client budgets and to additional strategic partnerships that have increased and diversified our access to quality media and client budgets . our education client vertical revenue increased by $ 5.1 million , or 7 % , primarily due to increased client demand from not-for-profit education clients . revenue from our other client vertical increased by $ 1.1 million , or 3 % , primarily due to increased client demand in our home services client vertical , partially offset by decreased client demand in our business-to-business technology vertical . cost of revenue and gross profit margin cost of revenue increased by $ 47.6 million , or 14 % , in fiscal year 2019 compared to fiscal year 2018. this was primarily driven by increased media and marketing costs of $ 34.4 million , increased personnel costs of $ 7.6 million , increased stock-based compensation expense of $ 3.4 million , and increased amortization of intangible assets of $ 2.1 million . the increase in media and marketing costs was due to higher revenue volumes . the increase in personnel costs and stock-based compensation is primarily due to higher headcount as a result of the acquisition of amone in october 2018. the increase in amortization expense is primarily due to the acquisitions of intangible assets in fiscal year 2019. gross margin , which is the difference between net revenue and cost of revenue as a percentage of net revenue , was 14 % for both fiscal years 2019 and 2018. cost of revenue increased by $ 76.5 million , or 28 % , in fiscal year 2018 compared to fiscal year 2017. this was primarily driven by increased media and marketing costs of $ 81.1 million due to higher revenue volumes , as well as increased stock-based compensation expense of $ 0.9 million . this was primarily offset by decreased personnel costs of $ 2.3 million , mainly as a result of decreased average headcount in fiscal year 2018
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earnings before income taxes were $ 8,599,000 in 2015 as compared to $ 5,281,000 in 2014. excluding the income from assets held for sale in 2015 , the accelerated depreciation on retired assets in 2015 , the costs to remove long-lived assets in 2015 and 2014 , and the loss on disposal of long-lived assets in 2014 , our adjusted earnings before income taxes were $ 7,955,000 in 2015 as compared to $ 7,684,000 in 2014. replace_table_token_3_th net earnings were $ 5,285,000 in 2015 as compared to $ 3,145,000 in 2014. excluding the income from assets held for sale in 2015 , the accelerated depreciation on retired assets in 2015 , the costs to remove long-lived assets in 2015 and 2014 , and the loss on disposal of long-lived assets in 2014 , net of income taxes , our adjusted net earnings were $ 4,739,000 in 2015 as compared to $ 4,592,000 in 2014. replace_table_token_4_th the above financial information is presented using other than generally accepted accounting principles ( non-gaap ) and is reconciled to comparable information presented using gaap . non-gaap adjusted earnings before income taxes and non-gaap adjusted net earnings is derived by adjusting amounts determined in accordance with gaap for the income from assets held for sale , the accelerated depreciation , the costs to remove long-lived assets , and the loss on disposal of long-lived assets . we believe such non-gaap information is useful and meaningful to investors , and is used by investors and us to assess core operations . this non-gaap financial information may not be comparable to similarly titled measures used by other entities and should not be considered as an alternative to earnings before income taxes and net earnings which is determined in accordance with gaap . 14 liquidity and capital resources our operations and cash flows from operating activities are seasonal in nature . net cash provided by operating activities was $ 6,810,000 in 2016 as compared to $ 7,063,000 in 2015. the decrease was primarily due to lower operating results from our motorsports events at dover international speedway and the cancellation of the 2016 big barrel country music festival , partially offset by lower income tax and interest payments in 2016. net cash used in investing activities was $ 2,670,000 in 2016 as compared to $ 268,000 in 2015. capital expenditures of $ 2,580,000 in 2016 related primarily to the installation of additional safer barriers around our dover racetrack , installation of fiber optic cable , equipment purchases , and improvements at our dover facility . capital expenditures of $ 1,448,000 in 2015 related to improvements , primarily the installation of fiber optic cable , equipment purchases , and improvements at our dover facility . in may 2014 , we entered into an agreement to sell our nashville superspeedway facility . during 2015 , we received $ 1,200,000 in non-refundable deposits from the potential buyer to extend the closing date of the now expired agreement . net cash used in financing activities was $ 4,140,000 in 2016 as compared to $ 6,818,000 in 2015. we had net repayments on our outstanding line of credit of $ 2,060,000 in 2016 as compared to $ 4,860,000 in 2015. we paid $ 1,840,000 and $ 1,837,000 in cash dividends during 2016 and 2015 , respectively . during 2016 , we purchased and retired 37,813 shares of our outstanding common stock for $ 86,000 from the open market . no purchases of our equity securities from the open market were made during 2015. additionally , we purchased and retired 44,311 and 49,078 shares of our outstanding common stock for $ 103,000 and $ 121,000 during 2016 and 2015 , respectively , from employees in connection with the vesting of restricted stock awards under our stock incentive plan . as a result of amending our credit agreement in september 2016 , we paid $ 78,000 in bank fees . at december 31 , 2016 , dover motorsports , inc. and its wholly owned subsidiaries dover international speedway , inc. and nashville speedway , usa , inc. , as co-borrowers had a $ 35,000,000 credit agreement with a bank group . on september 16 , 2016 , we modified the credit agreement to : extend the maturity date to july 31 , 2020 ; release the mortgage and security interest in the collateral securing the agreement ; and redefine certain terms within the agreement . interest is based upon libor plus a margin that varies between 125 and 175 basis points depending on the leverage ratio ( 150 basis points at december 31 , 2016 ) . the credit facility contains certain covenants including maximum funded debt to earnings before interest , taxes , depreciation and amortization ( leverage ratio ) and a minimum fixed charge coverage ratio . material adverse changes in our results of operations could impact our ability to maintain financial ratios necessary to satisfy these requirements . in addition , the credit agreement includes a material adverse change clause . the credit facility also provides that if we default under any other loan agreement , that would be a default under this facility . at december 31 , 2016 , there was $ 3,840,000 outstanding under the credit facility at an interest rate of 2.27 % . the credit facility provides for seasonal funding needs , capital improvements , letter of credit requirements and other general corporate purposes . at december 31 , 2016 , we were in compliance with the terms of the credit facility . after consideration of stand-by letters of credit outstanding , the remaining maximum borrowings available pursuant to the credit facility were $ 14,587,000 at december 31 , 2016. we expect to be in compliance with the financial covenants , and all other covenants , for all measurement periods during the next twelve months . nashville superspeedway no longer promotes nascar events and has not entered into sanction agreements with nascar since 2011. we currently use the facility on a limited basis for motorsports track rentals . story_separator_special_tag on may 29 , 2014 , we entered into an agreement to sell the facility for $ 27 million in cash and the assumption by the potential buyer of obligations of ours under certain variable rate tax exempt infrastructure revenue bonds . the sales agreement was amended several times extending the closing date . in consideration for these amendments , during 2014 we received $ 1,700,000 in non-refundable deposits from the potential buyer which was to be applied against the purchase price at closing . in 2015 , we received $ 1,200,000 in non-refundable deposits to extend closing under the agreement , a portion of which was to be applied against the purchase price depending on the closing date . during the first and second quarters of 2015 , $ 427,000 and $ 606,000 , respectively , was recorded as income from assets held for sale in our consolidated statements of operations as those deposit amounts were not to be applied against the purchase price at closing based on the terms of the amendments . on june 1 , 2015 , the potential buyer defaulted under the agreement and did not subsequently cure the default . the amended closing date under the 15 agreement was july 27 , 2015 ; therefore , the agreement expired by its terms . accordingly , we recorded as income from assets held for sale the remaining deposits of $ 1,867,000 in the third quarter of 2015. on august 25 , 2016 , we entered into a definitive agreement to sell our nashville facility to an entity owned by panattoni development company for $ 27.5 million in cash and the assumption by the buyer of obligations of ours under certain variable rate tax exempt infrastructure revenue bonds . under the agreement , as amended on january 22 , 2017 , the sale is scheduled to close in the second quarter of 2017. our gain would be the $ 27.5 million purchase price less the facility 's $ 26 million carrying value and less any costs to sell which are expected to be minimal and consist primarily of legal fees . we also expect to pay income taxes of approximately $ 5 million as a result of this transaction . the assets of nashville superspeedway are reported as assets held for sale in our consolidated balance sheets at december 31 , 2016 and 2015. our balance sheet includes a $ 1,802,000 provision for contingent obligation reflecting the present value of the estimated portion of the revenue bonds debt service that may not be covered by the projected sales and incremental property taxes from the facility . upon completion of the sale of the assets of nashville superspeedway , we will no longer be responsible for this obligation and will reverse it which will increase our pre-tax earnings by the amount of the obligation at the time it is reversed . see note 11 commitments and contingencies of the consolidated financial statements included elsewhere in this document for further discussion . we promoted six racing events in 2016 and 2015 ( five national series events and one regional series event ) , all of which were sanctioned by nascar and held at our dover international speedway facility . we have entered into five year sanction agreements with nascar for each of the five national series events for 2016-2020. nascar 's regional series events are sanctioned on an annual basis . broadcasting revenues continue to be a significant long-term revenue source for our business . management believes this long-term contracted revenue helps stabilize our financial strength , earnings and cash flows . also , nascar ratings can impact attendance at our events and sponsorship opportunities . a substantial portion of our profits in recent years has resulted from television revenues received from nascar under its agreements with various television networks , which is expected to continue for the foreseeable future . our share of these television broadcast revenues and purse and sanction fees are fixed under our nascar sanction agreements through the year 2020. we are obligated to conduct events in the manner stipulated under the terms and conditions of these sanctioning agreements . nascar is operating under a ten-year , multi-platform agreement with fox sports media group ( fox ) for the broadcasting and digital rights to 16 nascar cup series races , 14 xfinity series races and the entire camping world truck series ( along with practice and qualifying ) from 2015 through 2024. the agreement includes tv everywhere rights that allow live-streaming of all fox races , before and after race coverage , in-progress and finished race highlights , and replays of fox-televised races to a fox sports-affiliated website which began in 2013. the agreement also allows re-telecast of races on a fox network and via video-on-demand for 24 hours and other ancillary programming , including a nightly nascar news and information show and weekend at-track shows . nascar and fox deportes , the number one us latino sports network , have teamed up to provide our sport 's most expansive spanish-language broadcast offering ever with coverage of 15 nascar cup series races which started in 2013. nascar also operates under a ten-year comprehensive agreement with nbc sports group granting nbcuniversal ( nbc ) exclusive rights to 20 nascar cup series races , 19 nascar xfinity series events , select nascar regional & touring series events and other live content which began in 2015. further , nbc has been granted spanish-language rights , certain video-on-demand rights and exclusive tv everywhere ' rights for its nascar cup series and nascar xfinity series events . looking forward , our sanction agreements with nascar contain annual increases of between 3 and 4 percent in media rights fees for each sanctioned event conducted , and provide a specific percentage of media rights fees to be paid to competitors .
| depreciation expense decreased to $ 3,433,000 in 2016 as compared to $ 5,326,000 in 2015. the decrease was due primarily to shortening the service lives of certain track related assets in the first quarter of 2015 that were retired as a result of our planned reduction of grandstand seating . we recorded $ 2,216,000 of depreciation expense on these assets in 2015 and they were fully depreciated as of december 31 , 2015. partially offsetting this decrease was depreciation of $ 208,000 recorded in 2016 as a result of shortening the service lives of certain track related assets that are part of a renovation project that began in 2016. income from assets held for sale in 2015 relates to non-refundable payments we received from a potential buyer of our nashville superspeedway facility to extend the closing date of settlement . net interest expense was $ 199,000 in 2016 as compared to $ 323,000 in 2015. the decrease was due primarily to lower average borrowings . our effective income tax rates for 2016 and 2015 were 40.5 % and 38.5 % , respectively . 12 earnings before income taxes were $ 6,390,000 in 2016 as compared to $ 8,599,000 in 2015. excluding the income from assets held for sale in 2015 , the accelerated depreciation on retired assets in 2016 and 2015 , and the costs to remove long-lived assets in 2016 and 2015 , our adjusted earnings before income taxes were $ 6,801,000 in 2016 as compared to $ 7,955,000 in 2015. replace_table_token_1_th net earnings were $ 3,801,000 in 2016 as compared to $ 5,285,000 in 2015. excluding the income from assets held for sale in 2015 , the accelerated depreciation on retired assets in 2016 and 2015 , and the costs to remove long-lived assets in 2016 and 2015 , net of income taxes , our adjusted net earnings were $ 4,045,000 in 2016 as compared to $ 4,739,000 in 2015. replace_table_token_2_th the above financial information is presented using other than generally accepted accounting principles ( non-gaap ) and is reconciled to comparable information
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summary financial results the following table summarizes our financial results for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands , except percentages and per share data ) : replace_table_token_7_th 2016 results as compared to 2015 results the increase in our total revenues during 2016 , as compared to 2015 , is attributable to increases in our hospitality segment and entertainment segment revenues of $ 45.0 million and $ 12.0 million , respectively , as discussed more fully below . total hospitality revenues in 2016 include $ 12.7 million in attrition and cancellation fee collections , a $ 5.8 million increase from 2015. the increase in total operating expenses during 2016 , as compared to 2015 , is primarily the result of increases in hospitality segment and entertainment segment expenses of $ 16.9 million and $ 8.5 million , respectively , partially offset by $ 19.2 million in impairment and other charges during 2015 that did not recur during 2016 , as discussed more fully below . the above factors resulted in a $ 51.7 million increase in operating income for 2016 , as compared to 2015. the $ 47.9 million increase in our net income in 2016 , as compared to 2015 , was due to the change in our operating income described above , and the following factors , each as described more fully below : a $ 15.1 million difference in other gains and losses , net between 2016 and 2015 , due primarily to 2015 including losses for the change in the fair value of derivative liabilities associated with portions of warrants related to our previous 3.75 % convertible notes . there was no such event in 2016. this change was partially offset by a $ 6.9 million gain in 2015 associated with the reimbursement of costs that were previously incurred related to our proposed development in aurora , colorado . these costs were impaired in 2012 as part of our strategic shift away from long-term development , but were reimbursed in 2015 by the current developer . a provision for income taxes of $ 3.4 million in 2016 , as compared to a $ 11.9 million tax benefit in 2015. a $ 2.8 million loss from joint ventures during 2016 not incurred in 2015 . 2015 results as compared to 2014 results the increase in our total revenues during 2015 , as compared to 2014 , is attributable to increases in our hospitality segment and entertainment segment revenues of $ 40.4 million and $ 10.7 million , respectively , as discussed more fully below . total hospitality revenues in 2015 include $ 6.9 million in attrition and cancellation fee collections , a $ 2.0 million decrease from 2014 . 37 the increase in total operating expenses during 2015 , as compared to 2014 , is primarily the result of impairment and other charges of $ 19.2 million incurred during 2015 , as well as an increase in hospitality segment and entertainment segment expenses of $ 13.5 million and $ 8.0 million , respectively , as discussed more fully below . the above factors resulted in a $ 9.0 million increase in operating income for 2015 , as compared to 2014 . 38 the $ 14.9 million decrease in our net income in 2015 , as compared to 2014 , was due to the change in our operating income described above , and the following factors , each as described more fully below : a $ 34.3 million decrease in other gains and losses for 2015 , as compared to 2014 , primarily associated with 2014 including a $ 26.1 million gain on the sale of our rights in a letter of intent which entitled us to a portion of an economic interest in the income from the land underlying the new mgm casino project in national harbor , maryland . additionally , during 2015 , we incurred a $ 16.0 million increase in the loss on the change in the fair value of derivative liabilities associated with portions of warrants related to our previous 3.75 % convertible notes , partially offset by a $ 6.9 million gain in 2015 associated with the reimbursement of costs that were previously incurred related to our proposed development in aurora , colorado . these costs were impaired in 2012 as part of our strategic shift away from long-term development , but were reimbursed in 2015 by the current developer . an increase in the benefit for income taxes of $ 10.4 million in 2015 , as compared to 2014 , primarily attributable to a federal tax law change enacted in the fourth quarter of 2015 , as well as changes in valuation allowance . factors and trends contributing to operating performance in 2016 compared to 2015 the most important factors and trends contributing to our operating performance in 2016 as compared to 2015 were : increased occupancy and outside-the-room spending at gaylord palms during 2016 , as compared to 2015. the increase in occupancy ( an increase of 2.9 points of occupancy ) is primarily the result of an increase in both groups and transient . the increase in outside-the-room spending ( an increase of 12.4 % ) is primarily the result of an increase in banquets , as well as an increase attributable to new and refurbished dining outlets and an increase in attrition and cancellation fee collections . increased adr and outside-the-room spending at gaylord opryland during 2016 , as compared to 2015. the increase in adr ( an increase of 3.0 % ) was primarily a result of an increase in both group and transient rate . story_separator_special_tag the increase in outside-the-room spending ( an increase of 2.9 % ) was primarily the result of increased banquet revenues from corporate groups , as well as increased attrition and cancellation fee collections . increased outside-the-room spending at gaylord texan ( an increase of 5.7 % ) during 2016 , as compared to 2015 , primarily as a result of an increase in banquet revenue . increased net definite group room nights booked ( an increase of 8.5 % ) during 2016 , as compared to 2015. increased revenue for our entertainment segment ( an increase of 12.3 % for 2016 , as compared to 2015 ) , primarily due to increased attendance at the grand ole opry , as well as increased ancillary business such as tours and retail at the ryman auditorium . factors and trends contributing to operating performance in 2015 compared to 2014 the most important factors and trends contributing to our operating performance in 2015 as compared to 2014 were : increased outside-the-room spending at gaylord texan ( 6.0 % ) and gaylord opryland ( 4.3 % ) during 2015 , as compared to 2014 , primarily due to increases in banquet revenue . increased occupancy at gaylord texan ( an increase of 5.8 percentage points of occupancy , during 2015 , as compared to 2014 ) , primarily as a result of an increase in group business . increased adr at gaylord texan ( an increase of 5.7 % for 2015 , as compared to 2014 ) , primarily as a result of room rate increases for both groups and transient business . decreased occupancy at gaylord opryland ( a decrease of 1.3 points of occupancy for 2015 , as compared to 2014 ) primarily as a result of a norovirus outbreak and a severe weather winter storm , which took place during january and february 2015 . 39 in-the-year , for-the-year cancellations for 2015 decreased 6.2 % as compared to 2014. increased attrition levels for 2015 , as compared to 2014 , which partially offset the increase in operating income and total revpar . attrition for 2015 was 12.8 % of bookings , compared to 10.6 % in 2014. increased net definite group room nights booked ( an increase of 4.6 % for 2015 , as compared to 2014 ) . increased revenue for our entertainment segment ( an increase of 12.3 % for 2015 , as compared to 2014 ) , primarily due to increased attendance and additional shows at the grand ole opry , as well as increased ancillary business such as tours and retail . operating results detailed segment financial information hospitality segment total segment results . the following presents the financial results of our hospitality segment for the years ended december 31 , 2016 , 2015 and 2014 ( in thousands , except percentages and performance metrics ) : replace_table_token_8_th ( 1 ) hospitality results and performance metrics include the results of our gaylord hotels and the inn at opryland for all periods presented . results of the ac hotel are included as of its opening date in april 2015 . ( 2 ) hospitality operating income does not include impairment charges and preopening costs of $ 19.2 million and $ 0.9 million , respectively , during 2015. see the discussion of these items set forth below . ( 3 ) we calculate hospitality revpar by dividing room revenue by room nights available to guests for the period . hospitality revpar is not comparable to similarly titled measures such as revenues . 40 ( 4 ) we calculate hospitality total revpar by dividing the sum of room , food and beverage , and other ancillary services revenue ( which equals hospitality segment revenue ) by room nights available to guests for the period . hospitality total revpar is not comparable to similarly titled measures such as revenues . ( 5 ) same-store hospitality performance metrics do not include the ac hotel , which opened in april 2015. the increase in total hospitality segment revenue in 2016 , as compared to the same period in 2015 , is primarily due to increases in revenue of $ 17.4 million , $ 12.6 million and $ 10.7 million at gaylord palms , gaylord opryland and gaylord texan , respectively , as discussed below . the increase in total hospitality segment revenue in 2015 , as compared to the same period in 2014 , is primarily due to increases in revenue of $ 18.1 million , $ 7.8 million and $ 5.1 million at gaylord texan , gaylord opryland and gaylord national , respectively , as discussed below , as well as $ 7.0 million in revenue at the ac hotel , which opened in april 2015. the percentage of group versus transient business based on rooms sold for our hospitality segment for the years ended december 31 was approximately as follows : replace_table_token_9_th the type of group based on rooms sold for our hospitality segment for the years ended december 31 was approximately as follows : replace_table_token_10_th the decrease in rooms operating expenses in 2016 , as compared to 2015 , is primarily attributable to a decrease at gaylord national , as described below . the decrease in rooms operating expenses in 2015 , as compared to 2014 , is primarily attributable to a decrease at gaylord opryland , as described below , partially offset by rooms expense at the ac hotel , which opened in april 2015. the increase in food and beverage operating expenses in 2016 , as compared to 2015 , is attributable to increases at gaylord palms and gaylord texan , as described below . the increase in food and beverage operating expenses in 2015 , as compared to 2014 , is attributable to increases at gaylord texan , gaylord opryland and gaylord national , as described below . other hotel expenses for the years ended december 31 consist of the following ( in thousands ) :
| our weighted average interest rate on our borrowings , excluding the write-off of deferred financing costs during the period , was 4.3 % in 2016 as compared to 4.2 % in 2015. cash interest expense increased $ 4.1 million to $ 60.7 million in 2016 as compared to 2015 , and noncash interest expense , which includes amortization of deferred financing costs and debt discounts , the write-off of deferred financing costs , and capitalized interest , decreased $ 4.1 million to $ 3.2 million in 2016 as compared to 2015. interest expense , net of amounts capitalized , increased $ 2.5 million to $ 63.9 million in 2015 as compared to 2014 , due primarily to increased interest expense associated with our $ 400 million 5 % senior notes , which we issued in april 2015 , and increased interest expense on our term loan b facility , which we entered into in june 2014. we also incurred $ 1.9 million in interest expense during 2015 related to the write-off of deferred financing costs associated with the refinancing of our credit facility . these increases were partially offset by the lack of interest expense associated with our 3.75 % convertible notes , which matured in october 2014 , and a decrease in interest expense associated with our credit facility due to a decrease in borrowings . our weighted average interest rate on our borrowings , excluding the write-off of deferred financing costs during the period , was 4.2 % in 2015 as compared to 4.9 % in 2014. cash interest expense increased $ 9.8 million to $ 56.6 million in 2015 as compared to 2014 , and noncash interest expense decreased $ 7.4 million to $ 7.3 million in 2015 as compared to 2014 . 48 interest income interest income for 2016 , 2015 and 2014 primarily includes amounts earned on the bonds that we received in april 2008 in connection with the development of gaylord national , which we hold as notes receivable . loss on extinguishment of debt during 2014 , we settled the repurchase of and subsequently cancelled $ 56.3 million of our 3.75 % convertible notes in private transactions for
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60 when combined with the note hedge and the warrants , we believe that the net financial impact upon maturity of the 3.25 % notes will consist of cash payments of the face value of $ 460 million 3.25 % notes and net share settlement of the warrants to the extent that the stock price exceeds $ 22.99 at that time . net proceeds from the above transactions were $ 387 million , consisting of gross proceeds of $ 460 million from the 3.25 % notes and $ 54 million of proceeds from the warrants , less the $ 112 million purchase price for the note hedge and $ 14 million of purchase discounts and other offering expenses . the net proceeds from the offering were used for general corporate purposes , including capital expenditures , permitted investments or permitted acquisitions . the 3.25 % notes constitute general unsecured senior obligations and rank equally in right of payment with our existing and future senior unsecured indebtedness . the 3.25 % notes are effectively junior to our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness . the 3.25 % notes are not guaranteed by any of our subsidiaries and are effectively subordinated to all existing and future indebtedness and liabilities ( including trade payables ) of our subsidiaries . for a detailed description of the terms of the 3.25 % notes , the note hedge , the cash conversion option , and the warrants , see item 8. financial statements and supplementary data note 11. long-term debt , note 13. financial instruments and note 14. derivative instruments . 1.00 % senior convertible debentures due 2027 ( the debentures ) in november 2010 , we commenced a tender offer to purchase for cash any and all of our outstanding 1.00 % senior convertible debentures due 2027. we offered to purchase the debentures at a purchase price of $ 990 for each $ 1,000 principal amount of debentures , plus accrued and unpaid interest . during the year ended december 31 , 2011 and 2010 , $ 32 million and $ 317 million , respectively , of the debentures were purchased . we used a portion of the net proceeds of the 7.25 % note offering discussed above to fund the purchase price and accrued and unpaid interest of the debentures . as of december 31 , 2011 , there were $ 25 million aggregate principal amount of the debentures outstanding . on february 1 , 2012 , holders of $ 23 million of outstanding debentures exercised their option for us to redeem the debentures at par . we plan to exercise our call option to redeem the remaining $ 2 million of debentures during the first quarter of 2012. as a result of the tender offer to purchase outstanding debentures , we recorded a loss on extinguishment of debt of $ 1 million and $ 15 million , pre-tax , for the year ended december 31 , 2011 and 2010 , respectively , which was comprised of the difference between the fair value and carrying value of the liability component of the debentures tendered , a write off of deferred financing costs and fees incurred in conjunction with the tender offer . in 2010 , we also reduced additional paid-in-capital by $ 8 million , pre-tax , which represented the difference between the amount paid in the tender offer and the fair value of the liability . for specific criteria related to contingent interest , conversion or redemption features of the debentures see item 8. financial statements and supplementary data note 11. long-term debt , note 13. financial instruments and note 14. derivative instruments . project debt americas project debt financing for the energy-from-waste projects is generally accomplished through tax-exempt and taxable municipal revenue bonds issued by or on behalf of the municipal client . for such facilities that are owned by a subsidiary of ours , the municipal issuers of the bond loan the bond proceeds to our subsidiary to pay for facility construction . for such facilities , project-related debt is included as project debt ( short- and long-term ) in our consolidated financial statements . generally , such project debt is secured by the revenues generated by the project and other project assets including the related facility . the only potential recourse to us with respect to project debt arises under the operating performance guarantees described below under other commitments . certain subsidiaries had recourse liability for project debt which is recourse to certain covanta arc holdings , inc. subsidiaries , but is non-recourse to us and as of december 31 , 2011 was as follows ( in millions ) : replace_table_token_27_th 61 on december 1 , 2010 , one of our client communities refinanced project debt ( $ 30 million outstanding ) with the proceeds from new bonds and cash on hand . as a result of the refinancing , the client community issued $ 28 million tax exempt bonds bearing interest from 2 % to 4 % due 2015 in order to pay down the existing project debt . consistent with other private , non-tip fee structures , the client community will pay us debt service revenue equivalent to the principal and interest on the bonds . on june 1 , 2010 , we elected to repurchase $ 43 million of project bonds ( issued in connection with our hempstead facility ) under a mandatory tender . the bonds were simultaneously amended to extend their final maturity from december 1 , 2010 to june 1 , 2015. as a result of this transaction , the bonds have been reflected as repaid in the consolidated financial statements , but may be remarketed to third party investors at any time . in the event we effect such a remarketing , the aggregate amount of our project debt would be increased accordingly . project debt - other financing story_separator_special_tag 60 when combined with the note hedge and the warrants , we believe that the net financial impact upon maturity of the 3.25 % notes will consist of cash payments of the face value of $ 460 million 3.25 % notes and net share settlement of the warrants to the extent that the stock price exceeds $ 22.99 at that time . net proceeds from the above transactions were $ 387 million , consisting of gross proceeds of $ 460 million from the 3.25 % notes and $ 54 million of proceeds from the warrants , less the $ 112 million purchase price for the note hedge and $ 14 million of purchase discounts and other offering expenses . the net proceeds from the offering were used for general corporate purposes , including capital expenditures , permitted investments or permitted acquisitions . the 3.25 % notes constitute general unsecured senior obligations and rank equally in right of payment with our existing and future senior unsecured indebtedness . the 3.25 % notes are effectively junior to our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness . the 3.25 % notes are not guaranteed by any of our subsidiaries and are effectively subordinated to all existing and future indebtedness and liabilities ( including trade payables ) of our subsidiaries . for a detailed description of the terms of the 3.25 % notes , the note hedge , the cash conversion option , and the warrants , see item 8. financial statements and supplementary data note 11. long-term debt , note 13. financial instruments and note 14. derivative instruments . 1.00 % senior convertible debentures due 2027 ( the debentures ) in november 2010 , we commenced a tender offer to purchase for cash any and all of our outstanding 1.00 % senior convertible debentures due 2027. we offered to purchase the debentures at a purchase price of $ 990 for each $ 1,000 principal amount of debentures , plus accrued and unpaid interest . during the year ended december 31 , 2011 and 2010 , $ 32 million and $ 317 million , respectively , of the debentures were purchased . we used a portion of the net proceeds of the 7.25 % note offering discussed above to fund the purchase price and accrued and unpaid interest of the debentures . as of december 31 , 2011 , there were $ 25 million aggregate principal amount of the debentures outstanding . on february 1 , 2012 , holders of $ 23 million of outstanding debentures exercised their option for us to redeem the debentures at par . we plan to exercise our call option to redeem the remaining $ 2 million of debentures during the first quarter of 2012. as a result of the tender offer to purchase outstanding debentures , we recorded a loss on extinguishment of debt of $ 1 million and $ 15 million , pre-tax , for the year ended december 31 , 2011 and 2010 , respectively , which was comprised of the difference between the fair value and carrying value of the liability component of the debentures tendered , a write off of deferred financing costs and fees incurred in conjunction with the tender offer . in 2010 , we also reduced additional paid-in-capital by $ 8 million , pre-tax , which represented the difference between the amount paid in the tender offer and the fair value of the liability . for specific criteria related to contingent interest , conversion or redemption features of the debentures see item 8. financial statements and supplementary data note 11. long-term debt , note 13. financial instruments and note 14. derivative instruments . project debt americas project debt financing for the energy-from-waste projects is generally accomplished through tax-exempt and taxable municipal revenue bonds issued by or on behalf of the municipal client . for such facilities that are owned by a subsidiary of ours , the municipal issuers of the bond loan the bond proceeds to our subsidiary to pay for facility construction . for such facilities , project-related debt is included as project debt ( short- and long-term ) in our consolidated financial statements . generally , such project debt is secured by the revenues generated by the project and other project assets including the related facility . the only potential recourse to us with respect to project debt arises under the operating performance guarantees described below under other commitments . certain subsidiaries had recourse liability for project debt which is recourse to certain covanta arc holdings , inc. subsidiaries , but is non-recourse to us and as of december 31 , 2011 was as follows ( in millions ) : replace_table_token_27_th 61 on december 1 , 2010 , one of our client communities refinanced project debt ( $ 30 million outstanding ) with the proceeds from new bonds and cash on hand . as a result of the refinancing , the client community issued $ 28 million tax exempt bonds bearing interest from 2 % to 4 % due 2015 in order to pay down the existing project debt . consistent with other private , non-tip fee structures , the client community will pay us debt service revenue equivalent to the principal and interest on the bonds . on june 1 , 2010 , we elected to repurchase $ 43 million of project bonds ( issued in connection with our hempstead facility ) under a mandatory tender . the bonds were simultaneously amended to extend their final maturity from december 1 , 2010 to june 1 , 2015. as a result of this transaction , the bonds have been reflected as repaid in the consolidated financial statements , but may be remarketed to third party investors at any time . in the event we effect such a remarketing , the aggregate amount of our project debt would be increased accordingly . project debt - other financing
| the decrease was primarily comprised of lower cash outflows of $ 135 million related to the acquisition of businesses offset by $ 41 million of higher cash outflows for increased capital expenditures largely related to businesses acquired . net cash used in financing activities from continuing operations for the year ended december 31 , 2010 was $ 409 million , a net increase of $ 694 million . net cash used in financing activities from continuing operations for the year ended december 31 , 2010 was primarily comprised of cash dividends paid of $ 233 million , repurchases of common stock of $ 95 million and principal payments on project debt , net of proceeds of borrowings on project debt and restricted funds , of $ 161 million . these uses of cash were partially offset by net proceeds received of $ 390 million from the issuance of the 7.25 % notes , less $ 313 million paid to purchase 85 % of the outstanding debentures and $ 2 million in fees paid in connection with the tender offer . 56 supplementary financial information free cash flow ( non-gaap discussion ) to supplement our results prepared in accordance with gaap , we use the measure of free cash flow , which is a non-gaap measure as defined by the sec . this non-gaap financial measure is not intended as a substitute and should not be considered in isolation from measures of liquidity prepared in accordance with gaap . in addition , our use of free cash flow may be different from similarly identified non-gaap measures used by other companies , limiting their usefulness for comparison purposes . the presentation of free cash flow is intended to enhance the usefulness of our financial information by providing measures which management internally uses to assess and evaluate the overall performance of its business and those of possible acquisition candidates , and highlight trends in the overall business . we use the non-gaap financial measure of free cash flow as
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according to fea ( forest economic advisors , llc ) , total north american osb annual production capacity is projected to increase by approximately 2.2 billion square feet in the period from 2012 to 2016 while plywood production capacity is projected to decrease by 100 million square feet for the same period . according to fea , osb accounted for approximately 64 % of north american structural panel production capacity in 2011 , with plywood accounting for the remainder . going forward , it is expected that osb will continue to capture market share from plywood . fea forecasts , as of december 2011 , that osb will comprise approximately 66 % of the 21 structural panel market by 2016. the chart below , which is based on data and forecasts published by fea , depicts past and forecasted north america structural wood production capacities in billions of square feet . putting demand and supply together as noted above , demand for building products is influenced by the general economy , demographics and need for housing . in the case of osb , generally , lower demand coupled with higher production capacity will result in lower pricing . the chart below , as calculated by fea ( as of december 2011 ) , shows the demand capacity ( demand divided by supply ) for osb in 2008 through 2011 as well as fea 's forecast through 2016 based upon estimated future demand and supply . product pricing . 22 historical prices for our products have been volatile , and we , like other participants in the building products industry , have limited influence over the timing and extent of price changes for our products . the estimated average north central wholesale price for osb ( per thousand square feet 7/16 ” basis ) from 2005 through 2011 , as published by random lengths , an industry publication , is presented below . fea 's forecast ( as of december 2011 ) for average north central wholesale pricing for osb ( per thousand square feet 7/16 ” basis ) through 2016 is also shown . 23 critical accounting policies and significant estimates a discussion of our significant accounting policies and significant accounting estimates and judgments is presented in note 1 of the notes to the financial statements in item 8 of this report . throughout the preparation of the financial statements , we employ significant judgments in the application of accounting principles and methods . these judgments are primarily related to the assumptions used to arrive at various estimates . for 2011 , these significant accounting estimates and judgments include : legal contingencies . our estimates of loss contingencies for legal proceedings are based on various judgments and assumptions regarding the potential resolution or disposition of the underlying claims and associated costs . in making judgments and assumptions regarding legal contingencies for ongoing class action settlements , we consider , among other things , discernible trends in the rate of claims asserted and related damage estimates and information obtained through consultation with statisticians and economists , including statistical analysis of potential outcomes based on experience to date and the experience of third parties who have been subject to product-related claims judged to be comparable . due to the numerous variables associated with these judgments and assumptions , both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties . we regularly monitor our estimated exposure to these contingencies and , as additional information becomes known , may change our estimates significantly . environmental contingencies . our estimates of loss contingencies for environmental matters are based on various judgments and assumptions . these estimates typically reflect judgments and assumptions relating to the probable nature , magnitude and timing of required investigation , remediation and or monitoring activities and the probable cost of these activities , and in some cases reflect judgments and assumptions relating to the obligation or willingness and ability of third parties to bear a proportionate or allocated share of the cost of these activities , including third parties who purchased assets from us subject to environmental liabilities . we consider the ability of third parties to pay their apportioned cost when developing our estimates . in making these judgments and assumptions related to the development of our loss contingencies , we consider , among other things , the activity to date at particular sites , information obtained through consultation with applicable regulatory authorities and third-party consultants and contractors and our historical experience at other sites that are judged to be comparable . due to the numerous variables associated with these judgments and assumptions , and the effects of changes in governmental regulation and environmental technologies , both the precision and reliability of the resulting estimates of the related contingencies are subject to substantial uncertainties . we regularly monitor our estimated exposure to environmental loss contingencies and , as additional information becomes known , may change our estimates significantly . at december 31 , 2011 , we excluded from our estimates approximately $ 1.8 million of potential environmental liabilities that we estimate will be allocated to third parties pursuant to existing and anticipated future cost sharing arrangements . impairment of long-lived assets . we review the long-lived assets held and used by us ( primarily property , plant and equipment and timber and timberlands ) for impairment when events or changes in circumstances indicate that the carrying amount of assets may not be recoverable . we consider the necessity of undertaking such a review at least quarterly , and also when certain events or changes in circumstances occur . story_separator_special_tag events and changes in circumstances that may necessitate such a review include , but are not limited to : a significant decrease in the market price of a long-lived asset or group of long-lived assets ; a significant adverse change in the extent or manner in which a long-lived asset or group of long-lived assets is being used or in its physical condition ; a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or group of long-lived assets , including an adverse action or assessment by a regulator ; an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or group of long-lived assets ; current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or group of long-lived assets ; and current expectation that , more likely than not , a long-lived asset or group of long-lived assets will be sold or otherwise disposed of significantly before the end of its previously estimated useful life . identifying these events and changes in circumstances , and assessing their impact on the appropriate valuation of the affected assets under accounting principles generally accepted in the u.s. , requires us to make judgments , assumptions and estimates . 24 in general , for assets held and used in our operations , impairments are recognized when the carrying amount of the long-lived asset or groups of long-lived assets is not recoverable and exceeds the fair value of the asset or group of assets . the carrying amount of a long-lived asset or groups of long-lived assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets or group of assets . the key assumptions in estimating these cash flows relate to future production volumes , pricing of commodity or specialty products and future estimates of expenses to be incurred as reflected in our long-range internal planning models . our assumptions regarding pricing are based upon the average pricing over the commodity cycle ( generally five years ) due to the inherent volatility of commodity product pricing , and reflect our assessment of information gathered from industry research firms , research reports published by investment analysts and other published forecasts . our assumptions regarding expenses reflect our expectation that we will continue to reduce production costs to offset inflationary impacts . when impairment is indicated for assets held and used in our operations , the book values of the affected assets are written down to their estimated fair value , which is generally based upon discounted future cash flows associated with the affected assets . when impairment is indicated for assets to be disposed of , the book values of the affected assets are written down to their estimated fair value , less estimated selling costs . consequently , a determination to dispose of particular assets can require us to estimate the net sales proceeds expected to be realized upon such disposition , which may be less than the estimated undiscounted future net cash flows associated with such assets prior to such determination , and thus require an impairment charge . in situations where we have experience in selling assets of a similar nature , we may estimate net sales proceeds on the basis of that experience . in other situations , we hire independent appraisers to estimate net sales proceeds . due to the numerous variables associated with our judgments and assumptions relating to the valuation of assets in these circumstances , and the effects of changes in circumstances affecting these valuations , both the precision and reliability of the resulting estimates of the related impairment charges are subject to substantial uncertainties and , as additional information becomes known , we may change our estimates significantly . income taxes . the determination of the provision for income taxes , and the resulting current and deferred tax assets and liabilities , involves significant management judgment , and is based upon information and estimates available to management at the time of such determination . the final income tax liability to any taxing jurisdiction with respect to any calendar year will ultimately be determined long after our financial statements have been published for that year . we maintain reserves for known estimated tax exposures in federal , state and international jurisdictions ; however , actual results may differ materially from our estimates . judgment is also applied in determining whether deferred tax assets will be realized in full or in part . when we consider it to be more likely than not that all or some portion of a deferred tax asset will not be realized , a valuation allowance is established for the amount of the deferred tax asset that is estimated not to be realizable . as of december 31 , 2011 , we had established valuation allowances against certain deferred tax assets , primarily related to state and foreign carryovers of net operating losses , credits and capital losses . we have not established valuation allowances against other deferred tax assets based upon tax strategies implemented or deferred tax liabilities which we anticipate to reverse within the carry forward period . accordingly , changes in facts or circumstances affecting the likelihood of realizing a deferred tax asset could result in the need to record additional valuation allowances . pension plans . most of our u.s. employees and many of our canadian employees participate in defined benefit pension plans sponsored by lp . we account for the consequences of our sponsorship of these plans in accordance with accounting principles generally accepted in the u.s. , which require us to make actuarial assumptions that are used to calculate the related assets , liabilities and expenses recorded in our financial statements .
| see note 24 of the notes to the financial statements included in item 8 of this report for further information regarding our segments . osb our osb segment manufactures and distributes osb structural panel products in north america and certain export markets . osb is an innovative , affordable and environmentally smart product made from wood strands arranged in layers and bonded with resin . we believe we are the largest and one of the most efficient producers of osb in north and south america . according to fea , it is estimated for 2011 that osb accounted for approximately 57 % of the structural panel consumption in north america with plywood accounting for the remainder . we estimate that the overall north american structural panel market ( based upon 2011 housing starts ) was 26.7 billion square feet with the osb market comprising an estimated 15.3 billion square feet of this market . based upon our production in 2011 of 3.3 billion square feet ( including our joint venture osb mill with canfor corporation as well as osb produced in our siding segment ) , we estimate that we account for 22 % of the north american osb market and 12 % of the overall north american structural panel market . to enhance our industry leading position in the osb business , we plan to : ( 1 ) leverage our expertise in osb to capitalize on new opportunities for revenue growth through new product lines ; ( 2 ) improve net realizations relative to weighted-average osb regional pricing ; ( 3 ) reduce costs and improve throughput and recovery by continuing to focus on efficiency , raw materials cost reductions and logistics ; and ( 4 ) manage our capacity to meet our customers ' expected needs for osb demand . osb is manufactured through the use of wood strands arranged in layers and bonded with resins and wax . significant cost inputs to produce osb and approximate breakdown percentages for the year ended december 31 , 2011 include wood ( 31 % ) , resin and wax
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when this pricing relationship deviates from historical norms , we have from time to time entered into derivative instruments and physical positions in an attempt to take advantage of this relationship . our historical results have been significantly affected by our plant production capacity , our efficient use of that capacity and our ability to increase capacity . since our inception , we have followed a disciplined growth strategy that focuses on plant acquisitions , new plant construction and internal expansion . we evaluate each expansion project on the basis of its ability to produce sustained returns in excess of our cost of capital and its ability to improve efficiency or reduce operating costs . as noted above in item 1a , `` risk factors , '' we are subject to extensive environmental regulations , which may impose significant additional costs on our operations in the future . further , concern about ghg emissions and their possible effects on climate change has led to the enactment of regulations , and to proposed legislation and additional regulations , that could affect us in the form of increased cost of feedstocks and fuel , other increased costs of production and decreased demand for our products . while we do not expect any of these enactments or proposals to have a material adverse effect on us in the near term , we can not predict the longer-term effect of any of these regulations or proposals on our future financial condition , results of operations or cash flows . recent developments in december 2013 , we announced the start-up of the new chlor-alkali plant at our manufacturing complex in geismar . the new chlor-alkali plant is designed to produce 350,000 electro chemical units ( `` ecus '' ) , or 700 million pounds , of chlorine annually . the new plant is expected to improve the vertical integration of our vinyls business from chlorine downstream into vcm and pvc and increase caustic soda sales . on may 1 , 2013 , we acquired assets comprising certainteed corporation 's pipe and foundation group business . certainteed corporation is a subsidiary of the french public company , compagnie de saint-gobain . the acquisition included the pvc pipe , fittings , profiles and foundation business and associated facilities in lodi , california and mcpherson , kansas with production capacity of approximately 150 million pounds per year . we also acquired technologies and intellectual property for the production of a number of specialized products , including certa-lok® restrained joint pipe and yelomine branded products . in march 2013 , we completed planned major maintenance activities , or a turnaround , of the petro 2 ethylene unit at our lake charles complex . in conjunction with this turnaround , we completed the previously announced expansion to increase the ethane-based ethylene capacity of the unit and its conversion to 100 % ethane feedstock capability . the petro 2 ethylene unit expansion increased our ethylene capacity by approximately 240 million pounds annually . in addition , w e currently plan to expand the capacity of the other ethylene unit at our lake charles complex in the late 2015 to early 2016 time frame . in october 2012 , we announced a project to convert the feedstock for our calvert city ethylene plant from propane to ethane and to increase ethylene capacity by approximately 180 million pounds annually . this expansion and feedstock conversion project is expected to enhance our vinyl chain integration and leverage low cost ethane being developed in the marcellus shale area . the ethylene expansion and feedstock conversion project is targeted for start-up in the second quarter of 2014. in addition , we announced an expansion of the existing pvc plant in calvert city , which should allow us to take advantage of the increased ethylene production at our calvert city complex and to provide additional pvc resin to meet the growing demands of our global customers . the expansion of the calvert city pvc plant is expected to increase pvc resin capacity by approximately 200 million pounds annually and is targeted for completion by the second half of 2014 . 27 story_separator_special_tag style= '' font-family : inherit ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 2012 . debt balances during 2013 remained relatively unchanged compared to 2012 . 29 other income , net . other income , net increased by $ 3.3 million to $ 6.8 million in 2013 from $ 3.5 million in 2012 , primarily attributable to higher income from our equity method investments and the settlement of a claim against a supplier during 2013 , partially offset by lower interest income in 2013. income taxes . the effective income tax rate was 35.2 % in 2013 as compared to 34.1 % in 2012 . the effective income tax rate for 2013 was above the u.s. federal statutory rate of 35.0 % primarily due to state income taxes , mostly offset by state tax credits and the domestic manufacturing deduction . the effective income tax rate for 2012 was below the u.s. federal statutory rate of 35.0 % primarily due to the domestic manufacturing deduction and state income tax credits , offset by state income taxes . olefins segment net sales . net sales increased by $ 53.7 million , or 2.1 % , to $ 2,553.7 million in 2013 from $ 2,500.0 million in 2012 , mainly due to higher sales volumes for styrene and higher sales prices for polyethylene and styrene , partially offset by lower feedstock , ethylene and ethylene co-products sales volumes . ethylene and ethylene co-product sales volumes were lower primarily due to the first quarter 2013 turnaround and expansion of one of the lake charles ethylene units . styrene sales volumes for 2012 were negatively impacted by a planned outage of our styrene plant in lake charles . story_separator_special_tag average sales prices for the olefins segment increased by 3.3 % in 2013 as compared to 2012 , while average sales volumes decreased by 1.1 % in 2013 as compared to 2012 . income from operations . income from operations was $ 833.2 million in 2013 as compared to $ 552.8 million in 2012 . this increase was mainly attributable to higher olefins integrated product margins as compared to 2012 , primarily as a result of significantly lower ethane costs . income from operations for 2013 was negatively impacted by the lost production and the expensing of $ 19.9 million related to unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of one of the lake charles ethylene units . trading activity for 2013 resulted in a gain of $ 5.4 million as compared to a loss of $ 11.6 million for 2012 . vinyls segment net sales . net sales increased by $ 134.7 million , or 12.6 % , to $ 1,205.8 million in 2013 from $ 1,071.1 million in 2012 . this increase was primarily attributable to higher sales volumes and sales prices for pvc resin and caustic and sales contributed by our specialty pvc pipe business . average sales prices for the vinyls segment increased by 1.5 % in 2013 as compared to 2012 , while average sales volumes increased by 11.1 % in 2013 as compared to 2012 . income from operations . income from operations was $ 154.7 million in 2013 , an increase of $ 68.8 million when compared to the 2012 income from operations of $ 85.9 million . this increase was predominantly driven by lower feedstock costs , higher sales volumes for pvc resin and higher operating rates as compared to 2012 , partially offset by pre-operating expenses incurred for the geismar chlor-alkali plant of $ 11.1 million and specialty pvc pipe business acquisition-related costs , including the effect of selling higher cost inventory recorded at fair value , of $ 5.8 million , or $ 0.06 per diluted share , after tax . income from operations for 2012 was negatively impacted by the lost production , lost sales and unabsorbed manufacturing and other costs associated with the unscheduled shut down at our geismar vinyls complex . 2012 compared with 2011 net sales . net sales decreased by $ 48.8 million , or 1.3 % , to $ 3,571.0 million in 2012 from $ 3,619.8 million in 2011. this decrease was mainly attributable to lower sales prices for most of our major products , offset by higher feedstock , building products and caustic sales volumes as compared to 2011. average sales prices for 2012 decreased by 5.9 % as compared to 2011. overall sales volume increased by 4.5 % in 2012 as compared to 2011. gross profit . gross profit margin percentage increased to 20.6 % in 2012 from 15.4 % in 2011. the improvement in gross profit margin percentage was predominantly due to significantly lower feedstock and energy costs , which were only partially offset by lower sales prices . our raw material costs in both segments normally track industry prices , which experienced a decrease of 48.1 % for ethane and 31.5 % for propane in 2012 as compared to 2011. sales prices decreased an average of 5.9 % for 2012 as compared to 2011. selling , general and administrative expenses . selling , general and administrative expenses increased $ 9.4 million , or 8.4 % , in 2012 as compared to 2011. the increase was mainly attributable to expenses associated with our terminated proposal to acquire georgia gulf corporation and an increase in payroll and related labor costs , including incentive compensation , partially offset by a decrease in the facility fee for our senior secured revolving credit facility . interest expense . interest expense decreased by $ 8.0 million to $ 43.0 million in 2012 from $ 51.0 million in 2011 , largely due to increased capitalized interest on major capital projects in 2012 and lower interest rates for the $ 250.0 million aggregate principal amount of 3.60 % senior notes due 2022 ( the `` 3.60 % notes due 2022 '' ) as compared to the $ 250.0 million aggregate 30 principal amount of 6 5 / 8 % senior notes due 2016 ( the `` 2016 notes '' ) . debt balances during 2012 remained relatively unchanged compared to 2011. debt retirement costs . we recognized $ 7.1 million in non-operating expense in 2012 consisting primarily of a pre-payment premium of $ 5.5 million and a write-off of $ 1.3 million in previously capitalized debt issuance costs as a result of the early redemption of the 2016 notes . gain from sales of equity securities . we liquidated our holdings of available-for-sale securities , including shares of georgia gulf corporation common stock , in the second and third quarters of 2012. as a result of the dispositions , we recognized a gain of $ 16.4 million in non-operating income in 2012. other income , net . other income , net decreased by $ 2.1 million to $ 3.5 million in 2012 from $ 5.6 million in 2011 , as lower income from our equity method investments and higher foreign exchange currency losses were partially offset by higher interest income in 2012. income taxes . the effective income tax rate was 34.1 % in 2012 as compared to 35.5 % in 2011. the effective income tax rate for 2012 was below the u.s. federal statutory rate of 35.0 % primarily due to the domestic manufacturing deduction and state income tax credits , offset by state income taxes . the effective income tax rate for 2011 was above the u.s. federal statutory rate of 35.0 % primarily due to state income taxes , offset by state tax credits and the domestic manufacturing deduction . olefins segment net sales .
| per diluted share , on net sales of $ 3,759.5 million . this represents an increase in net income of $ 224.8 million , or $ 3.34 per diluted share , from 2012 net income of $ 385.6 million , or $ 5.75 per diluted share , on net sales of $ 3,571.0 million . net sales for the year ended december 31 , 2013 increased $ 188.5 million to $ 3,759.5 million compared to net sales for 2012 of $ 3,571.0 million , primarily due to higher sales prices for most of our major products , higher sales volumes for styrene , caustic and pvc resin and sales contributed by our specialty pvc pipe business , which we acquired in may 2013. income from operations was $ 953.5 million for the year ended december 31 , 2013 as compared to $ 615.4 million for 2012 , an increase of $ 338.1 million . income from operations benefited mainly from higher olefins and vinyls integrated product margins , predominantly due to a significant decrease in ethane costs as average industry ethane prices decreased 34.3 % in 2013 as compared to 2012. the increase in income from operations was partially offset by the lost production and the unabsorbed fixed manufacturing costs and other costs associated with the turnaround and expansion of one of the lake charles ethylene units in 2013 . 2013 compared with 2012 net sales . net sales increased by $ 188.5 million , or 5.3 % , to $ 3,759.5 million in 2013 from $ 3,571.0 million in 2012 . this increase was mainly attributable to higher sales volumes and sales prices for styrene , caustic and pvc resin , higher polyethylene sales prices and sales contributed by our specialty pvc pipe business , partially offset by lower feedstock , ethylene and ethylene co-products sales volumes . ethylene and ethylene co-product sales volumes were lower primarily due to the first quarter 2013 turnaround and expansion of the
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as of december 31 , 2017 , approximately $ 12.2 million of the company 's cash balance was held by casi china . we intend to continue to exercise tight controls over operating expenditures . in developing drug candidates , we intend to use and leverage resources available to us in both the united states and china . we intend to pursue additional financing opportunities as well as opportunities to raise capital through forms of non- or less- dilutive arrangements , such as partnerships and collaborations with organizations that have capabilities and or products that are complementary to our capabilities and products in order to continue the development of our product candidates that we intend to pursue to commercialization . 27 additional funds raised by issuing equity securities may result in dilution to existing stockholders . critical accounting policies and the use of estimates the preparation of our financial statements in conformity with accounting principles generally accepted in the united states requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes . actual results could differ materially from those estimates . our critical accounting policies , including the items in our financial statements requiring significant estimates and judgments , are as follows : - revenue recognition - we recognize revenue in accordance with the provisions of authoritative guidance issued , whereby revenue is not recognized until it is realized or realizable and earned . revenue is recognized when all of the following criteria are met : persuasive evidence of an arrangement exists , delivery has occurred or services have been rendered , the price to the buyer is fixed and determinable and collectibility is reasonably assured . - research and development - research and development expenses consist primarily of compensation and other expenses related to research and development personnel , research collaborations , costs associated with preclinical testing and clinical trials of our product candidates , including the costs of manufacturing drug substance and drug product , regulatory maintenance costs , and facilities expenses . research and development costs are expensed as incurred . - expenses for clinical trials - expenses for clinical trials are incurred from planning through patient enrollment to reporting of the data . we estimate expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection and management . costs that are associated with patient enrollment are recognized as each patient in the clinical trial completes the enrollment process . estimated clinical trial costs related to enrollment can vary based on numerous factors , including expected number of patients in trials , the number of patients that do not complete participation in a trial , and when a patient drops out of a trial . costs that are based on clinical data collection and management are recognized in the reporting period in which services are provided . in the event of early termination of a clinical trial , we accrue an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial . - stock-based compensation - all share-based payment transactions are recognized in the consolidated financial statements at their fair values . compensation expense associated with service and performance condition-based stock options and other equity-based compensation is recorded in accordance with provisions of authoritative guidance . the fair value of awards whose fair values are calculated using the black-scholes option pricing model is generally being amortized on a straight-line basis over the requisite service period and is recognized based on the proportionate amount of the requisite service period that has been rendered during each reporting period . share-based awards granted to employees with a performance condition are measured based on the probable outcome of that performance condition during the requisite service period . such an award with a performance condition will be expensed if it is probable that a performance condition will be achieved . for the years ended december 31 , 2017 and 2016 , $ 30,500 and $ 10,100 , respectively , was expensed for share awards with performance conditions that became probable during that period . using the straight-line expense attribution method over the requisite service period , which is generally the option vesting term ranging from immediately to one to three years , share-based compensation expense recognized for the years ended december 31 , 2017 and 2016 totaled approximately $ 650,000 and $ 2,995,000 , respectively . 28 the determination of fair value of stock-based payment awards on the date of grant using the black-scholes valuation model is affected by our stock price , as well as the input of other subjective assumptions . these assumptions include , but are not limited to , the expected forfeiture rate and expected term of stock options and our expected stock price volatility over the term of the awards . changes in the assumptions can materially affect the fair value estimates . any future changes to our share-based compensation strategy or programs would likely affect the amount of compensation expense recognized . - fair value measurements - at each reporting period , we perform a detailed analysis of our assets and liabilities that are measured at fair value . all assets and liabilities for which the fair value measurement is based on significant unobservable inputs or instruments which trade infrequently and therefore have little or no price transparency are classified as level 3 in accordance with the hierarchy established by u.s. gaap . as of december 31 , 2017 , the contingent rights had been fully settled resulting a zero balance at the end of 2017. in measuring the fair value of financial instruments at every balance sheet date , we used level 3 unobservable inputs , including such inputs as our estimated borrowing rate and our future capital requirements , and the timing , probability , size and characteristics of those capital raises , among other inputs . story_separator_special_tag story_separator_special_tag cellspacing= '' 0 '' style= '' font : 10pt times new roman , times , serif ; margin-top : 0 ; margin-bottom : 0 ; width : 100 % '' > - also reflected in our 2017 research and development expenses are outsourced consultant costs of $ 213,000 and facility and related expenses of $ 485,000. in 2016 , these expenses totaled $ 300,000 and $ 328,000 , respectively . the decrease in outsourced consultant costs reflects lower costs associated with clinical trial management and evaluation and regulatory activities in the u.s. the increase in facilities and related expenses is due to new leased lab space in china in 2017. general and administrative expenses . general and administrative expenses include compensation and other expenses related to finance , business development and administrative personnel , professional services and facilities . general and administrative expenses decreased to $ 3,156,000 in 2017 from $ 4,775,000 in 2016. this decrease is primarily related to a decrease of $ 1,871,000 in stock-based compensation expense , primarily related to stock options awarded in connection with the closings of the company 's strategic financing in 2016 , offset by an increase in salary and benefits associated with u.s. employees , including new business development employees in 2017. interest ( income ) expense , net . interest expense , net for the years ended december 31 , 2017 and 2016 was $ ( 1,009 ) and $ 26,090 , respectively . this includes interest expense on our note payable of $ 7,500 for both years ; non-cash interest expense of $ 7,476 and $ 26,308 , respectively , representing the amortization of the debt discount ; offset by interest income of $ 15,985 and $ 7,718 , respectively . change in fair value of contingent rights . the contingent rights issued to spectrum in connection with the license arrangements are considered derivative liabilities and were recorded initially at their estimated fair value , and are marked to market each reporting period until settlement . the change in fair value of the contingent rights for the years ended december 31 , 2017 and 2016 was $ 19,891 and $ 6,788 , respectively . 31 liquidity and capital resources to date , we have been engaged primarily in research and development activities . as a result , we have incurred and expect to continue to incur operating losses in 2018 and the foreseeable future before we commercialize any products and penetrate significant markets such as china . based on our current plans , we expect our current available cash and cash equivalents to meet our cash requirements for at least through march 29 , 2019. we will require significant additional funding to fund operations until such time , if ever , we become profitable . we intend to augment our cash balances by pursuing other forms of capital infusion , including strategic alliances or collaborative development opportunities with organizations that have capabilities and or products that are complementary to our capabilities and products in order to continue the development of our potential product candidates that we intend to pursue to commercialization . if we seek strategic alliances , licenses , or other alternative arrangements , such as arrangements with collaborative partners or others , to raise further financing , we may need to relinquish rights to certain of our existing product candidates , or products we would otherwise seek to develop or commercialize on our own , or to license the rights to our product candidates on terms that are not favorable to us . we will continue to seek to raise additional capital to fund our commercialization efforts , research and development , and the clinical development of enmd-2076 and new product candidates , if any . we intend to explore one or more of the following alternatives to raise additional capital : · selling additional equity securities ; · out-licensing product candidates to one or more corporate partners ; · completing an outright sale of non-priority assets ; and or · engaging in one or more strategic transactions . we also will continue to manage our cash resources prudently and cost-effectively . there can be no assurance that adequate additional financing under such arrangements will be available to us on terms that we deem acceptable , if at all . if additional funds are raised by issuing equity securities , dilution to existing shareholders may result , or the equity securities may have rights , preferences , or privileges senior to those of the holders of our common stock . if we fail to obtain additional capital when needed , we may be required to delay or scale back our commercialization efforts , our advancement of the spectrum products , and our phase 2 plans for enmd-2076 or plans for other product candidates , if any . at december 31 , 2017 , we had cash and cash equivalents of approximately $ 43.5 million , with working capital of approximately $ 38.8 million . as of december 31 , 2017 , approximately $ 12.2 million of the company 's cash balance was held by the company 's wholly-owned subsidiary in china . as previously disclosed , on january 26 , 2018 the company paid $ 18 million for a portfolio of 25 u.s. fda-approved andas , one anda that fda tentatively approved , and three andas that are pending fda approval . as a result of the company 's acquisition of a portfolio of andas , we believe that this transaction provides significant and permanent changes to our operations in china , allowing our subsidiary in china to generate operating revenues from the china marketplace in the future and potentially to sustain their own operations without the necessity of parent support . accordingly , effective january 1 , 2018 , the functional currency of the company 's subsidiary based in china has been changed to the local currency of the china rmb .
| completion of clinical development may take several years or more , but the length of time generally varies substantially according to the type , complexity , novelty and intended use of a product candidate . we estimate that clinical trials of the type we generally conduct are typically completed over the following timelines : 29 global fda trial : clinical phase estimated completion period phase 1 1-2 years phase 2 2-3 years phase 3 2-4 years local cfda trial : clinical phase estimated completion period phase 1 1 year phase 2 2 years phase 3 2-3 years the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol , including , among others , the following : - the number of patients that ultimately participate in the trial ; - the duration of patient follow-up that seems appropriate in view of the results ; - the number of clinical sites included in the trials ; and - the length of time required to enroll suitable patient subjects . we test our potential product candidates in numerous preclinical studies to identify indications for which they may be product candidates . we may conduct multiple clinical trials to cover a variety of indications for each product candidate . as we obtain results from trials , we may elect to discontinue clinical trials for certain indications in order to focus our resources on more promising indications . our proprietary product candidates have also not yet achieved regulatory approval , which is required before we can market them as therapeutic products . in order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval , regulatory agencies must conclude that our clinical data establish safety and efficacy . historically , the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials . a number of new drugs and biologics
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the company will also benefit from an additional week of sales compared to the 52-week year ended december 28 , 2019. story_separator_special_tag style= '' font-weight : bold ; font-style : italic ; font-size:10pt ; font-family : times new roman ; text-transform : none ; font-variant : normal ; '' > operating earnings ( loss ) – the following table presents operating earnings ( loss ) by segment and variances in operating earnings ( loss ) : replace_table_token_8_th the company reported operating earnings of $ 56.9 million in 2019 compared to $ 70.5 million in the prior year . the decrease of $ 13.6 million was primarily related to an increase in supply chain expense , partly due to a reliance on incremental contract labor within the warehouse and transportation operations in both the food distribution and military segments , and higher administrative costs , including transition costs , one-time costs associated with project one team and healthcare costs . these factors were partially offset by lower restructuring charges and the contribution of the acquired martin 's stores . food distribution operating earnings decreased $ 1.3 million to $ 47.4 million in 2019 from $ 48.8 million in the prior year . the decrease was primarily attributable to the higher supply chain costs and corporate administrative expenses described above , partially offset by lower restructuring charges compared to the prior year . military operating earnings decreased $ 15.0 million to a $ 9.3 million operating loss in 2019 from earnings of $ 5.6 million in the prior year . the decrease was attributable to higher supply chain costs and higher corporate administrative expenses than in the prior year . retail operating earnings increased $ 2.7 million to $ 18.8 million in 2019 compared to $ 16.1 million in the prior year . the increase was primarily due to the contribution of the acquired martin 's stores and the favorable impact of closing underperforming stores , partially offset by higher corporate administrative expenses as described above and higher store labor costs . interest expense – interest expense increased $ 4.1 million , or 13.3 % , to $ 34.5 million in 2019 from $ 30.5 million in the prior year primarily due to an increase in interest rates compared to the prior year . postretirement benefit expense ( income ) – expense in the current year is primarily related to the termination of the company 's pension plan , a frozen defined benefit pension plan terminated on july 31 , 2018 , and the resulting distribution of assets to plan participants in 2019. income taxes – the company 's effective income tax rates were -65.5 % and 17.0 % for 2019 and 2018 , respectively . differences from the federal statutory rate in the current year are primarily due to state tax benefits and tax credits . differences from the federal statutory rate in the prior year are primarily due to the lapse of the statute of limitations for an uncertain tax position and tax credits , partially offset by tax expense related to stock-based compensation and state income taxes . non-gaap financial measures in addition to reporting financial results in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) , the company also provides information regarding adjusted operating earnings , adjusted earnings from continuing operations , and adjusted earnings before interest , taxes , depreciation and amortization ( “ adjusted ebitda ” ) . these are non-gaap financial measures , as defined below , and are used by management to allocate resources , assess performance against its peers and evaluate overall performance . the company believes these measures provide useful information for both management and its investors . the company believes these non-gaap measures are useful to investors because they provide additional understanding of the trends and special circumstances that affect its business . these measures provide useful supplemental information that helps investors to establish a basis for expected performance and the ability to evaluate actual results against that expectation . the measures , when considered in connection with gaap results , can be used to assess the overall performance of the company as well as assess the company 's performance against its peers . these measures are also used as a basis for certain compensation programs sponsored by the company . in addition , securities analysts , fund managers and other shareholders and stakeholders that communicate with the company request its financial results in these adjusted formats . -23- current year adjusted operating earnings , adjusted earnings from continuing operations , and adjusted ebitda exclude “ fresh kitchen operating losses ” subsequent to the decision to exit these operations at the beginning of the third quarter , costs associated with organizational realignment , which include significant changes to the company 's management team , and fees paid to a third-party advisory firm associated with project one team , the company 's initiative to drive growth while increasing efficiency and reducing costs . pension termination costs , primarily related to non-operating settlement expense associated with the distribution of pension assets , are excluded from adjusted earnings from continuing operations , and to a lesser extent adjusted operating earnings . prior year and 2017 a djusted operating earnings , adjusted earnings from continuing operations , and adjusted ebitda exclude start-up costs associated with the first year of fresh kitchen operation s , which concluded during the first quarter of 2018 . the 2017 retirement stock compensation award represents incremental compensation expense in connection with an executive retirement . these items are considered “ non-operational ” or “ non-core ” in nature . adjusted operating earnings adjusted operating earnings is a non-gaap operating financial measure that the company defines as operating earnings plus or minus adjustments for items that do not reflect the ongoing operating activities of the company and costs associated with the closing of operational locations . the company believes that adjusted operating earnings provide a meaningful representation of its operating performance for the company as a whole and for its operating segments . story_separator_special_tag the company considers adjusted operating earnings as an additional way to measure operating performance on an ongoing basis . adjusted operating earnings is meant to reflect the ongoing operating performance of all of its distribution and retail operations ; consequently , it excludes the impact of items that could be considered “ non-operating ” or “ non-core ” in nature , and also excludes the contributions of activities classified as discontinued operations . because adjusted operating earnings and adjusted operating earnings by segment are performance measures that management uses to allocate resources , assess performance against its peers and evaluate overall performance , the company believes it provides useful information for both management and its investors . in addition , securities analysts , fund managers and other shareholders and stakeholders that communicate with the company request its operating financial results in an adjusted operating earnings format . adjusted operating earnings and adjusted operating earnings by segment are not measures of performance under gaap and should not be considered as a substitute for operating earnings and other income statement data . the company 's definitions of adjusted operating earnings and adjusted operating earnings by segment may not be identical to similarly titled measures reported by other companies . -24- following is a reconciliation of operating earnings ( loss ) to adjusted operating earnings for 201 9 , 201 8 and 201 7 . replace_table_token_9_th -25- adjusted earnings from continuing operations adjusted earnings from continuing operations is a non-gaap operating financial measure that the company defines as earnings from continuing operations plus or minus adjustments for items that do not reflect the ongoing operating activities of the company and costs associated with the closing of operational locations . the company believes that adjusted earnings from continuing operations provide a meaningful representation of its operating performance for the company . the company considers adjusted earnings from continuing operations as an additional way to measure operating performance on an ongoing basis . adjusted earnings from continuing operations is meant to reflect the ongoing operating performance of all of its distribution and retail operations ; consequently , it excludes the impact of items that could be considered “ non-operating ” or “ non-core ” in nature , and also excludes the contributions of activities classified as discontinued operations . because adjusted earnings from continuing operations is a performance measure that management uses to allocate resources , assess performance against its peers and evaluate overall performance , the company believes it provides useful information for both management and its investors . in addition , securities analysts , fund managers and other shareholders and stakeholders that communicate with the company request its operating financial results in adjusted earnings from continuing operations format . adjusted earnings from continuing operations is not a measure of performance under gaap and should not be considered as a substitute for earnings from continuing operations and other income statement data . the company 's definition of adjusted earnings from continuing operations may not be identical to similarly titled measures reported by other companies . following is a reconciliation of earnings ( loss ) from continuing operations to adjusted earnings from continuing operations for 2019 , 2018 and 2017. replace_table_token_10_th ( a ) the income tax effect on adjustments is computed by applying the applicable tax rate to the adjustments . ( b ) the company realized income tax benefits related to remeasuring its deferred tax assets and liabilities to reflect the change in the federal statutory rate resulting from the tax cuts and jobs act . includes $ 1.1 million and $ 4.8 million of tax benefits attributable to tax planning strategies related to the tax cuts and jobs act for 2018 and 2017 , respectively . adjusted ebitda adjusted earnings before interest , taxes , depreciation and amortization ( “ adjusted ebitda ” ) is a non-gaap operating financial measure that the company defines as net earnings plus interest , discontinued operations , depreciation and amortization , and other non-cash items including deferred ( stock ) compensation , the lifo provision , as well as adjustments for items that do not reflect the ongoing operating activities of the company and costs associated with the closing of operational locations . -26- the company believes that adjusted ebitda provides a meaningful representation of its operating performance for the company as a whole and for its operating segments . the company considers adjusted ebitda as an additional way to measure operating performance on an ongoing basis . adjusted ebitda is meant to reflect the ongoing operating performance of all of its distribution and retail operations ; consequently , it excludes the impact of items that could be considered “ non-operating ” or “ non-core ” in nature , and also excludes the contributions of activities classified as discontinued operations . because adjusted ebitda and adjusted ebitda by segment are performance measures that management uses to allocate resources , assess performance against its peers and evaluate overall performance , the company believes it provides useful information for both management and its investors . in addition , securities analysts , fund managers and other shareholders and stakeholders that communicate with the company request its operating financial results in an adjusted ebitda format . adjusted ebitda and adjusted ebitda by segment are not measures of performance under gaap and should not be considered as a substitute for net earnings , cash flows from operating activities and other income or cash flow statement data . the company 's definitions of adjusted ebitda and adjusted ebitda by segment may not be identical to similarly titled measures reported by other companies .
| the increase was primarily due to incremental volume from new business with an existing customer that commenced late in the fourth quarter of 2018 and growth in deca 's private brand program , partially offset by lower comparable sales at deca operated locations . retail net sales increased $ 475.1 million , or 24.9 % , to $ 2.38 billion in 2019 from $ 1.91 billion in the prior year . the increase in net sales was primarily attributable to incremental sales from the martin 's acquisition , partially offset by the impact of closed stores and lower comparable store sales . comparable store sales were negative 0.5 % in the current year , however improved in the second half of the year and ended at positive 0.5 % for the fourth quarter . the company defines a retail store as comparable when it is in operation for 14 accounting periods ( a period equals four weeks ) , regardless of remodels , expansions , or relocated stores . acquired stores are included in the comparable sales calculation 13 periods after the acquisition date . fuel is excluded from the comparable sales calculation due to volatility in price . the company 's definition of comparable store sales may differ from similarly titled measures at other companies . gross profit – gross profit represents net sales less cost of sales , which is described in further detail within note 1 , summary of significant accounting policies and basis of presentation in the notes to the consolidated financial statements . gross profit increased $ 133.4 million , or 12.0 % , to $ 1.24 billion in 2019 compared to $ 1.11 billion in the prior year . as a percent of net sales , gross profit increased from 13.8 % to 14.6 % primarily due to the acquisition of martin 's and the resulting higher mix of sales in the retail segment which generates a higher gross margin rate . selling , general and administrative expenses – selling , general and administrative ( “ sg & a ” ) expenses consist primarily of salaries and wages , employee benefits , warehousing costs , store occupancy costs , shipping and handling ,
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the dss acquisition was consummated pursuant to an agreement and plan of merger ( the merger agreement ) dated november 6 , 2014. aggregate consideration was approximately $ 1.246 billion payable through a combination of incremental borrowings under our asset based lending facility ( abl facility ) of $ 180.0 million , the issuance of $ 625.0 million of our 6.75 % senior notes due january 1 , the assumption of existing $ 350.0 million senior notes due 2021 originally issued by dss , and the issuance of series a convertible first preferred shares ( the convertible preferred shares ) having an aggregate value of approximately $ 116.1 million and series b non-convertible first preferred shares ( the non-convertible preferred shares , and together with the convertible preferred shares , the preferred shares ) having an aggregate value of approximately $ 32.7 million . as noted above , we issued $ 625.0 million of the 6.75 % senior notes due january 1 , 2020 in december 2014 to qualified purchasers in a private placement under rule 144a and regulation s under the securities act of 1933 , as amended ( securities act ) , and used the proceeds from the issuance to partially finance the dss acquisition . on july 14 , 2015 , we exchanged the privately-placed notes for notes that are registered under the securities act and that do not contain transfer restrictions , registration rights or additional interest provisions , but otherwise contain identical economic terms ( the 2020 notes ) . on may 26 , 2015 , we completed an offering , on a bought deal basis , of 16,215,000 common shares at a price of $ 9.25 per share for gross proceeds to us of approximately $ 150.0 million ( the 2015 offering ) . we incurred $ 6.0 million of underwriter commissions and $ 1.5 million in professional fees in connection with the 2015 offering . the proceeds of the 2015 offering were used to redeem all of the preferred shares ( see note 19 to the consolidated financial statements ) . during the year ended january 2 , 2016 , we , through our dss reporting segment , acquired nine separate hod water businesses . we have accounted for all of these transactions as business combinations in accordance with u.s. generally accepted accounting principles ( gaap ) . these acquisitions support our previously announced objective of strategic acquisitions where we expect to be able to leverage synergies with our existing business . net assets , including goodwill , acquired have been allocated to the dss reporting segment . all of the goodwill recorded is expected to be tax deductible . on january 4 , 2016 , we acquired aquaterra corporation ( aquaterra ) , a canadian direct-to-consumer home and office water delivery business , for approximately c $ 62 million ( approximately $ 45 million on the closing date ) . the acquisition was funded using cash on hand as well as borrowings under our abl facility . aquaterra will become a part of our dss reporting segment . other strategic transactions in may 2014 , our cott u.k. reporting segment acquired 100 % of the share capital of aimia foods holdings limited ( the aimia acquisition ) , which includes its operating subsidiary company , aimia foods limited ( together referred to as aimia ) . aimia produces and distributes hot chocolate , coffee and powdered beverages primarily through food service , vending and retail channels , and produces hot and cold cereal products on a contract manufacturing basis . the aggregate purchase price for the aimia acquisition was £52.1 million ( $ 87.6 million ) paid in cash , which included a payment for estimated closing balance sheet working capital , £19.9 million ( $ 33.5 million ) in deferred consideration paid in september 2014 , and aggregate contingent consideration of up to £16.0 million ( $ 23.6 million at exchange rates in effect on january 2 , 2016 ) , which is payable upon the achievement of certain measures related to aimia 's performance during the twelve months ending july 1 , 2016. the closing payment and the deferred consideration payment were funded from abl borrowings and available cash . in june 2013 , our cott u.k. reporting segment acquired 100 % of the share capital of cooke bros holdings limited ( the calypso soft drinks acquisition ) , which includes the subsidiary companies calypso soft drinks limited and mr. freeze ( europe ) limited ( together , calypso soft drinks ) . calypso soft drinks produces fruit juices , juice drinks , soft drinks , and freezable products in the united kingdom . the aggregate purchase price for the calypso soft drinks acquisition was $ 12.1 million , which included approximately $ 7.0 million paid at closing and deferred payments of approximately $ 2.3 million and $ 2.5 million paid on the first and second anniversaries of the closing date , respectively . each payment was funded from available cash . 34 financing activity on june 25 , 2015 , we entered into a sale-leaseback transaction ( the sale-leaseback transaction ) involving five of our manufacturing , production and distribution facilities in north america , pursuant to which we received cash proceeds of $ 40.1 million , after related transaction expenses , and recorded a gain of $ 22.6 million . the facilities are being leased from the buyer-lessor over an initial lease term of 20 years and the lease is classified as an operating lease . we determined we have retained the lease rights to the facilities but not the benefits and risks incident to ownership ; thus $ 21.6 million of the $ 22.6 million gain was deferred , with the remaining $ 1.0 million recognized as a gain on sale in loss on disposal of property , plant & equipment in our consolidated statement of operations for the year ended january 2 , 2016. this deferred gain is being amortized as a reduction to rent expense over the 20-year initial lease term . story_separator_special_tag in june 2014 , we issued $ 525.0 million of our 5.375 % senior notes due 2022 to qualified purchasers in a private placement under rule 144a and regulation s under the securities act . we used the proceeds to redeem $ 375.0 million aggregate principal amount of our 8.125 % senior notes due 2018 ( the 2018 notes ) and provide additional funding for company operations . on may 13 , 2015 , we exchanged the privately-placed notes for notes that are registered under the securities act and that do not contain transfer restrictions , registration rights or additional interest provisions , but otherwise contain identical economic terms ( the 2022 notes ) . in november 2013 , we redeemed $ 200.0 million aggregate principal amount of our 8.375 % senior notes due 2017 ( the 2017 notes ) primarily through the use of available cash and borrowings under the abl facility . in february 2014 , we redeemed the remaining $ 15.0 million aggregate principal amount of the 2017 notes at 104.118 % of par via borrowings under the abl facility . summary financial results our net loss attributed to cott corporation in 2015 was $ 3.4 million or $ 0.03 per diluted common share , compared with net income of $ 10.0 million or $ 0.10 per diluted common share in 2014. the following items of significance affected our 2015 financial results : our revenue increased $ 841.2 million , or 40.0 % , in 2015 compared to the prior year due primarily to a full year of operations from our aimia and dss businesses and the impact of four additional shipping days in 2015 , partially offset by the impact of unfavorable foreign exchange rates , the impact of the 53 rd week in 2014 , and a mix shift from private label to contract manufacturing in the cott north america and cott u.k. reporting segments . excluding the impact of foreign exchange , the impact of the 53 rd week in 2014 and four additional shipping days in 2015 , revenue increased $ 927.5 million , or 44.7 % , from the prior year ; our gross profit as a percentage of revenue increased to 30.4 % in 2015 compared to 13.1 % in the prior year due primarily to the addition of the aimia and dss businesses and cost and efficiency savings , partially offset by the impact of unfavorable foreign exchange rates and the competitive environment in our traditional business ; our selling , general and administrative ( sg & a ) expenses increased to $ 768.6 million in 2015 compared to $ 213.7 million in the prior year due primarily to the addition of our dss and aimia businesses . as a percentage of revenue , sg & a expenses increased to 26.1 % from 10.2 % in the prior year ; our loss on disposal of property , plant and equipment was related to the disposal of $ 6.9 million of equipment that was either replaced or no longer being used in our operating segments ; our acquisition and integration expenses decreased $ 20.7 million , or 50.1 % , in 2015 compared to the prior year due primarily to the incurrence of a significant portion of the transaction costs in connection with the acquisition of the dss and aimia businesses in the prior year ; our other income , net was $ 9.5 million in 2015 compared to other expense , net of $ 21.0 million in the prior year due primarily to net realized gains on translation of balances denominated in foreign currencies and a favorable legal settlement in 2015 compared to expenses incurred due to the redemption of our 2018 notes in the prior year ; our interest expense , net was $ 111.0 million in 2015 compared to $ 39.7 million in the prior year due primarily to carrying higher debt balances throughout the year from the dss acquisition as compared to the prior year ; our income tax benefit was $ 22.7 million in 2015 compared to $ 61.4 million in the prior year due primarily to the release of the u.s. federal valuation allowance in 2014. we expect to generate taxable income in the future in the united states and therefore are now able to realize tax benefits , such as net operating losses , generated in the united states ; 35 our ebitda increased to $ 332.7 million from $ 105.4 million in 2014 ; our adjusted ebitda increased to $ 357.0 million from $ 180.2 million in 2014 ; and our adjusted net income and adjusted earnings per diluted share were $ 23.0 million and $ 0.22 , respectively , compared to $ 57.1 million and $ 0.60 in the prior year , respectively . the following items of significance affected our 2014 financial results : our revenue increased $ 8.8 million , or 0.4 % , in 2014 compared to 2013 due primarily to the addition of the aimia and dss businesses in 2014 , the calypso business in 2013 , as well as the inclusion of a 53 rd week , partially offset by the competitive pricing environment and a product mix shift into contract manufacturing . excluding the impact of foreign exchange and the impact of the 53 rd week , revenue decreased $ 39.4 million , or 1.9 % , from the prior year period ; our gross profit as a percentage of revenue decreased to 13.1 % in 2014 from 13.2 % in the prior year due primarily to the addition of the calypso , aimia and dss businesses , offset by a competitive pricing environment , additional freight and start-up costs associated with the growth and launch of our contract manufacturing business in north america , and increased freight and transportation in our cott u.k. reporting segment as we ended the year holding more inventory with third-parties as we implement a new warehouse management system ; our sg & a expenses increased to $ 213.7 million in 2014 from $ 180.3 million in the prior year due primarily to increased
| the following table summarizes our free cash flow and adjusted free cash flow for the fiscal years ended january 2 , 2016 , january 3 , 2015 and december 28 , 2013 , respectively : replace_table_token_14_th 1. in connection with the dss acquisition , $ 29.4 million of cash was required to collateralize certain dss self-insurance programs . the $ 29.4 million was funded with borrowings under our abl facility , and the cash collateral was included within prepaid and other current assets on our consolidated balance sheet at january 3 , 2015. subsequent to january 3 , 2015 , additional letters of credit were issued from our available abl facility capacity , and the cash collateral was returned to the company and used to repay a portion of our outstanding abl facility . the following unaudited financial information for the fiscal years ended january 3 , 2015 and december 28 , 2013 , respectively , represents the activity of calypso and aimia for such periods . calypso and aimia were combined with our cott u.k. operations as of their respective dates of acquisition : replace_table_token_15_th 47 the following unaudited financial information for the fiscal years ended january 3 , 2015 and december 28 , 2013 , respectively , represents the activity of dss for such periods . dss was combined with our consolidated operations as of its date of acquisition : for the year ended ( in millions of u.s. dollars ) january 3 , 2015 december 28 , 2013 revenue cott corporation $ 2,102.8 $ 2,094.0 less : dss ( 28.7 ) cott corporation excluding dss $ 2,074.1 $ 2,094.0 2015 versus 2014 revenue increased $ 841.2 million , or 40.0 % , in 2015 from 2014. excluding the impact of the 53 rd week in 2014 , four additional shipping days in 2015 for dss and foreign exchange , revenue increased 44.7 % due primarily to the dss acquisition , partially offset by a general market decline in the csd category in north america and the united kingdom , the competitive pricing environment in the united kingdom , and product
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these factors include levels of construction , home improvement and remodeling activity , weather , prices of commodity wood and steel products , interest rates , competitive pressures , availability of credit and other local , regional , national and economic conditions . many of these factors are cyclical or seasonal in nature . we anticipate that further fluctuations in operating results from period to period will continue in the future . our first quarter and fourth quarter are generally adversely affected by winter weather patterns in the midwest and northeast , which typically result in seasonal decreases in levels of construction activity in these areas . because much of our overhead and expenses remain relatively fixed throughout the year , our operating profits tend to be lower during the first and fourth quarters . we believe we have the product offerings , distribution channel , personnel , systems infrastructure and financial and competitive resources necessary for continued operations . our future revenues , costs and profitability , however , are all likely to be influenced by a number of risks and uncertainties , including those in item 1arisk factors . critical accounting policies we prepare our consolidated financial statements in accordance with u.s. generally accepted accounting principles , which require management to make estimates and assumptions . management bases these estimates and assumptions on historical results and known trends as well as management forecasts . actual results could differ from these estimates and assumptions . accounts receivable trade accounts receivable consist of amounts owed for orders shipped to customers and are stated net of an allowance for doubtful accounts . huttig 's corporate management establishes an overall credit policy for sales to customers and delegates responsibility for most credit decisions to regional credit personnel . the allowance for doubtful accounts is determined based on a number of factors including when customer accounts exceed 90 days past due and specific customer account reviews . our credit policies , together with careful monitoring of customer balances , have resulted in bad debt expense of less than 0.1 % of net sales in 2013 and approximately 0.1 % in 2012 and 2011. inventory inventories are valued at the lower of cost or market . we utilize the lifo cost method to value the majority of our inventories . we review inventories on hand and record a provision for slow-moving and obsolete inventory based on historical and expected sales . 16 valuation of goodwill and other long-lived assets we test the carrying value of our goodwill at each reporting unit for impairment on an annual basis and between annual tests in certain circumstances when there are indicators of potential impairment . the carrying value of goodwill is considered impaired when a reporting unit 's fair value is less than its carrying value . we also reassess useful lives of previously recognized intangible assets . for goodwill , we first assess the qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test . in that event , goodwill impairment is recognized to the extent recorded goodwill exceeds the implied fair value of that goodwill . circumstances that can lead to annual or interim two-step goodwill testing include significant negative variances from forecasted sales or operating profits or changes in other circumstances that indicate the carrying amount of goodwill may not be recoverable . we utilize a discounted cash flows model to estimate fair value of a reporting unit . in our estimate of fair value of a reporting unit , the following significant assumptions , and changes therein , are considered : publicly available and internal projections of single and multi-family housing starts used to project a reporting unit 's revenue in future years ; the reporting unit 's gross margin and operating expenses that reflect cost reduction actions already taken by the company ; projected variable costs associated with the variable revenue streams projected in the future ; projected reporting unit working capital changes and capital expenditure requirements ; and an estimate of a discount rate commensurate with the weighted average cost of capital for a market participant and a related growth factor . at december 31 , 2013 , we had $ 6.3 million of goodwill recorded across 14 reporting units . significant changes in our assumptions and the related projected cash flows utilized in calculating the reporting unit 's fair value could result in future goodwill impairment related to any of our reporting units . in 2012 , we recorded goodwill impairment of $ 1.9 million related to the reduction in fair value of one reporting unit . we test the carrying value of other long-lived assets , including intangible and other tangible assets , for impairment when events and circumstances warrant such review . the carrying value of long-lived assets is considered impaired when the anticipated undiscounted cash flows from such assets are less than the carrying value . in that event , a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset . contingencies we accrue expenses when it is probable that an asset has been impaired or a liability has been incurred and we can reasonably estimate the expense . contingencies for which we have made accruals include environmental , product liability and certain other legal matters . it is possible that future results of operations for any particular quarter or annual period and our financial condition could be materially affected by changes in assumptions or other circumstances related to these matters . we accrue an estimate of the cost of resolution of these matters and make adjustments to the amounts accrued as circumstances change . we expense legal costs as incurred . story_separator_special_tag self-insurance it is our policy to self-insure , up to certain limits , traditional risks including workers ' compensation , comprehensive general liability , physical loss to property and auto liability . we are also self-insured , up to certain limits , for certain other insurable risks , including the majority of our medical benefit plans . insurance coverage is maintained for catastrophic property and casualty exposures as well as those risks required to be insured by law or contract . a provision for self-insured claims , based on our estimate of the aggregate liability for claims incurred , is revised and recorded quarterly . the estimates are derived from both internal and external sources , including but not limited to actuarial type estimates , claims incurred , the probability of losses and historical settlement experience . our estimates are subject to uncertainty from various sources , including , among others , changes in claim reporting patterns , claim settlement patterns , judicial decisions , legislation and economic conditions . although we believe our estimates are reasonable , significant differences related to the items noted above could materially affect our self-insurance obligations , future expense and cash flow . 17 income taxes we operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions . these audits can involve complex issues , which may require an extended period of time to resolve . we regularly review our potential tax liabilities for tax years subject to audit . changes in our tax liability may occur in the future as our assessment changes based on the progress of tax examinations in various jurisdictions and or changes in tax regulations . in management 's opinion , adequate provisions for income taxes have been made for all years presented . deferred tax assets and liabilities are recognized for the future tax benefits or liabilities attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . 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 rates would be recognized in income in the period that includes the enactment date . we regularly review our deferred tax assets for recoverability and establish a valuation allowance when we believe that such assets may not be recovered , taking into consideration historical operating results , expectations of future earnings , changes in operations , the expected timing of the reversal of existing temporary differences and available tax planning strategies . currently , our deferred tax liabilities , which reverse in the same periods and jurisdictions as our deferred tax assets , enable us to partially utilize the deferred tax assets at december 31 , 2013 , without relying on any projections of future pre-tax income . the balance of these deferred tax assets are covered by a valuation allowance . story_separator_special_tag foregoing factors , we incurred a loss from continuing operations of $ 0.1 million in 2012 as compared to a loss from continuing operations of $ 12.7 million in 2011. discontinued operations we recorded a loss of $ 0.4 million from discontinued operations in 2012 compared to loss of $ 0.5 million in 2011. the loss in both years is due to environmental and related legal expenses . liquidity and capital resources we depend on cash flow from operations and funds available under our revolving credit facility to finance seasonal working capital needs , capital expenditures and any acquisitions that we may undertake . our working capital requirements are generally greatest in the second and third quarters , which reflect the seasonal nature of our business . the second and third quarters are also typically our strongest operating quarters , largely due to more favorable weather throughout many of our markets compared to the first and fourth quarters . we typically generate cash from working capital reductions in the fourth quarter of the year and build working capital during the first quarter in preparation for our second and third quarters . we also maintain significant inventories to meet rapid delivery requirements of our customers and to enable us to obtain favorable pricing , delivery and service terms with our suppliers . at december 31 , 2013 and 2012 , inventories and accounts receivables constituted approximately 73 % and 70 % of our total assets , respectively . we also closely monitor operating expenses and inventory levels during seasonally affected periods and , to the extent possible , manage variable operating costs to minimize seasonal effects on our profitability . operations cash provided by operating activities improved by $ 5.5 million to $ 1.2 million in 2013 , compared to a $ 4.3 million usage of cash in 2012. in 2013 , our net income increased $ 3.7 million compared to 2012. accounts receivable increased by $ 2.1 million and $ 2.3 million during 2013 and 2012 , respectively . days sales outstanding ( dso ) decreased by 0.7 days to 29.6 days at december 31 , 2013 from 30.3 days at december 31 , 2012 based on annualized fourth quarter sales and quarter ended accounts receivable balances for the respective periods . inventory increased by $ 11.7 million in 2013 compared to an increase of $ 10.2 million in 2012. our inventory turns decreased to 6.7 turns in 2013 from 7.3 turns in 2012. the increase in inventories at december 31 , 2013 , is principally due to the inventory build of the azek decking and trim lines , which the company added in the fourth quarter of 2013 , as well as purchases made under other advance buyarrangements and to support anticipated sales growth .
| operating expenses increased $ 6.4 million to $ 104.8 million , or 18.7 % of sales , in 2013 , compared to $ 98.4 million , or 18.9 % of sales , in 2012. the increase in operating expenses is primarily due to an increase in personnel costs , which increased $ 5.8 million , principally from increased headcount , general widespread wage increases implemented in 2013 , as well as higher variable costs associated with increased sales . we recorded total stock-based compensation expense of $ 1.0 million in 2013 compared to $ 0.8 million in 2012. non personnel expenses were $ 0.6 million higher in 2013 as compared to 2012. our results for the year ended december 31 , 2012 included a gain on disposal of capital assets of $ 2.4 million , primarily from the sale of a previously closed facility . in addition , our results for 2012 included a goodwill impairment charge of $ 1.9 million . 18 net interest expense was $ 2.6 million in 2013 compared to $ 2.9 million in 2012. the decrease is primarily due to lower borrowing rates in 2013 versus 2012. income tax expense of $ 0.1 million was recognized for the period ending december 31 , 2013. no income tax expense or benefit was recognized for the period ending december 31 , 2012. if , in the future , we generate sufficient earnings in federal and state tax jurisdictions where we have recorded valuation allowances , our conclusion regarding the need for a valuation allowance in these tax jurisdictions could change . accordingly , it is reasonably possible we could have a reduction of some or a significant portion of our recorded valuation allowance of $ 30.1 million at december 31 , 2013. this determination would be dependent on a number of factors which would include , but not be limited to , our expectation of future taxable income . as a result of the foregoing factors , we reported income from continuing operations of $ 3.6 million in 2013 as compared to a loss from continuing operations of $ 0.1 million in 2012. discontinued operations we recorded a loss of $ 0.4 million from discontinued operations in both 2013 and 2012. the loss in both years is due to environmental and related legal expenses . fiscal 2012 compared to fiscal 2011 continuing operations net
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these investments will support the company 's revenue growth objectives of ( i ) continuing to grow its share of business with large , complex customers ; ( ii ) creating a unique value proposition to further penetrate the medium customer segment and ( iii ) further leveraging its ecommerce capabilities to serve smaller customers . through the execution of the restructuring initiatives in both the u.s. and canada , the company will reduce its cost base , while ensuring that it continues to deliver an effortless customer experience . on january 26 , 2016 , grainger reiterated its 2016 earnings per share guidance of $ 10.80 to $ 13.00 and its 2016 sales guidance of -1 to 7 percent . matters affecting comparability . grainger completed several acquisitions throughout 2015 , 2014 and 2013 , all of which were immaterial individually and in the aggregate . grainger 's operating results have included the results of each business acquired since the respective acquisition dates . story_separator_special_tag style= '' font-family : arial ; font-size:10pt ; color : # 000000 ; text-decoration : none ; '' > 2014 , primarily driven by price decreases exceeding product cost decreases and higher sales to lower margin customers . operating expenses were up 1 % for 2015 versus 2014 . operating expenses included an incremental $ 96 million in growth-related spending on ecommerce , new sales representatives , supply chain and inventory management solutions , as well as $ 32 million of charges related to reorganizing the business , including branch closures . excluding the reorganization costs , operating expenses decreased 1 % primarily due to lower employee benefit costs . for the segment , operating earnings of $ 1,372 million for 2015 decreased 5 % versus $ 1,444 million in 2014 . excluding the reorganization expenses mentioned above , operating earnings were down 3 % . the decline in operating earnings for 2015 was due to a lower gross profit margin , partially offset by positive operating expense leverage . canada net sales were $ 891 million for 2015 , a decrease of $ 185 million , or 17 % , when compared with $ 1,076 million for 2014 . in local currency , sales decreased 5 % for 2015. the 17 % decrease for the year consisted of the following contributors : percent increase/ ( decrease ) volume ( 14 ) foreign exchange ( 12 ) acquisition 5 price 4 total ( 17 ) % sales performance in canada was driven by mid-teen declines in the oil and gas , contractor , commercial services , heavy manufacturing , resellers and retail markets . net sales in the agriculture and mining and utilities end markets were up in the mid-single digits . in 2015 , ecommerce sales for canada were $ 107 million , a decrease of 13 % versus the prior year and represented 12 % of total sales . the segment gross profit margin decreased 0.4 percentage points in 2015 versus 2014 , primarily driven by product cost inflation exceeding price inflation driven by unfavorable foreign exchange , partially offset by higher supplier rebates . operating expenses decreased 4 % in 2015 . in local currency , operating expenses increased 11 % , primarily due to higher severance costs related to reorganizing the business , higher depreciation driven primarily by the new dc and incremental costs from the wfs enterprises inc. ( wfs ) acquisition as 2014 included a partial year . excluding the reorganization costs , operating expenses increased 9 % . 17 operating earnings of $ 27 million for 2015 decreased $ 61 million , or 69 % , versus 2014 . in local currency , operating earnings decreased 64 % . the decrease in earnings was due to lower sales , lower gross profit margins and negative operating expense leverage . other businesses net sales for other businesses , which include zoro in the u.s. and operations in europe , asia , latin america , and the newly acquired cromwell , were $ 1,406 million for 2015 , an increase of $ 224 million , or 19 % , when compared with $ 1,182 million for 2014 . the net sales increase was primarily due to incremental sales from cromwell , zoro and monotaro . the 19 % increase for the year consisted of the following contributors : percent increase/ ( decrease ) volume/price 21 acquisition 12 foreign exchange ( 14 ) total 19 % operating earnings for other businesses were $ 48 million for 2015 compared to a loss of $ 38 million for 2014 . the year 2015 included $ 6 million of charges for the continuing restructuring of the business in europe and additional costs to shut down the business in brazil . the year 2014 included a $ 29 million charge related to closing the business in brazil , a $ 14 million charge related to the transition of the employee retirement plan in europe , a $ 12 million impairment charge for the business in colombia and $ 10 million in restructuring costs for the business in europe . excluding these charges in both years , operating earnings increased $ 27 million , primarily driven by improved operating performance by monotaro and zoro , partially offset by incremental expenses associated with the single channel online business model in europe . other income and expense other income and expense was $ 50 million of expense in 2015 compared with $ 13 million of expense in 2014. the following table summarizes the components of other income and expense ( in thousands of dollars ) : replace_table_token_8_th the increase in expense was driven by higher interest expense from the $ 1 billion in long-term debt issued in june 2015 , as well as operating losses from the investment in a limited liability company established to produce clean energy . as discussed below , the operating losses in this investment were more than offset by energy tax credits that lowered grainger 's tax rate , which provided grainger with positive net earnings and cash flow . story_separator_special_tag the clean energy investment generated $ 0.09 per share of earnings for 2015. income taxes income taxes of $ 466 million in 2015 decreased 11 % compared with $ 522 million in 2014 . grainger 's effective tax rates were 37.2 % and 39.1 % in 2015 and 2014 , respectively . excluding the effect of restructuring and non-operating items reported in both 2015 and 2014 , grainger 's adjusted tax rate was 37.6 % and 38.2 % in 2015 and 2014 , respectively . the decrease in the tax rate in 2015 was primarily due to the energy tax credits associated with the investment in the limited liability company established to produce clean energy , partially offset by a higher proportion of earnings in the united states versus geographies with lower tax rates . 18 2014 compared to 2013 grainger 's net sales of $ 9,965 million for 2014 increased 6 % when compared with net sales of $ 9,438 million for 2013. the 6 % increase for the year consisted of the following contributors : percent increase/ ( decrease ) volume 5 business acquisition , net of divestitures 1 price 1 foreign exchange ( 1 ) total 6 % net sales to most customer end markets increased for 2014. the increase in net sales was led by growth in sales to heavy and light manufacturing customers , as well as diversified commercial services customers . refer to the segment analysis below for further details . in 2014 , ecommerce sales were $ 3,575 million , an increase of 15 % over the prior year and represented 36 % of total sales . gross profit of $ 4,314 million for 2014 increased 4 % . the gross profit margin for 2014 was 43.3 % , down 0.5 percentage point versus 2013 , primarily driven by lower margins from the newly acquired businesses , faster growth with lower margin customers , charges related to closing the business in brazil and restructuring the business in europe , partially offset by price inflation exceeding cost inflation . operating expenses of $ 2,967 million for 2014 increased 4 % from $ 2,840 million for 2013. the increase was primarily driven by an incremental $ 78 million in growth-related spending on ecommerce , new sales representatives , supply chain and inventory management solutions , as well as charges related to closing the business in brazil , restructuring costs and the transition of the retirement plan in europe and an impairment charge for the business in colombia . operating earnings of $ 1,347 million for 2014 increased 4 % from $ 1,297 million for 2013. operating earnings in 2014 included a $ 29 million charge related to closing the business in brazil , a $ 14 million charge related to the transition of the employee retirement plan in europe , a $ 12 million impairment charge for the business in colombia and $ 10 million in restructuring costs for the business in europe . operating earnings in 2013 included a $ 26 million expense related to impairment charges for the business in brazil and grainger lighting services , as well as $ 10 million of restructuring costs for the businesses in europe and china . excluding these charges from both years , operating earnings increased 6 % , primarily due to higher sales and operating expenses increasing at a slower rate than sales . net earnings attributable to grainger for 2014 increased by 1 % to $ 802 million from $ 797 million in 2013. the increase in net earnings primarily resulted from an increase in operating earnings . diluted earnings per share of $ 11.45 in 2014 were 3 % higher than $ 11.13 for 2013 , due to increased net earnings and lower average shares outstanding . 19 the table below reconciles reported diluted earnings per share determined in accordance with generally accepted accounting principles ( gaap ) in the united states to adjusted diluted earnings per share , a non-gaap measure . management believes adjusted diluted earnings per share is an important indicator of operations because it excludes items that may not be indicative of core operating results . because non-gaap financial measures are not standardized , it may not be possible to compare this financial measure with other companies ' non-gaap financial measures having the same or similar names . replace_table_token_9_th segment analysis the following comments at the reportable segment and other business unit level include external and intersegment net sales and operating earnings . see note 17 to the consolidated financial statements . united states net sales were $ 7,926 million for 2014 , an increase of $ 512 million , or 7 % , when compared with net sales of $ 7,414 million for 2013. the 7 % increase for the year consisted of the following contributors : percent increase volume 4 business acquisition , net of divestitures 2 price 1 total 7 % net sales to most customer end markets increased for 2014. the increase was led by low double-digit growth to the natural resources end market , followed by high single-digit growth to heavy manufacturing customers and mid-single- digit growth to light manufacturing , commercial services , retail and government customers . resellers were up in the low single digits and contractors were down in the low single digits . in 2014 , ecommerce sales were $ 2,831 million , an increase of 13 % over the prior year and represented 36 % of total sales . the segment gross profit margin decreased 0.4 percentage point in 2014 compared to 2013 , primarily driven by lower margins from the acquired businesses and faster growth with lower margin customers , partially offset by price increases exceeding product cost increases . operating expenses were up 3 % for 2014 versus 2013. operating expenses in 2013 included a $ 13 million expense related to goodwill impairment charges for grainger lighting services .
| in 2014 , operating expenses included $ 51 million related to the closing of the business in brazil , restructuring costs and the transition of the retirement plan in europe and an impairment charge for the business in colombia . excluding the reorganization and restructuring costs from both years , operating expenses were down 1 % . operating earnings of $ 1,300 million for 2015 decreased 3 % from $ 1,347 million for 2014 . operating earnings declined due to a lower gross profit margins , partially offset by operating expense leverage . operating earnings included the charges noted above . excluding these charges from both years , operating earnings decreased 5 % . net earnings attributable to grainger for 2015 decreased by 4 % to $ 769 million from $ 802 million in 2014 . the decrease in net earnings primarily resulted from lower operating earnings , partially offset by lower income taxes . diluted earnings per share of $ 11.58 in 2015 were 1 % higher than $ 11.45 for 2014 , due to lower average shares outstanding . the table below reconciles reported diluted earnings per share determined in accordance with generally accepted accounting principles ( gaap ) in the united states to adjusted diluted earnings per share , a non-gaap measure . management believes adjusted diluted earnings per share is an important indicator of operations because it excludes items that may not be indicative of core operating results . because non-gaap financial measures are not standardized , it may not be possible to compare this financial measure with other companies ' non-gaap financial measures having the same or similar names . replace_table_token_7_th 16 segment analysis the following comments at the reportable segment and other business unit level include external and intersegment net sales and operating earnings . see note 17 to the consolidated financial statements . united states net sales were $ 7,963 million for 2015 , an increase of $ 37 million , or flat when compared with net sales of $ 7,926 million for 2014 . contributors to the sales performance for 2015 were as follows : percent increase volume 0 intercompany sales
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other expense , net , interest expense , net , and income taxes our other expense , net , primarily relates to certain components of pension expense , investment gains and losses and remeasurement gains and losses related to monetary assets and liabilities denominated in a foreign currency other than an entity 's functional currency , partially offset by the impact of foreign currency forward exchange contracts we entered into to mitigate any gain or loss . the decline in other expense , net in 2019 was driven by higher pension-related gains . interest expense , net , declined in 2019 compared to 2018 primarily due to continued debt repayments and gains related to our cross-currency interest rate swaps . our effective tax rate ( “ etr ” ) on earnings ( loss ) before income taxes was negative 24.9 percent ( a tax benefit was recognized on earnings before income taxes ) and negative 39.9 percent ( a tax provision was recognized on a loss before income taxes ) for the years ended december 31 , 2019 and 2018 , respectively . in 2019 , we recognized an overall tax benefit in the year due to a $ 315.0 million benefit from switzerland 's federal act on tax reform and ahv financing ( “ traf ” ) in addition to the tax impact of certain restructuring transactions in switzerland . the traf is effective january 1 , 2020 and includes the abolishment of various favorable federal and cantonal tax regimes . the traf provides transitional relief measures for companies that are losing the tax benefit of a ruling , including a `` step-up '' for amortizable goodwill , equal to the amount of future tax benefit they would have received under their existing ruling , subject to certain limitations . in 2018 , our negative etr was primarily due to goodwill impairment that resulted in us having a net loss before income taxes with no associated tax benefit recognized for this charge . in 2018 , we also recognized an additional $ 8.3 million of income tax provision as we completed our estimate of the effects of the tax cuts and jobs act of 2017 ( “ 2017 tax act ” ) . absent discrete tax events , we expect our future etr will be lower than the u.s. corporate income tax rate of 21.0 percent due to our mix of earnings between u.s. and foreign locations , which have lower corporate income tax rates . our etr in future periods could also potentially be impacted by : changes in our mix of pre-tax earnings ; changes in tax rates , tax laws or their interpretation , including the european union rules on state aid ; the outcome of various federal , state and foreign audits ; and the expiration of certain statutes of limitations . currently , we can not reasonably estimate the impact of these items on our financial results . segment operating profit replace_table_token_10_th in the americas , operating profit as a percentage of net sales increased in 2019 compared to 2018. the increase was primarily due to improved sales volume/mix and controlled spending . in emea , operating profit as a percentage of net sales increased in 2019 compared to 2018. the increase was primarily due to higher sales volume/mix and gains recognized related to our hedging program . in asia pacific , operating profit as a percentage of net sales increased in 2019 compared to 2018 primarily due to volume/mix net sales growth and gains recognized related to our hedging program . non-gaap operating performance measures we use financial measures that differ from financial measures determined in accordance with u.s. generally accepted accounting principles ( “ gaap ” ) to evaluate our operating performance . these non-gaap financial 35 measures exclude , as applicable , the impact of inventory step-up ; certain inventory and manufacturing-related charges including charges to discontinue certain product lines ; intangible asset amortization ; goodwill and intangible asset impairment ; quality remediation expenses ; restructuring and other cost reduction initiatives ; acquisition , integration and related expenses ; certain litigation gains and charges ; expenses to comply with the eu mdr ; other charges ; any related effects on our income tax provision associated with these items ; the effect of switzerland tax reform ; the effect of the 2017 tax act ; other certain tax adjustments ; and , with respect to earnings per share information , provide for the effect of dilutive shares assuming net earnings in a period of a reported net loss . we use these non-gaap financial measures internally to evaluate the performance of the business . additionally , we believe these non-gaap measures provide meaningful incremental information to investors to consider when evaluating our performance . we believe these measures offer the ability to make period-to-period comparisons that are not impacted by certain items that can cause dramatic changes in reported income but that do not impact the fundamentals of our operations . the non-gaap measures enable the evaluation of operating results and trend analysis by allowing a reader to better identify operating trends that may otherwise be masked or distorted by these types of items that are excluded from the non-gaap measures . in addition , adjusted diluted earnings per share is used as a performance metric in our incentive compensation programs . our non-gaap adjusted net earnings used for internal management purposes for the years ended december 31 , 2019 , 2018 and 2017 were $ 1,626.4 million , $ 1,565.4 million and $ 1,636.4 million , respectively , and our non-gaap adjusted diluted earnings per share were $ 7.87 , $ 7.64 and $ 8.03 , respectively . story_separator_special_tag the following are reconciliations from our gaap net earnings and diluted earnings per share to our non-gaap adjusted net earnings and non-gaap adjusted diluted earnings per share used for internal management purposes ( in millions , except per share amounts ) : replace_table_token_11_th 36 replace_table_token_12_th ( 1 ) inventory step-up and other inventory and manufacturing-related charges relate to inventory step-up expense , excess and obsolete inventory charges on certain product lines we intend to discontinue and other inventory and manufacturing-related charges . the year ended december 31 , 2019 included a $ 20.8 million charge incurred to terminate a raw material supply agreement . inventory step-up expense represents the incremental expense of inventory sold recognized at its fair value after business combination accounting is applied versus the expense that would have been recognized if sold at its cost to manufacture . since only the inventory that existed at the business combination date was stepped-up to fair value , we believe excluding the incremental expense provides investors useful information as to what our costs may have been if we had not been required to increase the inventory 's book value to fair value . the excess and obsolete inventory charges on certain product lines are driven by acquisitions where there are competing product lines and we have plans to discontinue one of the competing product lines . ( 2 ) we exclude intangible asset amortization from our non-gaap financial measures because we internally assess our performance against our peers without this amortization . due to various levels of acquisitions among our peers , intangible asset amortization can vary significantly from company to company . ( 3 ) in 2019 and 2018 , we recognized $ 70.1 and $ 3.8 million , respectively , of intangible asset impairments from merger-related ipr & d intangible assets . also in 2018 , we recognized a goodwill impairment charge of $ 975.9 million . the impairment was comprised of $ 401.2 million in our spine reporting unit , $ 567.0 million in our emea reporting unit and $ 7.7 million in an insignificant reporting unit . in 2017 , we recognized $ 18.8 million and $ 8.0 million of intangible asset impairment from merger-related ipr & d and trademark intangible assets , respectively . also in 2017 , we recognized goodwill impairment charges of $ 32.7 million and $ 272.0 million on our office based technologies and spine reporting units , respectively . ( 4 ) we are addressing inspectional observations on form 483 and a warning letter issued by the u.s. food and drug administration ( “ fda ” ) following its previous inspections of our warsaw north campus facility , among other matters . this quality remediation has required us to devote significant financial resources and is for a discrete period of time . the majority of the expenses are related to consultants who are helping us to update previous documents and redesign certain processes . ( 5 ) in december 2019 , our board of directors approved , and we initiated , a new global restructuring program with an overall objective of reducing costs to allow us to invest in higher priority growth opportunities . in 2019 , the expenses were primarily related to severance and our supply chain optimization initiative . the 2018 and 2017 expenses were related to our supply chain optimization initiative . ( 6 ) the acquisition , integration and related gains and expenses we have excluded from our non-gaap financial measures resulted from various acquisitions . the acquisition , integration and related gains and expenses include the following types of gains and expenses : consulting and professional fees related to third-party integration consulting performed in a variety of areas , such as tax , compliance , logistics and human resources , and legal fees related to the consummation of mergers and acquisitions . 37 employee termination benefits related to terminating employees with overlapping responsibilities in various areas of our business . dedicated project personnel expenses which include the salary , benefits , travel expenses and other costs directly associated with employees who are 100 percent dedicated to our integration of acquired businesses and employees who have been notified of termination , but are continuing to work on transferring their responsibilities . contract termination expenses related to terminated contracts , primarily with sales agents and distribution agreements . other various expenses to relocate facilities , integrate information technology , losses incurred on assets resulting from the applicable acquisition , and other various expenses . ( 7 ) we are involved in routine patent litigation , product liability litigation , commercial litigation and other various litigation matters . we review litigation matters from both a qualitative and quantitative perspective to determine if excluding the losses or gains will provide our investors with useful incremental information . litigation matters can vary in their characteristics , frequency and significance to our operating results . the litigation charges and gains excluded from our non-gaap financial measures in the periods presented relate to product liability matters where we have received numerous claims on specific products , patent litigation and commercial litigation related to a common matter in multiple jurisdictions . in regards to the product liability matters , due to the complexities involved and claims filed in multiple districts , the expenses associated with these matters are significant to our operating results . once the litigation matter has been excluded from our non-gaap financial measures in a particular period , any additional expenses or gains from changes in estimates are also excluded , even if they are not significant , to ensure consistency in our non-gaap financial measures from period-to-period . ( 8 ) in the first quarter of 2019 , we settled a patent infringement lawsuit out of court , and the other party agreed to pay us an upfront , lump-sum amount for a non-exclusive license to the patent . ( 9 ) the eu mdr imposes significant additional premarket and postmarket requirements . the new regulations provide a transition period until may 2020 for currently-approved medical devices to meet the additional requirements .
| pricing trends global selling prices had a negative effect of 2.7 percent on year-over-year sales during 2019. in the majority of countries in which we operate , we continue to experience pricing pressure from governmental healthcare cost containment efforts and from local hospitals and health systems . foreign currency exchange rates in 2019 , changes in foreign currency exchange rates had a negative effect of 1.6 percent on year-over-year sales . if foreign currency exchange rates remain at levels consistent with recent rates , we estimate they will have a minimal effect on sales in 2020 for the full year . however , we estimate sales will be negatively affected by foreign currency exchange rates in the first half of the year , but that impact will be offset by positive effects in the second half of the year . sales by product category knees knee sales increased by 1.3 percent in 2019 compared to 2018. various product launches resulted in improved volume/mix growth in the knee product category , which was partially offset by price declines and changes in foreign currency exchange rates . knee sales growth was principally driven by increased demand for persona ® the personalized knee system , the oxford ® partial knee and the rosa ® knee system . hips hip sales increased by 0.7 percent in 2019 compared to 2018. volume/mix growth in this product category was partially offset by price declines and changes in foreign currency exchange rates . hip sales growth was primarily attributable to increased utilization of our taperloc ® complete hip system and g7 ® acetabular system . s.e.t . s.e.t . sales increased by 2.5 percent in 2019 compared to 2018 primarily due to supply stability , salesforce specialization and new product launches , partially offset by price declines and changes in foreign currency exchange rates . 32 spine & cmf spine and cmf sales decreased by 2.2 percent in 2019 compared to 2018 primarily due to ongoing sales channel consolidation in our spine division , price declines and changes in foreign currency exchange rates . demand for our thoracic products continued to positively contribute to sales .
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our current development programs are focused on vaccines against hiv , zika virus , hemorrhagic fever viruses ( ebola , sudan , marburg , and lassa ) , and malaria , as well as therapeutic vaccines for chronic hepatitis b infections and cancers . all of our potential products are in preclinical research and development phases , with the exception of our preventive hiv vaccine , which is currently in human clinical trials . our corporate strategy is to advance and protect our vaccine platform and use its capabilities to design and develop an array of products . we aim to advance products through to human clinical testing , and to seek partnership or licensing arrangements for commercialization . we will also leverage third party resources through collaborations and partnerships for preclinical and clinical testing . our current collaborators include national institute of allergy and infectious diseases ( niaid ) , hiv vaccines trial network ( hvtn ) , centers for disease control and prevention ( cdc ) , united states army research institute of infectious disease ( usamriid ) , university of georgia research foundation , university of pittsburgh , georgia state university research foundation , peking university , burnet institute , american gene technologies , inc. , and viamune , inc. we have not generated any revenues from the sale of any such products , and we do not expect to generate any such revenues for at least the next several years . our product candidates will require significant additional research and development efforts , including extensive preclinical and clinical testing . all product candidates that we advance to clinical testing will require regulatory approval prior to commercial use , and will require significant costs for commercialization . we may not be successful in our research and development efforts , and we may never generate sufficient product revenue to be profitable . critical accounting policies and estimates this discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . the preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses and related disclosure of contingent assets and liabilities . on an ongoing basis , management evaluates its estimates and adjusts the estimates as necessary . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances , the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources . actual results may differ materially from these estimates under different assumptions or conditions . our significant accounting policies are summarized in note 2 to our consolidated financial statements for the year ended december 31 , 2016. we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements : revenue recognition we recognize revenue in accordance with the sec 's staff accounting bulletin no . 101 , revenue recognition in financial statements , as amended by staff accounting bulletin no . 104 , revenue recognition , ( “ sab 104 ” ) . sab 104 provides guidance in applying u.s. generally accepted accounting principles ( “ gaap ” ) to revenue recognition issues , and specifically addresses revenue recognition for upfront , nonrefundable fees received in connection with research collaboration agreements . during 2016 , 2015 and 2014 , our revenue consisted of grant funding received from the nih . revenue from these arrangements is approximately equal to the costs incurred and is recorded as income as the related costs are incurred . 24 in may 2014 , the financial accounting standards board ( “ fasb ” ) issued accounting standards update 2014-09 , revenue from contracts with customers ( “ asu 2014-09 ” ) , which creates a new topic , accounting standards codification topic 606. the standard is principle-based and provides a five-step model to determine when and how revenue is recognized . the core principle is that an entity should recognize revenue when it transfers 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 is effective for the company beginning in 2017 and allows for either full retrospective adoption or modified retrospective adoption . we are currently evaluating the impact of the adoption of asu 2014-09 on our financial statements . stock-based compensation we account for stock-based transactions in which the company receives services from employees , directors or others in exchange for equity instruments based on the fair value of the award at the grant date . compensation cost for awards of common stock is estimated based on the price of the underlying common stock on the date of issuance . compensation cost for stock options or warrants is estimated at the grant date based on each instrument 's fair value as calculated by the black-scholes option pricing model . we recognize stock-based compensation cost as expense ratably on a straight-line basis over the requisite service period for the award . liquidity and capital resources at december 31 , 2016 , we had cash and cash equivalents of $ 454,030 and total assets of $ 610,217 , as compared to $ 1,060,348 and $ 1,331,593 , respectively , at december 31 , 2015. working capital totaled $ 174,532 at december 31 , 2016 , compared to $ 1,109,985 at december 31 , 2015. historically , our primary uses of cash have been to finance ourresearch and development activities . story_separator_special_tag since inception , we have funded these activities primarily from government grants and clinical trial assistance , and from sales of our equity securities . as of december 31 , 2016 , we had an accumulated deficit of $ 35.7 million . we expect for the foreseeable future we will continue to operate at a loss . the amount of the accumulated deficit will continue to increase , as it will be expensive to continue research and development efforts . we will continue to require substantial funds to continue our activities and can not predict the outcome of our efforts . we believe that our existing cash resources , combined with funding from existing nih grants and clinical trial support will be sufficient to fund our planned operations into the second quarter of 2017. we will require additional funds to continue our planned operations beyond that date . we are currently seeking sources of capital through additional government grant programs and clinical trial support , and we may also conduct additional offerings of our equity securities . however , additional funding may not be available on favorable terms or at all and if we fail to obtain additional capital when needed , we may be required to delay , scale back , or eliminate some or all of our research and development programs as well as reduce our general and administrative expenses . net cash used in operating activities was $ 1,946,119 , $ 2,705,263 , and $ 2,250,107 for the years ended december 31 , 2016 , 2015 and 2014 , respectively . generally , the variances between periods are due to fluctuations in our net losses , offset by non-cash charges such as depreciation and stock-based compensation expense , and by net changes in our assets and liabilities . our net losses generally fluctuate based on expenditures for our research activities , partially offset by government grant revenues . as of december 31 , 2016 , there is $ 505,487 in remaining grant funds available for use during 2017. net cash used in investing activities was $ -0- , $ 15,850 , and $ 35,503 for the years ended december 31 , 2016 , 2015 and 2014 , respectively . our investing activities have consisted predominantly of capital expenditures . net cash provided by financing activities was $ 1,339,801 , $ 2,679,810 , and $ 873,400 for the years ended december 31 , 2016 , 2015 and 2014 , respectively . during the year ended december 31 , 2014 , warrants to purchase 3,176,000 shares of common stock were exercised for total net proceeds to the company of $ 873,400. during the year ended december 31 , 2015 , we sold 3,000 shares of series c convertible preferred stock for net proceeds of approximately $ 2.7 million . as part of this transaction , we also issued several series stock purchase warrants . 25 during the year ended december 31 , 2016 , warrants to purchase 21,884,420 shares of common stock were exercised for total net proceeds to the company of $ 1,339,801. during march 2017 ( through march 21 ) , warrants to purchase 983,334 shares of common stock were exercised for total net proceeds to the company of $ 49,167. as of march 21 , 2017 , warrants to purchase up to 30,656,243 shares of our common stock at $ 0.05 per share were outstanding . contractual obligations contractual obligations represent future cash commitments and liabilities under agreements with third parties , and exclude contingent liabilities for which we can not reasonably predict future payment . additionally , the expected timing of payment of the obligations presented below is estimated based on current information . timing of payments and actual amounts paid may be different depending on the timing of receipt of goods or services or changes to agreed-upon terms or amounts for some obligations . the following table represents our contractual obligations as of december 31 , 2016 , aggregated by type ( in thousands ) : replace_table_token_2_th ( 1 ) our operating lease obligations relate to the facility lease for our 8,430 square foot facility in smyrna , georgia , which houses our laboratory operations and our administrative offices . the lease expires on december 31 , 2017 . ( 2 ) firm purchase commitments relate to contracts for research activities related to nih grants . ( 3 ) pursuant to the emory license , we have committed to make potential future milestone and royalty payments which are contingent upon the occurrence of future events . such events include development milestones , regulatory approvals and product sales . because the achievement of these milestones is currently neither probable nor reasonably estimable , the contingent payments have not been included in the table above or recorded on our consolidated balance sheets . the aggregate total of all potential milestone payments included in the emory license ( excluding royalties on net sales ) is approximately $ 3.5 million . as of december 31 , 2016 , except as disclosed in the table above , we had no other material firm purchase obligations or commitments for capital expenditures and no committed lines of credit or other committed funding or long-term debt . we have employment agreements with our executive officers , each of which may be terminated with no more than 90 days ' advance written notice . net operating loss carryforwards at december 31 , 2016 , we had consolidated net operating loss carryforwards for income tax purposes of $ 69.5 million , which will expire in 2019 through 2036 if not utilized . we also have research and development tax credits of approximately $ 892,000 available to reduce income taxes , if any , which will expire in 2022 through 2036 if not utilized . the amount of net operating loss carryforwards and research tax credits available to reduce income taxes in any year may be limited in certain circumstances . off-balance sheet arrangements we
| our research and development expenses can fluctuate considerably on a period-to-period basis , depending on our need for vaccine manufacturing by third parties , the timing of expenditures related to our grants from the nih , the timing of costs associated with any clinical trials being funding directly by us , and other factors . the overall decrease in research and development expense from 2014 to 2015 , and then the increase to 2016 , can mostly be attributed to fluctuating expenditures related to the activities supported by our grants from niaid . our research and development costs do not include costs incurred by the hvtn in conducting clinical trials of our preventive hiv vaccines ; those costs are funded directly to the hvtn by niaid . historically , we have not disclosed our research and development expenses by project , since our employees ' time is spread across multiple programs and our laboratory facility is used for multiple vaccine candidates . we track the direct cost of research and development expenses related to government grant revenue by the percentage of assigned employees ' time spent on each grant and other direct costs associated with each grant . indirect costs associated with grants are not tracked separately , but are applied based on a contracted overhead rate negotiated with the nih . therefore , the recorded revenues associated with government grants approximates the costs incurred . we believe that additional project-by-project information would not form a reasonable basis for disclosure to our investors . we do not provide forward-looking estimates of costs and time to complete our research programs due to the many uncertainties associated with vaccine development . due to these uncertainties , our future expenditures are likely to be highly volatile in future periods depending on the outcomes of the trials and studies . as we obtain data from pre-clinical studies and clinical trials , we may elect to discontinue or delay vaccine development programs to focus our resources on more promising vaccine candidates . completion of preclinical studies and human clinical trials may take several years or more , but the length of time can vary substantially depending upon several factors . the duration and the cost
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the sale of ppe and rapid test kits for covid-19 represent a new business for the company and is subject to the myriad risks associated with any new venture . the company has for example encountered great difficulty in attempting to secure reliable sources of supply for both covid-19 rapid test kits and ppe including , 3m n95 masks , which are the preferred medical grade mask of us healthcare companies . further , the company has encountered shipping delays with regard to masks and other ppe , and significant quality related issues regarding n95 masks . in addition , regarding its sourcing of covid-19 rapid test kits , the company has encountered significant shipping delays , as well as reduced quantities . consequently , there is no assurance as to the timing or quantities of any future deliveries of covid-19 test kits . the company has yet to complete the sale of any covid-19 rapid test kits and had no test kits or ppe in inventory as of december 31 , 2019 and had 19,000 test kit units as of the date of this report . in addition , changes in fda processes governing the sale of covid-19 serology tests could have the effect of rendering the covid-19 serology tests to be sold by the company not saleable in the united states , which could have a material adverse effect on the company . see government regulation . the company intends to begin selling covid-19 rapid test kits in 2020. there can be no assurance that the company will be able to generate any significant revenue from the sale of ppe products or rapid test kits . scworx , as a result of the acquisition , also operates an online event ticketing platform focused on serving regional mixed martial arts promotions . due to the relative size of the ticketing business and how information is reported to the company 's chief operating decision maker , the company includes such ticketing business as part of its saas business reporting unit . the company 's saas business is focused on streamlining three core healthcare provider systems ; supply chain , financial and clinical enabling providers ' enterprise systems to work as one automated and seamless business management system . scworx offers an advanced software solution for the management of health care providers ' foundational business applications , empowering its customers to significantly reduce costs , drive better clinical outcomes and enhance such providers ' revenue . scworx supports the interrelationship between the three above-referenced core healthcare provider systems . this solution moves data from one application to another to drive supply cost reductions , optimize contracts , increase supply chain management cost visibility and control rebates and contract administration fees . critical accounting policies and estimates management 's discussion and analysis of our consolidated financial condition and results of operations are based upon our consolidated financial statements . these consolidated financial statements have been prepared in conformity with generally accepted accounting principles ( “ gaap ” ) in the united states which 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 . by their nature , these estimates and judgments are subject to an inherent degree of uncertainty . we evaluate our estimates based on our historical experience and various other assumptions that are believed to be reasonable under the circumstances . these estimates relate to revenue recognition , the assessment of recoverability of goodwill and intangible assets , the assessment of useful lives and the recoverability of property , plant and equipment , the valuation and recognition of stock-based compensation expense , recognition and measurement of deferred income tax assets and liabilities , the assessment of unrecognized tax benefits , and others . actual results could differ from those estimates , and material effects on our consolidated operating results and consolidated financial position may result . refer to note 3 , summary of significant accounting policies , in the accompanying consolidated financial statements , for a full description of our accounting policies . basis of presentation the accompanying consolidated financial statements have been prepared in accordance to u.s. gaap and the rules and regulations of the u.s. securities and exchange commission ( “ sec ” ) . the accompanying consolidated financial statements include the accounts of scworx and its wholly-owned subsidiaries . all material intercompany balances and transactions have been eliminated in consolidation . principles of consolidation the accompanying consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries . all material intercompany balances and transactions have been eliminated in consolidation . 24 reverse stock split on february 1 , 2019 , we effected a 1-for-19 reverse stock split with respect to the outstanding shares of our common stock . the reverse stock split was deemed effective at the open of business on february 4 , 2019. the reverse stock split did not affect the total number of shares of common stock that we are authorized to issue , which is 45,000,000 shares . the reverse stock split also did not affect the total number of shares of series a preferred stock that we are authorized to issue , which is 900,000 shares . share and per share data have been adjusted for all periods presented to reflect the reverse stock split unless otherwise noted . cash cash is maintained with various financial institutions . financial instruments that potentially subject us to concentrations of credit risk consist principally of cash deposits . accounts at each institution are insured by the federal deposit insurance corporation up to $ 250,000. fair value of financial instruments management applies fair value accounting for significant financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis . story_separator_special_tag management defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date . when determining the fair value measurements for assets and liabilities , which are required to be recorded at fair value , management considers the principal or most advantageous market in which we would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability , such as risks inherent in valuation techniques , transfer restrictions and credit risk . fair value is estimated by applying the following hierarchy , which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement : level 1 - quoted prices in active markets for identical assets or liabilities . level 2 - observable inputs other than quoted prices in active markets for identical assets and liabilities , quoted prices for identical or similar assets or liabilities in inactive markets , or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities . level 3 - inputs that are generally unobservable and typically reflect management 's estimate of assumptions that market participants would use in pricing the asset or liability . concentration of credit and other risks financial instruments that potentially subject our company to significant concentrations of credit risk consist principally of cash , accounts receivable and warrants . we believe that any concentration of credit risk in its accounts receivable is substantially mitigated by our evaluation process , relatively short collection terms and the high level of credit worthiness of its customers . we perform ongoing internal credit evaluations of its customers ' financial condition , obtain deposits and limit the amount of credit extended when deemed necessary but generally require no collateral . for the year ended december 31 , 2019 , we had two customers representing 19 % and 10 % of aggregate revenues . for the year ended december 31 , 2018 , we had three customers representing 20 % , 16 % and 12 % of aggregate revenues . at december 31 , 2019 , we had four customers representing 17 % , 14 % , 10 % and 10 % of aggregate accounts receivable . at december 31 , 2018 , we had three customers representing 39 % , 21 % and 13 % of aggregate accounts receivable . 25 allowance for doubtful accounts our company continually monitors customer payments and maintains a reserve for estimated losses resulting from our customers ' inability to make required payments . in determining the reserve , we evaluate the collectability of our accounts receivable based upon a variety of factors . in cases where we become aware of circumstances that may impair a specific customer 's ability to meet its financial obligations , we record a specific allowance against amounts due . for all other customers , we recognize allowances for doubtful accounts based on our historical write-off experience in conjunction with the length of time the receivables are past due , customer creditworthiness , geographic risk and the current business environment . actual future losses from uncollectible accounts may differ from our estimates . the company recorded an allowance for doubtful accounts as of december 31 , 2019 and 2018 of $ 344,412 and $ 0 , respectively . leases we determine if an arrangement is a lease at inception . the current portion of lease obligations are included in accounts payable and accrued liabilities on the consolidated balance sheets . right-of-use ( “ rou ” ) assets represent our right to use an underlying asset for the lease term , and lease liabilities represent our obligation to make lease payments arising from the lease . operating lease rou assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term . as most of our leases do not provide an implicit rate , we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments . our lease terms may include options to extend or terminate the lease , which are included in the lease rou asset when it is reasonably certain that we will exercise that option . lease expense for lease payments is recognized on a straight-line basis over the lease term . we have lease agreements with lease components only , none with non-lease components , which are generally accounted for separately . business combinations our company includes the results of operations of a business we acquire in our consolidated results as of the date of acquisition . we allocate the fair value of the purchase consideration of our acquisition to the tangible assets , liabilities and intangible assets acquired , based on their estimated fair values . the excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill . the primary items that generate goodwill include the value of the synergies between the acquired businesses and our company . intangible assets are amortized over their estimated useful lives . the fair value of contingent consideration ( earn out ) associated with acquisitions is remeasured each reporting period and adjusted accordingly . acquisition and integration related costs are recognized separately from the business combination and are expensed as incurred . for additional information regarding our acquisitions , refer to note 5 , business combinations . goodwill and identified intangible assets goodwill goodwill is recorded as the difference between the aggregate consideration paid for an acquisition and the fair value of the net tangible and identified intangible assets acquired under a business combination . goodwill also includes acquired assembled workforce , which does not qualify as an identifiable intangible asset .
| the company has for example encountered great difficulty in attempting to secure reliable sources of supply for both covid-19 rapid test kits and ppe including , 3m n95 masks , which are the preferred medical grade mask of us healthcare companies . further , the company has encountered shipping delays with regard to masks and other ppe , and significant quality related issues regarding n95 masks . in addition , regarding its sourcing of covid-19 rapid test kits , the company has encountered significant shipping delays , as well as reduced quantities . consequently , there is no assurance as to the timing or quantities of any future deliveries of covid-19 test kits . the company has yet to complete the sale of any covid-19 rapid test kits and had no test kits or ppe in inventory as of december 31 , 2019 and had 19,000 test kit units as of the date of this report . in addition , changes in fda processes governing the sale of covid-19 serology tests could have the effect of rendering the covid-19 serology tests to be sold by the company not saleable in the united states , which could have a material adverse effect on the company . see government regulation . there can be no assurance that the company will be able to generate any significant revenue from the sale of ppe products or rapid test kits . the company has yet to complete the sale of any covid-19 rapid test kits . through the date of filing we have not generated any material revenue from the sale of ppe . year ended december 31 , 2019 compared to year ended december 31 , 2018 the following summary of our results of operations should be read in conjunction with our consolidated financial statements for the years ended december 31 , 2019 and 2018. our operating results for the years ended december 31 , 2019 and 2018 are summarized as follows : replace_table_token_2_th 32 our significant balance sheet accounts as of december 31 , 2019 and 2018 are summarized
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( 3 ) during the first quarter of fiscal 2016 , we redeemed our 2018 notes and issued senior notes due november 2023. as a result of the bond redemption , we incurred incremental expenses of $ 14.3 million , comprised of a call premium payment of $ 8.3 million , a $ 2.7 million payment of overlapping interest expense for 30 days and a $ 3.3 million non-cash charge for the write off of unamortized deferred financing costs and discount related to the 2018 notes . these amounts are included in interest expense in the consolidated statements of operations . ( 4 ) during the fourth quarter of fiscal 2016 , we recognized a non-cash impairment charge of $ 16.6 million related to our investment in two joint ventures as a result of changes in marketplace conditions , which impacted the expected cash flows and recoverability of the investment . the impairment is included within other income ( expense ) . replace_table_token_7_th 29 replace_table_token_8_th 30 replace_table_token_9_th organic net sales reconciliation we have provided organic net sales , a non-gaap measure that excludes the impact of acquisitions and dispositions , because we believe it permits investors to better understand the performance of our historical business . we define organic net sales as net sales from our historical business derived by excluding the net sales from businesses acquired or exited in the preceding 12 months . after an acquired business has been part of our consolidated results for 12 months , the change in net sales thereafter is considered part of the increase or decrease in organic net sales . replace_table_token_10_th 31 results of operations ( gaap ) the following table sets forth , for the periods indicated , the relative percentages that certain income and expense items bear to net sales : replace_table_token_11_th fiscal 2017 compared to fiscal 2016 net sales net sales for fiscal 2017 increased $ 225.5 million , or 12.3 % , to $ 2,054.5 million from $ 1,829.0 million in fiscal 2016 . our branded product sales increased $ 203.5 million , and sales of other manufacturers ' products increased $ 22.0 million . branded product sales include products we produce under central brand names and products we produce under third party brands . sales of our branded products represented 80.1 % of our total sales in fiscal 2017 compared with 78.9 % in fiscal 2016 . fiscal 2017 included 53 weeks while fiscal 2016 included 52 weeks . we estimate the impact of the extra week in fiscal 2017 to be approximately $ 35 million on total net sales , $ 32.8 million of which is the impact on organic sales . private label sales represented 10 % to 15 % of our consolidated net sales . organic net sales , which excludes the impact of acquisitions and divestitures in the last 12 months , increased $ 120.8 million , or 6.6 % , as compared to fiscal 2016 . in addition , fiscal 2017 included an extra week as compared to fiscal 2016 . we estimate the impact on fiscal 2017 of the extra week of net sales on organic net sales to be $ 32.8 million . adjusting for the extra week in fiscal 2017 , organic net sales increased approximately 4.8 % . the following table indicates each class of similar products which represented approximately 10 % or more of our consolidated net sales in the fiscal years presented ( in millions ) : replace_table_token_12_th ( 1 ) the product category was less than 10 % of our consolidated net sales in the respective period . our pet segment 's net sales for fiscal 2017 increased $ 164.6 million , or 15.2 % , to $ 1,246.4 million from $ 1,081.8 million in fiscal 2016 . pet branded product sales increased $ 161.6 million from fiscal 2016 . the impact of acquisitions and dispositions was $ 110.3 million due to two fiscal 2017 acquisitions , two months of a fiscal 2016 acquisition and a business we exited in fiscal 2016. organic net sales increased 32 $ 54.2 million , or 5.0 % , due primarily to volume-based increased sales in our dog & cat category , driven by increased sales of toys , treats and pet beds , and our animal health business . adjusting for the extra week in fiscal 2017 , organic net sales increased approximately 3.0 % . our garden segment 's net sales for fiscal 2017 increased $ 60.9 million , or 8.2 % , to $ 808.1 million from $ 747.2 million in fiscal 2016 . garden branded product sales increased $ 41.9 million and sales of other manufacturer 's products increased $ 19.0 million as compared to fiscal 2016 . organic net sales increased $ 66.5 million , or 8.9 % , due primarily to volume-based increased sales in our controls and fertilizer category , favorably impacted by new listings of branded and private label products with existing customers , higher sales of other manufacturer 's products and increased revenue in our grass seed business . adjusting for the extra week in fiscal 2017 , organic net sales increased approximately 7.4 % . gross profit gross profit for fiscal 2017 increased $ 79.8 million , or 14.4 % , to $ 632.8 million from $ 553.0 million in fiscal 2016 . the increase in gross profit was due primarily to the pet segment , though both operating segments contributed to the increased gross profit . gross margin increased 60 basis points to 30.8 % in fiscal 2017 from 30.2 % in fiscal 2016 . both the pet and garden segments contributed to the increased gross margin . in the pet segment , gross profit increased in fiscal 2017 due primarily to a $ 164.6 million increase in sales . the pet segment gross margin also improved , aided by the two fiscal 2017 acquisitions as their gross margins were slightly above the pet segment 's as a whole . in the garden segment , gross profit increased in fiscal 2017 due to a $ 60.9 story_separator_special_tag million increase in net sales and an improved gross margin . increased sales volume , a favorable product mix , and manufacturing efficiencies and costing favorably impacted the garden segment gross margin , primarily in our controls and fertilizer business and secondly in our grass seed business . selling , general and administrative selling , general and administrative expenses increased $ 54.8 million , or 13.0 % , from $ 421.9 million in fiscal 2016 to $ 476.7 million in fiscal 2017 . as a percentage of net sales , selling , general and administrative expenses increased from 23.1 % in fiscal 2016 to 23.2 % in fiscal 2017 . the increase in selling , general and administrative expenses was due to increases in both selling and delivery expense and warehouse and administrative expense . both fiscal 2017 and fiscal 2016 include a gain on the sale of a facility of approximately $ 2 million . corporate expenses are included within administrative expense and relate to the costs of unallocated executive , administrative , finance , legal , human resource , and information technology functions . selling and delivery expense increased $ 25.4 million , or 11.1 % , from $ 228.0 million in fiscal 2016 to $ 253.4 million in fiscal 2017 and as a percentage of net sales decreased from 12.5 % in fiscal 2016 to 12.3 % in fiscal 2017 . the expense increase was principally in our pet segment due primarily to recent acquisitions , although both our pet and garden segments had increases in both selling and delivery expenses in support of the increased sales volumes and increased marketing and advertising expenses . warehouse and administrative expense increased $ 29.4 million , or 15.2 % , from $ 193.9 million in fiscal 2016 to $ 223.3 million in fiscal 2017 . as a percentage of net sales , warehouse and administrative expense increased from 10.6 % in fiscal 2016 to 10.9 % in fiscal 2017 . the expense increase was principally in our pet segment , due primarily to recent acquisitions , including an expense of $ 2.3 million related to a contingent earn-out for a fiscal 2017 acquisition , and increased warehouse and facility spend in our dog & cat business and our distribution business to support growth and facility transitions . the pet segment also had a $ 2.4 million gain from the sale of a manufacturing facility that reduced expenses in fiscal 2016. the garden segment had a decline in warehouse and administrative expense due to a $ 2.0 million gain from the sale of a distribution facility in fiscal 2017. corporate administrative expense increased $ 1.9 million due primarily to increased non-cash equity compensation expense . on a consolidated basis for fiscal 2017 , the $ 2.0 million gain from the sale of the distribution facility in the garden segment was essentially offset by the $ 2.3 million of additional expense for the contingent earn-out amount . operating income operating income increased $ 26.8 million in fiscal 2017 , or 20.7 % to $ 156.1 million . increased sales of $ 225.5 million and a 60 basis point gross margin improvement contributed to the improved operating income , partially offset by a $ 54.8 million increase in selling , general and administrative costs . operating income increased in both the pet and garden segments partially offset by a $ 1.9 million increase in corporate expenses . our operating margin improved to 7.6 % for fiscal 2017 from 7.1 % for fiscal 2016 due to the improved gross margin partially offset by a 10 bps increase in selling , general and administrative expenses as a percentage of net sales . pet operating income increased $ 11.7 million , or 9.7 % , to $ 131.6 million for fiscal 2017 from $ 119.9 million for fiscal 2016 . the increase was due primarily to increased sales and slightly higher gross margin partially offset by higher selling , general and administrative expenses . pet operating margin declined to 10.6 % for fiscal 2017 from 11.1 % for fiscal 2016 . garden operating income increased $ 17.0 million , or 24.1 % , to $ 87.3 million for fiscal 2017 from $ 70.3 million for fiscal 2016 due to increased sales and an improved gross margin partially offset by an increase in selling , general and administrative expenses . garden 33 operating margin increased to 10.8 % for fiscal 2017 from 9.4 % for fiscal 2016 due to the improved gross margin and lower selling , general and administrative expenses as a percentage of net sales . net interest expense net interest expense decreased $ 14.6 million , or 34.3 % , from $ 42.7 million in fiscal 2016 to $ 28.1 million in fiscal 2017 . in november 2015 , we issued $ 400 million aggregate principal amount of 2023 notes . we used the net proceeds from the offering , together with available cash , to redeem our outstanding 2018 notes and pay fees and expenses related to the offering . as a result of our redemption of the 2018 notes , we recognized incremental interest expense of approximately $ 14.3 million in fiscal 2016 comprised of an $ 8.3 million call premium , $ 2.7 million related to the 30 days of overlapping interest expense and a $ 3.3 million non-cash charge for the write-off of unamortized financing costs . non-gaap interest expense , which excludes the $ 14.3 million of incremental expense related to the issuance and redemption of our fixed rate debt in fiscal 2016 , decreased $ 0.3 million . debt outstanding on september 30 , 2017 was $ 395.7 million compared to $ 395.3 million as of september 24 , 2016 . our average borrowing rate for fiscal 2017 decreased to 6.0 % from 6.3 % for fiscal 2016 .
| recent developments acquisitions and dispositions k & h manufacturing in april 2017 , we purchased k & h manufacturing , a producer of premium pet supplies and the largest marketer of heated pet products in the country . k & h sells brands under the k & h and k & h pet brands . the acquisition is expected to complement our existing dog and cat business . segrest , inc. in october 2016 , we purchased segrest inc. for a purchase price of $ 60 million , of which $ 6 million is contingent upon future events . segrest is the leading wholesaler of aquarium fish and is expected to strengthen our position in the aquatics category and provide the opportunity for synergies with our existing aquatics business . veterinary products business in november 2016 , we sold a small veterinary products division , which had sales of $ 8.6 million in fiscal 2016. the business was not profitable over the last several years . use of non-gaap financial measures we report our financial results in accordance with u.s. generally accepted accounting principles ( gaap ) . however , to supplement the financial results prepared in accordance with gaap , we use non-gaap financial measures including non-gaap net sales on a consolidated and segment basis , non-gaap selling , general and administrative ( sg & a ) expense , non-gaap operating income on a consolidated and segment basis , non-gaap interest expense , non-gaap other income ( expense ) and non-gaap net income and diluted net income per share . management believes these non-gaap financial measures that exclude the impact of specific items ( described below ) may be useful to investors in their assessment of our ongoing operating performance and provide additional meaningful comparisons between current results and results in prior operating periods . the reconciliations of these non-gaap measures to the most directly comparable financial measures calculated and presented in accordance with gaap are shown in the tables below . we believe that the non-gaap financial measures provide useful information to investors and other users of our financial statements , by allowing for greater transparency in the review of our financial and
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cedar has focused the last several years on building fiber to enterprise , anchor institution , and residential customers . the purchase price was $ 14.1 million , less an estimated purchase price adjustment of approximately $ 0.2 million relating to a working capital deficit and assessment of the fair value of contingent consideration , for net purchase consideration of $ 13.9 million . the cash consideration due at closing of $ 9.0 million was financed by an advance on the 2019 amended credit facility . the company also issued 32,374 of tucows inc. shares ( $ 2 million ) with a two-year restriction period at closing . included in the agreement is contingent consideration totaling up to $ 4.0 million is expected to be paid on the 24th and 36th month anniversaries of the closing of the transaction dependent upon certain milestones as defined in the definitive transaction agreement . the fair value of the contingent consideration was determined to be $ 3.1 million using a discount rate of 11.2 % . as of december 31 , 2020 , ting internet had access to 56,000 serviceable addresses and 15,000 active accounts under its management compared to having access to 36,000 serviceable addresses and 10,000 active accounts under its management as of december 31 , 2019 . 28 domain services domain services derives revenues from three distinct service offerings - wholesale , retail and portfolio . wholesale includes the sale of domain name registration services and value added services through our reseller focused brands - opensrs , enom , epag and ascio . retail services is also focused on the sale of domain name registration and email services but with an end customer focus , selling to individuals and small businesses through our brands hover and enom portfolio of websites . lastly , we make a portfolio of surname domain names available for sale as part of our realnames email service . domain services revenues are attributed to the country in which the contract originates , which is primarily in canada and the u.s. for opensrs and enom brands . ascio domain services contracts and epag agreements primarily originate in europe . wholesale derives revenues primarily from the registration fees charged to resellers in connection with new , renewed and transferred domain name registrations . in addition to domain name registrations we also provide other value added services including hosted email , internet security services , internet hosting , whois privacy , publishing tools and more . in addition , we also derive revenue by monetizing domain names which are near the end of their lifecycle through advertising revenue or auction sale . all of these services are made available to end-users through a network of 36,000 web hosts , isps and other resellers around the world . together the opensrs , enom , epag and ascio domain services manage 25.4 million domain names under the tucows , enom , epag and ascio icann registrar accreditations and for other registrars under their own accreditations . domains under management has increased by 1.6 million domain names since december 31 , 2019. the increase is driven by increased registrations experienced by our brands during the covid-19 pandemic , which saw more businesses establish and expand their online presence , offset by the continued erosion of registrations related to non-core customers from our enom brand . retail , primarily the hover and enom portfolio of websites , including enom , enom central and bulkregister , derive revenues from the sale of domain name registration and email services to individuals and small businesses . our retail domain services also includes our personal names service – based on over 36,000 surname domains – that allows roughly two-thirds of americans to purchase an email address based on their last name . portfolio services generate revenue by offering names in our surname domain portfolio for resale through our realnames email service . the company expects portfolio revenue to remain flat into fiscal 2021 ( as defined below ) and thereafter . key business metrics and non-gaap measure we regularly review a number of business metrics , including the following key metrics and non-gaap measure , to assist us in evaluating our business , measure the performance of our business model , identify trends impacting our business , determine resource allocations , formulate financial projections and make strategic business decisions . following the sale of substantially all of the ting mobile customers as part of the purchase agreement , we have ceased reporting ting mobile subscribers and accounts under management . the following tables set forth the key business metrics which we believe are the primary indicators of our performance for the periods presented : adjusted ebitda tucows reports all financial information in accordance with united states generally accepted accounting principles ( “ gaap ” ) . along with this information , to assist financial statement users in an assessment of our historical performance , we typically disclose and discuss a non-gaap financial measure , adjusted ebitda , on investor conference calls and related events that excludes certain non-cash and other charges as we believe that the non-gaap information enhances investors ' overall understanding of our financial performance . please see discussion of adjusted ebitda in the results of operations section below . replace_table_token_5_th ( 1 ) defined as premises to which ting has the capability to provide a customer connection in a service area . replace_table_token_6_th ( 1 ) for a discussion of these period-to-period changes in the domains provisioned and domains under management and how they impacted our financial results see the net revenues discussion below . ( 2 ) throughout 2018 , the company completed bulk transfers of 2.89 million names , for domain names under management related to namecheap . 29 opportunities , challenges and risks our revenue is primarily realized in u.s. dollars and a major portion of our operating expenses are paid in canadian dollars . story_separator_special_tag fluctuations in the exchange rate between the u.s. dollar and the canadian dollar may have a material effect on our business , financial condition and results from operations . in particular , we may be adversely affected by a significant weakening of the u.s. dollar against the canadian dollar on a quarterly and an annual basis . our policy with respect to foreign currency exposure is to manage our financial exposure to certain foreign exchange fluctuations with the objective of neutralizing some or all of the impact of foreign currency exchange movements by entering into foreign exchange forward contracts to mitigate the exchange risk on a portion of our canadian dollar exposure . we may not always enter into such forward contracts and such contracts may not always be available and economical for us . additionally , the forward rates established by the contracts may be less advantageous than the market rate upon settlement . network access services on august 1 , 2020 , the company and its wholly owned subsidiary ting , inc. entered into a purchase agreement with dish pursuant to which ting sold substantially all of its retail mobile customer relationships , and mobile handset and sim inventory to dish and granted the right to use and an option to purchase the ting brand . select mno agreements previously established to operate the ting mobile mvno business were assigned to dish as part of this purchase agreement . the transferred assets under the purchase agreement do not include the technology platforms and related intellectual property and infrastructure necessary to enable or support the mobile customers . the company will retain assets used to provide mse services to dish , as discussed below . contemporaneously with the execution of the purchase agreement on august 1 , 2020 , the company , through its wholly owned subsidiary ting , inc. entered into a services agreement under which ting will act as a mse with dish in support of dish 's mvno businesses . under the terms of the mse agreement , the company and its affiliates are permitted to sell mobile service enabler services to other third parties . the identified risks associated with this pivot from mvno to mse have been discussed at length above in part i under the caption `` item 1a risk factors '' in this annual report on form 10-k. as an isp , we have invested and expect to continue to invest in new fiber to the home ( “ ftth ” ) deployments in select markets in the united states . the investments are a reflection of our ongoing efforts to build ftth network via public-private partnerships in communities we identify as having strong , unmet demand for ftth services . given the significant upfront build and operational investments for these ftth deployments , there is risk that future technological and regulatory changes as well as competitive responses from incumbent local providers , may result in us not fully recovering these investments . the communications industry continues to compete on the basis of network reach and performance , types of services and devices offered , and price . domain services the increased competition in the market for internet services in recent years , which we expect will continue to intensify in the short and long term , poses a material risk for us . as new registrars are introduced , existing competitors expand service offerings and competitors offer price discounts to gain market share , we face pricing pressure , which can adversely impact our revenues and profitability . to address these risks , we have focused on leveraging the scalability of our infrastructure and our ability to provide proactive and attentive customer service to aggressively compete to attract new customers and to maintain existing customers . substantially all of our domain services revenue is derived from domain name registrations and related value-added services from wholesale and retail customers using our provisioning and management platforms . the market for wholesale registrar services is both price sensitive and competitive and is evolving with the introduction of new gtlds , particularly for large volume customers , such as large web hosting companies and owners of large portfolios of domain names . we have a relatively limited ability to increase the pricing of domain name registrations without negatively impacting our ability to maintain or grow our customer base . growth in our domain services revenue is dependent upon our ability to continue to attract and retain customers by maintaining consistent domain name registration and value-added service renewal rates and to grow our customer relationships through refining , evolving and improving our provisioning platforms and customer service for both resellers and end-users . in addition , we also generate revenue through pay-per-click advertising and the sale of names from our portfolio of domain names and through the opensrs domain expiry stream . the revenue associated with names sales and advertising has recently experienced flat to declining trends due to the uncertainty around the implementation of icann 's new gtld program , lower traffic and advertising yields in the marketplace , which we expect to continue . from time-to-time certain of our vendors provide us with market development funds to expand or maintain the market position for their services . any decision by these vendors to cancel or amend these programs for any reason may result in payments in future periods not being commensurate with what we have achieved during past periods . sales of domain names from our surname domain portfolio have a negative impact on our advertising revenue as these names are no longer available for advertising purposes . in addition , the timing of portfolio sales is unpredictable and may lead to significant quarterly fluctuations in our portfolio revenue . the company expects portfolio revenue to decline into 2021 and starting in the first quarter of 2021 will no longer separately breakout portfolio revenues .
| loss ( gain ) on currency forward contracts although our functional currency is the u.s. dollar , a major portion of our fixed expenses are incurred in canadian dollars . our goal with regard to foreign currency exposure is , to the extent possible , to achieve operational cost certainty , manage financial exposure to certain foreign exchange fluctuations and to neutralize some of the impact of foreign currency exchange movements . accordingly , we enter into foreign exchange contracts to mitigate the exchange rate risk on portions of our canadian dollar exposure . replace_table_token_31_th we have entered into certain forward exchange contracts that do not comply with the requirements of hedge accounting to meet a portion of our future canadian dollar requirements through december 2019. during fiscal 2019 , the company recorded a net gain of $ 0.3 million on the change in fair value of outstanding contracts as well as a $ 0.1 million realized loss on matured contracts . in fiscal 2018 the company recorded a net loss of $ 0.2 million for the change in fair value of outstanding contracts and a loss of less than $ 0.1 million of settlements of contracts not designated as hedges . at december 31 , 2019 , our balance sheet reflects a derivative instrument asset of $ 0.7 million as a result of our existing foreign exchange contracts . until their respective maturity dates , these contracts will fluctuate in value in line with movements in the canadian dollar relative to the u.s. dollar . other income and ( expenses ) replace_table_token_32_th other expenses increased by $ 1.6 million when compared to fiscal 2018 primarily due to interest incurred on our credit facility with the majority of the borrowings on the credit facility to support the build-out of the ting fiber network . other expense consists primarily of the interest we incur in connection with our amended 2019 credit facility . the interest incurred primarily relates to our loan balances obtained to fund the acquisition of enom , the
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trends in corporate-level selling , general and administrative expenses are influenced by changes in headcount and compensation levels , achievement of incentive compensation targets , and variability in costs associated with pension obligations . to position ourselves to meet the challenges of the current business environment , we have implemented a shared services support structure to better manage costs and enhance the efficiency of our operations . 61 key factors affecting our business and financial results foreign currency translation impact on our operations our consolidated revenues and expenses are subject to variations caused by the net effect of foreign currency translation on revenues and expenses incurred by our operations outside the united states . future fluctuations of foreign currency exchange rates and their impact on our consolidated statements of operations are inherently uncertain . as a result of the relative size of our international operations , these fluctuations may be material on our results of operations . our revenues and expenses from our international operations are denominated in the local currency of the country in which they are derived or incurred . therefore , the impact of foreign currency fluctuations on our results of operations and margins is partially mitigated . the following table shows a comparison of underlying average exchange rates of the foreign currencies that impacted our u.s. dollar-reported revenues and expenses during the periods discussed herein together with a comparison against the exchange rates of such currencies at the end of the applicable periods presented herein . december 31 , 2017 compared to december 31 , 2016 december 31 , 2016 compared to december 31 , 2015 average foreign exchange rate used to adjust operating results for the year ended december 31 , 2017 ( 1 ) foreign exchange rates as of december 31 , 2017 foreign exchange rates as of december 31 , 2016 average foreign exchange rate used to adjust operating results for the year ended december 31 , 2016 ( 1 ) foreign exchange rates as of december 31 , 2016 foreign exchange rates as of december 31 , 2015 australian dollar 0.744 0.781 0.723 0.751 0.723 0.729 new zealand dollar 0.697 0.710 0.696 0.698 0.696 0.684 argentinian peso 0.068 0.054 0.063 0.107 0.063 0.077 canadian dollar 0.755 0.799 0.745 0.789 0.745 0.722 ( 1 ) represents the relevant average foreign exchange rates in effect in the comparable prior period applied to the activity for the current period . the average foreign currency exchange rates we apply to our operating results are derived from third party reporting sources for the periods indicated . focus on our operational effectiveness and cost structure we continuously seek to implement various initiatives aimed at streamlining our business processes and reducing our cost structure . commencing in 2013 , we realigned and centralized key business processes ; implemented standardized operational processes ; integrated and launched new information technology tools and platforms ; instituted key health , safety , leadership and training programs ; and added a strategic sourcing function to capitalize on the purchasing power of our network . through the realignment of our business processes , we have improved retention of our key talent and reduced employee turnover , acquired new talent and strengthened our service offerings . in order to reduce costs in our facilities , we have invested in energy efficiency projects , including led lighting , motion-sensor technology , variable frequency drives for our fans and compressors , third party efficiency reviews and real-time monitoring of energy consumption , rapid-close doors , and alternative-power generation technologies to improve the energy efficiency of our warehouses . we have also performed fine-tuning of our refrigeration systems , deployed efficient energy management practices , such as time-of-use and awareness , and have increased our participation in power demand response programs with some of our power suppliers . these initiatives have allowed us to reduce our consumption of kilowatt hours and energy spend . in 2016 , we implemented a strategic effort to exit certain leased facilities and transition customers within our warehouse portfolio to consolidate occupancy , reduce costs and increase contribution from the warehouses where 62 these customers were transitioned . in executing these initiatives , we believe that we have enhanced our ability to serve our customers at the highest quality level and efficiently manage our warehouses . as part of our initiatives to streamline our business processes and to reduce our cost structure , we have evaluated and exited less strategic and profitable markets or business lines , including the sale of certain warehouse assets . we continue to evaluate our markets and offerings . strategic shift within our transportation segment in order to better focus our business on the operation of our temperature-controlled warehouses , we have undertaken a strategic shift in the solutions we provide in our transportation segment . as a result of this strategic shift , we have gradually exited certain commoditized , non-scalable , or low margin services we historically offered to our customers , including traditional brokered transportation services . we continue to offer more profitable programs , such as national and regional cross-dock , regional and multi-vendor consolidation service , and dedicated transportation services . we designed each of these programs to improve efficiency and reduce transportation and logistics costs to our warehouse customers , whose transportation spend typically represents the majority of their supply-chain costs . we believe this efficiency and cost reduction helps to drive increased occupancy in our temperature-controlled warehouses . historically significant customer for the years ended december 31 , 2017 , 2016 and 2015 , one customer accounted for more than 10 % of our total revenues , with $ 198.6 million , $ 210.5 million and $ 196.0 million , respectively . the substantial majority of this customer 's business relates to our third-party managed segment . we are reimbursed for substantially all expenses we incur in managing warehouses on behalf of third-party owners . story_separator_special_tag these reimbursements are recognized as revenues under applicable accounting guidance , but generally do not affect our financial results because they are offset by the corresponding expenses that are recognized in our third-party managed segment cost of operations . of the revenues received from this customer , $ 183.1 million , $ 196.1 million and $ 180.4 million represented reimbursements for certain expenses we incurred during the years ended december 31 , 2017 , 2016 and 2015 , respectively , that were offset by matching expenses included in our third-party managed cost of operations . occupancy of our warehouses occupancy in our warehouses is an important driver of our financial results . physical occupancy of an individual warehouse is impacted by a number of factors , including the type of warehouse ( i.e . , distribution , public , production advantaged or facility leased ) , specific customer needs in the markets served by the warehouse , timing of harvests or protein production for customers of the warehouse , the existence of leased but unoccupied pallets and the adverse effect of weather or market conditions on the customers of the warehouse . on a portfolio-wide basis , physical occupancy rates and warehouse revenues generally peak between mid-september and early december in connection with the holiday season and the peak harvest season in the united states . physical occupancy rates and warehouse revenues on a portfolio-wide basis are generally the lowest during may and june . our target occupancy across our warehouse portfolio varies by warehouse and warehouse type because our warehouses are configured to accommodate the individual needs of our customers . we generally regard approximately 85 % average physical occupancy across our temperature-controlled warehouse portfolio as optimal , subject to relevant local market conditions and individual customer needs . we do not believe that a 100 % occupancy rate is an ideal target for utilization of our warehouses because optimizing pallet throughput and efficient delivery of relevant value-added services require a certain amount of free pallet position capacity at all times in order to be able to efficiently place , store and retrieve products from pallet positions , particularly during 63 periods of greatest occupancy or highest volume . our occupancy metrics account for the physical occupancy of our warehouses . as customers continue to transition to contracts that feature a fixed storage commitment , our financial occupancy may be greater than our physical occupancy , as we may have the opportunity to sell space which is not being utilized by our fixed storage commitment customers . throughput at our warehouses the level of throughput at our warehouses is an important factor impacting our warehouse services revenues in our warehouse segment . throughput refers to the volume of pallets that enter and exit our warehouses . higher levels of throughput drive warehouse services revenues in our warehouse segment as customers are typically billed on a basis that takes into account the level of throughput of the goods they store in our warehouses . how we assess the performance of our business segment contribution ( noi ) we evaluate the performance of our primary business segments based on their contribution ( noi ) to our overall results of operations . we use the term “ segment contribution ( noi ) ” to mean a segment 's revenues less its cost of operations ( excluding any depreciation , depletion and amortization , impairment charges and corporate-level selling , general and administrative expenses ) . we use segment contribution ( noi ) to evaluate our segments for purposes of making operating decisions and assessing performance in accordance with fasb asc , topic 280 , segment reporting . we also analyze the “ segment contribution ( noi ) margin ” for each of our business segments , which we calculate as segment contribution ( noi ) divided by segment revenues . in addition to our segment contribution ( noi ) and segment contribution ( noi ) margin , we analyze the contribution ( noi ) of our warehouse rent and storage operations and our warehouse services operations within our warehouse segment . we calculate the contribution ( noi ) of our warehouse rent and storage operations as rent and storage revenues less power and other facilities cost . we calculate the contribution ( noi ) of our warehouse services operations as warehouse services revenues less labor and other service costs . we calculate the contribution ( noi ) margin for each of these operations as the applicable contribution ( noi ) measure divided by the applicable revenue measure . we believe the presentation of these contribution ( noi ) and contribution ( noi ) margin measures helps investors understand the relative revenues , costs and earnings resulting from each of these separate types of services we provide to our customers in the same manner reviewed by our management in connection with the operation of our business . these contribution ( noi ) measures within our warehouse segment are not measurements of financial performance under u.s. gaap , and these measures should be considered as supplements , but not as alternatives , to our results calculated in accordance with u.s. gaap . we provide reconciliations of these measures in the discussions of our comparative results of operations below . 64 same store analysis we refer to a “ same store ” as a warehouse we owned or leased for the entirety of two comparable periods and which has reported at least twelve months of consecutive normalized operations prior to the commencement of the earlier period being considered . we define “ normalized operations ” as a site open for operation or lease after a warehouse acquisition , development or significant modification , including the expansion of a warehouse footprint or a warehouse rehabilitation subsequent to an extraordinary event , such as natural disasters or similar events . in addition , our definition of “ normalized operations ” takes into account changes in the ownership structure ( e.g .
| the foreign currency translation of revenues incurred by our foreign operations had a $ 3.7 million favorable impact during the year ended december 31 , 2017. warehouse segment cost of operations was $ 797.3 million for the year ended december 31 , 2017 , an increase of $ 30.5 million , or 4.0 % , compared to $ 766.8 million for the year ended december 31 , 2016 . on a constant currency basis , our warehouse segment cost of operations was $ 794.6 million for the year ended 67 december 31 , 2017 , an increase of $ 27.8 million , or 3.6 % , compared to $ 766.8 million for the year ended december 31 , 2016 . this increase was driven primarily by rising labor costs , partially driven by higher throughput and an increased amount of more labor-intensive warehouse services relative to the year ended december 31 , 2016. warehouse segment contribution ( noi ) was $ 348.3 million for the year ended december 31 , 2017 , an increase of $ 34.3 million , or 10.9 % , compared to $ 314.0 million for the year ended december 31 , 2016 . on a constant currency basis , warehouse segment contribution was $ 347.4 million for the year ended december 31 , 2017 , an increase of $ 33.3 million , or 10.6 % , year-over-year . 68 same store analysis we had 139 same stores for the year ended december 31 , 2017 and 2016. please see “ —how we assess the performance of our business—same store analysis ” above for a reconciliation of the change in the same store portfolio from year to year . the following table presents revenues , cost of operations , contribution ( noi ) and margins for our same stores and non-same stores with a reconciliation to the total financial metrics of our warehouse segment for the years ended december 31 , 2017 and 2016 . replace_table_token_11_th ( 1 ) the adjustments from our u.s .
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we are also optimistic that any lingering effects from covid-19 will have a lesser impact on our financial results in 2021 than they did in 2020. as facts and circumstances continue to evolve over the coming months , we will continue to assess and communicate the anticipated impact on our business , and we continue to diligently pursue countermeasures to prudently manage operating expenses during this time , with a goal of neutralizing the impact of the pandemic on our cash flows into 2021. more specifically , we enacted a company-wide plan that reduced work schedules with a related temporary reduction in compensation rates during the second , third and fourth quarters of 2020. for the year , these reduced work schedules resulted in realized savings of approximately $ 5.6 million in compensation expense . we will continue to manage operating expenses and conserve cash for the duration of the pandemic . we expect to continue operating with reduced work schedules and a temporary reduction in compensation rates throughout 2021. we have also initiated a measure that will provide equity in lieu of cash for a portion of salary compensation for employees who meet the requisite criteria for consideration . finally , non-employee directors will continue to have the option of receiving deferred stock units ( `` dsu '' ) in lieu of cash compensation , that we began offering in the third quarter of 2020 ( refer to note 8 , `` stockholder equity '' in the notes to consolidated financial statements for further detail related to the alternative dsu plan ) . each of these measures are described in further detail below and are subject to actual operating conditions experienced during the year . reduced work schedules : each of our employees , including our executive officers , will be subject to one week of reduced work schedules per quarter in 2021. we expect to realize savings of between $ 4.5 million and $ 6.5 million in compensation expense for the year . equity in lieu of cash compensation : qualified employees will receive shares of the company 's common stock in lieu of partial cash compensation . these awards will be made in advance on a quarterly basis and vest immediately . this will affect approximately 450 of our employees , and we expect to achieve between $ 2.0 million and $ 3.0 million in cash savings for the year . non-employee director alternative dsu plan : non-employee directors have the option of receiving dsus in lieu of cash compensation . since inception of this alternative payment plan , which began in the third quarter of 2020 , all non-employee directors have voluntarily elected to receive dsus in lieu of cash compensation . we anticipate all non-employee directors will continue with this election through 2021 and we expect to achieve between $ 0.3 million and $ 0.5 million in cash savings for the year . 30 table of contents as we continue to see improvements in our operating levels , we are confident that the need to mitigate cash flow impacts through direct expense management will also continue to decline . while the company has the ability to continue its countermeasures for the foreseeable future , we anticipate re-evaluating our position on a quarterly basis based on the progression of covid-19 , impacts on our business , and other facts and circumstances as deemed relevant by management . additionally , we believe the company will continue to see some benefits from the coronavirus aid relief and economic security ( `` cares '' ) act discussed in further detail below . the cares act was signed into law on march 27 , 2020 , to provide stimulus and relief in response to the covid-19 pandemic and resulting economic collapse . while the cares act provides a number of potential benefits to companies , the company has made use of the following provisions : payroll tax deferral : allows for the deferral of payment on the company 's share of the 6.2 % social security tax on wages paid beginning on march 27 , 2020 , and ending on december 31 , 2020. deferred amounts are payable in two installments , with 50 % of such taxes due on december 31 , 2021 , and the remainder due on december 31 , 2022. this resulted in a total deferral of $ 2.1 million in payroll taxes for the year ended december 31 , 2020. employee retention credits : allows for a refundable tax credit for the company 's share of the 6.2 % social security tax on wages . this tax credit applies to the first $ 10,000 in qualified wages paid to each employee commencing on march 13 , 2020. to be eligible , the company must ( i ) have had operations fully or partially suspended because of a shutdown order from a governmental authority related to covid-19 , or ( ii ) have had gross receipts decline by more than 50 % in a calendar quarter when compared to the same quarter in 2019. qualified wages are limited to wages paid to employees who were not providing services due to the covid-19 pandemic . this resulted in a tax credit of $ 1.3 million for the year ended december 31 , 2020. alternative minimum tax ( `` amt '' ) credit : allows for an immediate refund of all refundable amt credits resulting from passage of the cares act of 2020. this resulted in accelerated collection of approximately $ 1.3 million of other current assets that was received during the third quarter of 2020. as previously mentioned , we believe our cost mitigation efforts , in addition to natural cost savings that have materialized as a result of the covid-19 pandemic ( e.g. , reduced travel and events ) , will allow us to continue to offset any negative cash flow impact resulting from the pandemic during 2021. story_separator_special_tag more details ) . the decrease in wireless revenue during 2020 compared to 2019 reflects the decrease in demand for our wireless services . story_separator_special_tag wireless revenue is generally based upon the number of units in service and the monthly average revenue per user ( `` arpu '' ) . on a consolidated basis arpu is affected by several factors , including the mix of units in service and the pricing of the various components of our services . the number of units in service changes based on subscribers added , referred to as gross placements , less subscriber cancellations , or disconnects . for the years ended december 31 , 2020 , and 2019 , arpu was $ 7.30 and $ 7.34 , respectively . total units in service were 0.9 million as of december 31 , 2020 , and 2019. while demand for wireless services continues to decline , it has done so at a slower rate for each of the periods presented . while we are optimistic that this trend will continue in future periods , we believe that demand will continue to decline for the foreseeable future in line with recent and historical trends . as our wireless products and services are replaced with other competing technologies , such as the shift from narrowband wireless service offerings to broadband technology services , our wireless revenue will continue to decrease . 33 table of contents the following reflects the impact of subscribers and arpu on the change in wireless revenue : replace_table_token_5_th as demand for one-way and two-way messaging has declined , we have developed or added service offerings such as encrypted paging and spok mobile with a pager number in order to increase our revenue potential and mitigate the decline in our wireless revenue . we will continue to explore ways to innovate and provide customers the highest value possible . software revenue software revenue consists of two primary components : operations revenue and maintenance revenue . operations revenue consists primarily of license and subscription revenues for our healthcare communications solutions , revenue from the sale of equipment that facilitate the use of our software solutions , and professional services revenue related to the implementation of our solutions . maintenance revenue is for ongoing support of our software solutions or related equipment ( typically for one year ) . operations revenue software operations revenue decreased during 2020 when compared to 2019. the decrease in license revenue is the result of a decrease in bookings as well as the benefit received in 2019 due to amounts included from software licenses delivered to customers that were contracted for in a prior period . during 2019 , the company began delivering software licenses to customers in the same month they were contracted for , thus a similar benefit was not seen in 2020. additionally , the delay in our sales cycle due to covid-19 resulted in delivery of fewer software licenses and equipment products . service revenue was lower , primarily resulting from the impact of covid-19 as social distancing and other restrictions , as well as our customers ' focus on covid-19 mitigation efforts , led to delays in implementation projects , contributing to lower services revenue beginning in march 2020. maintenance revenue software maintenance revenue decreased during 2020 when compared to 2019. the decrease in maintenance revenue primarily relates to lower license bookings , as discussed above , from which new maintenance revenue is derived , and the timing of certain revenue items reflected in the results for 2019 that did not occur at the same rate in 2020. revenue items impacted by timing generally relate to specific renewal contracts that do not have auto-renewal terms and for which we must negotiate at the end of each term . we are generally precluded from recognizing revenue on these contracts until new terms have been agreed to even though we generally will continue to provide maintenance service for these customers while negotiations are ongoing . while certain commercial customers require this type of contract renewal , these contracts are generally limited to government organizations , including federal , state and local entities . when a renewal of this nature has been contracted , it is often accompanied by several months of `` catch-up '' revenue from services performed in past periods resulting in a one-time value that is greater than the normal monthly revenue expected over the life of the remaining term . as we continue to focus the majority of our development efforts on spok go , we anticipate a continued decline in our ability to sell new licenses for the care connect suite of products . while we have not seen a meaningful increase in our normal customer churn , our ability to replace this churn with new revenues will not likely replicate what we have accomplished historically nor do we expect to fully offset this with annual increases of our existing base . our intent is to replace this churn with the sale of spok go as well as transition existing on-premise customers to our cloud based solution over the next several years . given these dynamics , we believe annual maintenance revenue is likely to be relatively flat or slightly down as we move forward , especially as we begin the process of transitioning existing customers to a subscription model . 34 table of contents operating expenses our operating expenses are presented in functional categories . certain of our functional categories are especially important to overall expense control and management . these operating expenses are categorized as follows : cost of revenue . these are expenses primarily for hardware , third-party software , outside service expenses and payroll and related expenses for our professional services , logistics , customer support and maintenance staff . research and development . these expenses relate primarily to the development of new software products and the ongoing maintenance and enhancement of existing products . this classification consists primarily of employee payroll and related expenses , outside services related to the design , development , testing and enhancement of our solutions and to a lesser extent hardware equipment . the research and development costs exclude any development costs that qualify for capitalization .
| 31 table of contents results of operations the following table is a summary of our consolidated statements of operations for the years ended december 31 , 2020 , 2019 and 2018 and the discussion that follows compares the year ended december 31 , 2020 , to the year ended december 31 , 2019. for a discussion and analysis of the year ended december 31 , 2019 , compared to the year ended december 31 , 2018 , please refer to management 's discussion and analysis of financial condition and results of operations included in part ii , item 7 of our annual report on form 10-k for the year ended december 31 , 2019 , filed with the sec on february 27 , 2020 : replace_table_token_3_th 32 table of contents revenue the table below details total revenue for the periods stated : replace_table_token_4_th wireless revenue wireless revenue consists of two primary components : paging revenue and product and other revenue . paging revenue consists primarily of recurring fees associated with the provision of messaging services and fees for paging devices and is net of a provision for service credits . product and other revenue reflects system sales , the sale of devices and charges for paging devices that are not returned and are net of anticipated credits . our core offering includes subscriptions to one-way or two-way messaging services for a periodic ( monthly , quarterly , semiannual , or annual ) service fee . this is generally based upon the type of service provided , the geographic area covered , the number of devices provided to the customer and the period of commitment . a subscriber to one-way messaging services may select coverage on a local , regional or nationwide basis to best meet their messaging needs . two-way messaging is generally offered on a nationwide basis . in addition , subscribers either contract for a messaging device from us for an additional fixed monthly fee or they own a device , having purchased it either from us or from another vendor . we also sell devices to resellers who lease or resell devices to
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despite the economic challenges brought on by the covid-19 pandemic , we are confident in the long-term overall health of our business , the strength of our product offerings , and our ability to continue to execute on our strategy . the covid-19 pandemic created uncertainty in most industries and impacted our ability to generate new business during fiscal 2021. despite this , we achieved solid new subscription bookings as demand for our products remained strong . our operating margins for fiscal 2021 have been favorably impacted by our revenue growth outpacing headcount growth as well as the moderation of operating expenses in response to the covid-19 pandemic . we do not anticipate the extent of the favorable margin impact experienced during fiscal 2021 to continue long-term as we remain committed to investing in our business to drive top line growth and to support our customer base . our near-term revenues are relatively predictable as a result of our subscription-based business model . however , if the economic uncertainty persists , we may continue to experience a negative impact on new business , customer renewals , sales and marketing efforts , revenue growth rates , customer deployments , customer solvency , product development , or other financial metrics , any of which could harm our business , operating results , and financial condition . for further discussion of the potential impacts of the covid-19 pandemic on our business , operating results , and financial condition , see “ risk factors ” included in part i , item 1a of this annual report on form 10-k. components of results of operations revenues we derive our revenues from subscription services and professional services . subscription services revenue primarily consists of fees that give our customers access to our cloud applications , which include related customer support . professional services revenue includes fees for deployment services , optimization services , and training . subscription services revenue accounted for 88 % of our total revenues during fiscal 2021 , and represented 96 % of our total unearned revenue as of january 31 , 2021. subscription services revenue is driven primarily by the number of customers , the number of workers at each customer , the specific applications subscribed to by each customer , and the price of our applications . the mix of the applications to which a customer subscribes can affect our financial performance due to price differentials in our applications . pricing for our applications varies based on many factors , including the complexity and maturity of the application and its acceptance in the marketplace . new products or services offerings by competitors in the future could also impact the mix and pricing of our offerings . subscription services revenue is recognized over time as services are delivered and consumed concurrently over the contractual term , beginning on the date our service is made available to the customer . our subscription contracts typically have a term of three years or longer and are generally noncancelable . we generally invoice our customers annually in advance . amounts that have been invoiced are initially recorded as unearned revenue . our consulting engagements are generally billed on a time and materials basis or a fixed price basis . for contracts billed on a time and materials basis , revenue is recognized over time as the professional services are performed . for contracts billed on a fixed price basis , revenue is recognized over time based on the proportion of the professional services performed . in some cases , we supplement our consulting teams by subcontracting resources from our service partners and deploying them on customer engagements . as our professional services organization and the workday-related consulting practices of our partner firms continue to develop , we expect these partners to increasingly contract directly with our subscription customers . as a result of this trend , and the increase of our subscription services revenue , we expect our professional services revenue as a percentage of total revenues to decline over time . costs and expenses costs of subscription services revenue . costs of subscription services revenue consist primarily of employee-related expenses associated with hosting our applications and providing customer support , data center expenses , and depreciation of computer equipment and software . 38 costs of professional services revenue . costs of professional services revenue consist primarily of employee-related expenses associated with these services , subcontractor expenses , and travel expenses . product development . product development expenses consist primarily of employee-related expenses . we continue to focus our product development efforts on adding new features and applications , increasing functionality , and enhancing the ease of use of our cloud applications . sales and marketing . sales and marketing expenses consist primarily of employee-related expenses , sales commissions , marketing programs , and travel expenses . marketing programs consist of advertising , events , corporate communications , brand awareness , and product marketing activities . sales commissions are considered incremental costs of obtaining a contract with a customer and are deferred and amortized . sales commissions for initial contracts are deferred and then amortized on a straight-line basis over a period of benefit that we have determined to be five years . sales commissions for renewal contracts are deferred and then amortized on a straight-line basis over the related contractual renewal period . general and administrative . general and administrative expenses consist of employee-related expenses for finance and accounting , legal , human resources , information systems personnel , professional fees , and other corporate expenses . story_separator_special_tag roman ' , sans-serif ; font-size:10pt ; font-weight:400 ; line-height:120 % ; text-decoration : underline '' > we expect gaap and non-gaap operating expenses in costs of subscription services will continue to increase in absolute dollars as we improve and expand our technical operations infrastructure , including our data centers and computing infrastructure operated by third parties . story_separator_special_tag costs of professional services gaap operating expenses in costs of professional services were $ 586 million for fiscal 2021 , compared to $ 577 million for fiscal 2020 , an increase of $ 9 million , or 2 % . the increase in costs of professional services included increases of $ 28 million in employee-related expenses driven by higher average headcount and $ 12 million related to the covid-19 one-time employee bonus , offset by decreases of $ 16 million from reduced travel and $ 14 million in reduced subcontractor expenses . non-gaap operating expenses in costs of professional services were $ 478 million for fiscal 2021 , compared to $ 490 million for fiscal 2020 , a decrease of $ 12 million , or 2 % . the decrease in costs of professional services included decreases of $ 16 million from reduced travel and $ 14 million in reduced subcontractor expenses , offset by an increase of $ 12 million related to the covid-19 one-time employee bonus . we expect gaap and non-gaap costs of professional services as a percentage of total revenues to continue to decline as we continue to rely on our service partners to deploy our applications and as the number of our customers continues to grow . product development gaap operating expenses in product development were $ 1.7 billion for fiscal 2021 , compared to $ 1.5 billion for fiscal 2020 , an increase of $ 171 million , or 11 % . the increase in product development expenses included increases of $ 134 million in employee-related expenses driven by higher average headcount and $ 31 million related to the covid-19 one-time employee bonus , partially offset by a decrease of $ 15 million from reduced travel . non-gaap operating expenses in product development were $ 1.2 billion for fiscal 2021 , compared to $ 1.1 billion for fiscal 2020 , an increase of $ 103 million , or 10 % . the increase in product development expenses included increases of $ 64 million in employee-related expenses driven by higher average headcount and $ 31 million related to the covid-19 one-time employee bonus , partially offset by a decrease of $ 15 million from reduced travel . we expect gaap and non-gaap product development expenses will continue to increase in absolute dollars as we improve and extend our applications and develop new technologies . sales and marketing gaap operating expenses in sales and marketing were $ 1.2 billion for fiscal 2021 , compared to $ 1.1 billion for fiscal 2020 , an increase of $ 87 million , or 8 % . the increase in sales and marketing expenses included increases of $ 88 million in employee-related expenses driven by higher average headcount , $ 25 million related to the covid-19 one-time employee bonus , and $ 14 million related to marketing programs , partially offset by a decrease of $ 54 million from reduced travel . non-gaap operating expenses in sales and marketing were $ 995 million for fiscal 2021 , compared to $ 929 million for fiscal 2020 , an increase of $ 66 million , or 7 % . the increase in sales and marketing expenses included increases of $ 62 million in employee-related expenses driven by higher average headcount , $ 25 million related to the covid-19 one-time employee bonus , and $ 14 million related to marketing programs , partially offset by a decrease of $ 54 million from reduced travel . we expect gaap and non-gaap sales and marketing expenses to increase in absolute dollars as we continue to invest in our domestic and international selling and marketing activities to expand brand awareness and attract new customers . general and administrative gaap operating expenses in general and administrative were $ 414 million for fiscal 2021 , compared to $ 368 million for fiscal 2020 , an increase of $ 46 million , or 13 % . the increase in general and administrative expenses included increases of $ 24 million in employee-related expenses driven by higher average headcount , $ 21 million in charitable donations , and $ 6 million related to the covid-19 one-time employee bonus , partially offset by a decrease of $ 6 million from reduced travel . non-gaap operating expenses in general and administrative were $ 276 million for fiscal 2021 , compared to $ 241 million for fiscal 2020 , an increase of $ 36 million , or 15 % . the increase in general and administrative expenses included increases of $ 21 million in charitable donations , $ 13 million in employee-related expenses driven by higher average headcount , and $ 6 million related to the covid-19 one-time employee bonus , partially offset by a decrease of $ 6 million from reduced travel . we expect gaap and non-gaap general and administrative expenses will continue to increase in absolute dollars as we further invest in our infrastructure and support our global expansion . 41 operating margins gaap operating margins improved from ( 13.8 ) % for fiscal 2020 to ( 5.8 ) % for fiscal 2021. our gaap operating margins for fiscal 2021 have been favorably impacted by our revenue growth outpacing headcount growth as well as moderation of operating expenses in response to the covid-19 pandemic , including reduced travel . we use the non-gaap financial measure of non-gaap operating margins to understand and compare operating results across accounting periods , for internal budgeting and forecasting purposes , for short- and long-term operating plans , and to evaluate our financial performance . we believe that non-gaap operating margins reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business . we also believe that non-gaap operating margins provide useful information to investors and others in understanding and evaluating our operating results and prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies . non-gaap operating margins are calculated using gaap revenues and non-gaap operating expenses .
| we use the non-gaap financial measure of non-gaap operating expenses to understand and compare operating results across accounting periods , for internal budgeting and forecasting purposes , for short- and long-term operating plans , and to evaluate our financial performance . see “ non-gaap financial measures ” below for further information . we believe that non-gaap operating expenses reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in our business . we also believe that non-gaap operating expenses provide useful information to investors and others in understanding and evaluating our operating results and prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies . non-gaap operating expenses are calculated by excluding share-based compensation expenses and certain other expenses , which consist of employer payroll tax-related items on employee stock transactions and amortization of acquisition-related intangible assets . 39 non-gaap operating expenses were $ 3.5 billion for fiscal 2021 , compared to $ 3.1 billion for fiscal 2020 , an increase of $ 308 million , or 10 % . the increase in non-gaap operating expenses included increases of $ 187 million in employee-related expenses driven by higher average headcount , $ 79 million related to the covid-19 one-time employee bonus , $ 46 million in facilities and it related expenses , $ 31 million in third-party expenses for hardware maintenance and data center capacity , and $ 21 million in charitable donations , partially offset by a decrease of $ 92 million from reduced travel . reconciliations of our gaap to non-gaap operating expenses were as follows ( in thousands ) : replace_table_token_7_th replace_table_token_8_th replace_table_token_9_th ( 1 ) other operating expenses include amortization of acquisition-related intangible assets of $ 60 million , $ 72 million , and $ 49 million for fiscal 2021 , 2020 , and 2019 , respectively . in addition , other operating expenses include employer payroll tax-related items on employee stock transactions of $ 51 million , $ 55 million , and $ 32 million for
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we recorded an income tax benefit of $ 4.0 million for the year ended april 30 , 2018 , which includes a $ 0.1 million discrete benefit at the 2017 tax act enactment date and an additional benefit of $ 3.5 million which was directly attributable to the impact of the 2017 tax act 's reduced corporate tax rate that became effective january 1 , 2018. the additional benefit arises because we are a calendar year taxpayer and the seasonality of our business results in significant losses during the first eight months of fiscal 2018 which produce a federal benefit at the prior corporate tax rate of 34 % , and significant income during the period january to april 2018 which was subject to the lower 21 % corporate tax rate implemented by the 2017 tax act . our effective tax rate for the period from the enactment of the 2017 tax act through the end of our fiscal year ending april 30 , 2018 , was 27.0 % . chief financial officer succession plan on august 16 , 2017 , the company announced its succession plan for its former chief financial officer , stephen j. mueller . mr. mueller stepped down from his position as the company 's chief financial officer and secretary on october 3 , 2017 and assumed a new role as executive vice president . in connection with this transition , christopher j. bub became our vice president , chief financial officer and secretary . mr. bub previously served as the company 's vice president and chief accounting officer . royal banks of missouri credit facilities on october 27 , 2017 , we renewed and increased our existing credit facility with royal banks of missouri ( the “ 2017 royal banks credit facility ” ) . the 2017 royal banks credit facility provides for a $ 10 million working capital line of credit to be used for general business purposes and a $ 15 million acquisition line of credit to be used i ) to pay off $ 12.4 million of principal and accrued interest outstanding under the previous credit agreement with royal banks of missouri ( the “ original credit facility ” ) and ii ) for the acquisition of additional ski resort properties . on october 27 , 2017 , we used $ 12.4 million of the borrowing capacity available under the acquisition line of credit to pay off all outstanding amounts under the original credit facility , including amounts outstanding under a term loan which bore interest at the prime rate plus 1.00 % per annum with an original maturity date of january 26 , 2020. as of april 30 , 2018 , approximately $ 12.4 million was outstanding under the acquisition line of credit and no amounts were outstanding under the working capital line of credit . the term of the 2017 royal banks credit facility is 14 months with loans payable in monthly interest only installments charged at the bank 's prime rate plus 1.00 % per annum , with any outstanding principal amounts due at the end of the term . beginning on january 31 , 2018 , we were required to fund a debt service account by depositing in three equal monthly installments an amount equal to the estimated annual interest due in connection with outstanding loans under the 2017 royal banks credit facility . we are required to maintain a minimum debt service coverage ratio ( as defined in the credit agreement ) of 1.25 to 1.00. in addition , were our fixed charge coverage ratio ( as defined in the credit agreement ) to fall below 1.50 to 1.00 , we would be required to prefund certain other debt service payments , and should the ratio fall below 1.25 to 1.00 , we would be prohibited from paying common or preferred dividends . the 2017 royal banks credit facility is secured by the assets of our subsidiaries which operate our hidden valley , paoli peaks , snow creek , crotched mountain and attitash resorts . impairment loss during the year ended april 30 , 2018 , we incurred approximately $ 1 . 6 million of fixed asset impairment losses in connection with our decision to cease operation of a restaurant and certain hotel-like amenities at a condominium building adjacent to our attitash ski resort . in connection with our 2007 acquisition of the attitash ski resort , we acquired property and equipment constituting the commercial core of a condominium building located adjacent to the resort . since this acquisition , we have i ) provided management services to the condominium 's owners association under a management services agreement ( the “ management services agreement ” ) , ii ) sponsored a rental management program whereby unoccupied condominium units 31 may be rented as hotel rooms and iii ) operated a restaurant and other hotel-type amenities in the areas of the building which we own . in december 2017 , we determined we would not be able to renew the management services agreement upon its expiration on april 30 , 2018 and , as a result , decided to terminate the rental management program and cease operation of the hotel-type amenities as of that date . the company conducts an assessment of the carrying value of goodwill annually , as of last day of march , or more frequently if circumstances arise which would indicate the fair value of a reporting unit with goodwill is below its carrying amount . as a result of the annual assessment as of march 31 , 2018 , the company incurred an impairment loss of $ 0.4 million of goodwill associated with the acquisition of its alpine valley ski resort . the company did not record any impairment of goodwill for the years ended april 30 , 2017 or 2016 . seasonality our revenues are highly seasonal in nature . story_separator_special_tag the vast majority of revenue is generated during the ski season , which occurs during the winter months in our third and fourth fiscal quarters . some of our properties offer off season attractions , such as golf , roller coasters , swimming , summer concerts and zip rides ; however , these activities do not comprise a substantial portion of our annual revenues . as a result , our resorts typically experience operating losses and negative operating cash flows during the first and second quarters of each fiscal year . the seasonality of our revenues amplifies the effect of events outside our control , especially weather . while our geographically diverse operating locations help mitigate the effect of weather conditions , adverse weather could lower attendance due to suboptimal skiing conditions or limited access to our resorts , render snowmaking wholly or partially ineffective in maintaining ski conditions , and increase operating costs related to snowmaking efforts and inefficient labor utilization . during years ended april 30 , 2018 , 2017 and 2016 , the percentage of revenue we recognized in our third and fourth fiscal quarters , combined , was 87.6 % , 87.3 % and 87.9 % , respectively . as a result , the operating results for any quarterly period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year . weather impact the timing and duration of favorable weather conditions significantly influences the timing and volume of skier visits and the associated revenue . while natural snowfall early in the ski season influences skier visits , all of our ski resorts have snowmaking capabilities in the event that the natural snowfall is insufficient . cold weather , however , is essential to a successful ski season and t here is no way to predict future weather conditions . we sell season passes prior to the start of the ski season to help mitigate any negative effects unfavorable weather may have on our revenues . during the 2017/2018 ski season we encountered significant weather-driven challenges , including bitterly cold weather which depressed skier visits at times and rainy weather during a holiday weekend which depressed skier visits during one of our historically busiest weekends . favorable weather conditions in the northeast towards the end of the ski season helped to mitigate the impact of unfavorable weather conditions in the middle of the season . similarly , w e faced significant weather challenges during the 2016/2017 ski season due to unseasonably warm weather in the midwest midway through the ski season . in addition to our continued investment in snow making technologies and infrastructure , we rely on our season pass products to help mitigate the impact on our revenues from adverse weather . season pass products for the 2016/2017 ski season we introduced the peak pass which allows skiers to utilize any of our resorts in the northeastern or southeastern ( which includes pennsylvania ) united states . the introduction of the peak pass contributed to the increased revenue we experienced in our 2018 and 2017 fiscal years as compared to our 2016 fiscal year , despite significant weather challenges during those fiscal years . our pre-season season pass sales for the upcoming 2018/2019 increased 16.0 % in dollar s and 14.0 % in units as compared to the 2017/2018 season , and the 2017/2018 season pre-season pass sales increased 8.6 % in both dollars and units as compared to the same period for the 2016/2017 ski season . skier visits our ski resorts operate in the northeast , midwest and southeast ( which includes pennsylvania ) markets as defined by the kottke report . our skier visits of 1 . 7 million in fiscal 2018 were up 7.4 % from fiscal 2017. this compares to a 4.5 % increase in total skier visits across the entire industry to northeast , midwest and southeast resorts as reported by the kottke report . our total resort visits , which include tub ing visits , were up 7.1 % from fiscal 2017. total visits to our northeast and southeast 32 resorts , in particular , increased to 1.25 million in fiscal 2018 from 1.22 million in fiscal 2017. total visits to our midwest resorts increased to 0.59 million in fiscal 2018 from 0.49 million in fiscal 2017 . capital projects as part of our mission to build value by investing in our current properties through expansions , new products and amenities that will elevate our customers ' skiing and off-season experiences , during fiscal 2018 we completed one major project and continued to move forward with capital improvement projects at our hunter mountain , hidden valley and mount snow resorts . · at hunter mountain , we began the hunter north expansion project to increase the resort 's skiable acreage by approximately 25 % and add automated snowmaking , a six-passenger detachable high-speed chair lift and parking area . we expect to complete the project during the 2018/2019 ski season . · at mount snow , we completed construction on the west lake water project in november 2017 , and immediately began using this new snowmaking infrastructure as we opened the resort for the 2017/2018 ski season . the west lake water project included i ) construction of a new water storage reservoir for snowmaking with capacity of up to 120 million gallons , ii ) construction of three new pump houses , iii ) installation of snowmaking pipelines , and iv ) other related improvements . · at mount snow , we continued construction on the carinthia ski lodge project . the carinthia ski lodge project includes the construction of a new ski lodge at the resort 's carinthia base , comprised of a three-story , 36,000-square foot skier service building which will include i ) a restaurant , cafeteria and bars with seating for over 600 people , ii ) retail facilities , and iii ) a sales center for lift tickets and equipment rentals .
| the items we exclude from net income to arrive at reported ebitda are significant components for understanding and assessing our financial performance and liquidity . reported ebitda should not be considered in isolation or as an alternative to , or substitute for , net income , net change in cash and cash equivalents or other financial statement data presented in our consolidated financial statements as indicators of financial performance or liquidity . because reported ebitda is not a measurement determined in accordance with u.s. gaap and is susceptible to varying calculations , reported ebitda , as presented , may not be comparable to other similarly titled measures of other companies , limiting its usefulness as a comparative measure . reconciliations of net income ( loss ) to reported ebitda for the years ended april 30 , 2018 , 2017 and 2016 , were as follows ( dollars in thousands ) : replace_table_token_8_th 35 year ended april 30 , 2018 , compared with the year ended april 30 , 2017 net revenue . net revenue increased $ 8 . 4 million , or 6 . 8 % , for the year ended april 30 , 2018 , compared with the year ended april 30 , 2017 . the increase is primarily attributable to increased resort attendance driven , in part , by earlier ski season opening dates which led to higher ticket , rentals , retail and food and beverage sales . resort operating costs . resort operating costs increased $ 9 . 3 million , or 10 . 6 % , for the year ended april 30 , 2018 , compared with the previous year . labor costs increased by $ 4.8 million , or 9.9 % , due to i ) lower pre - season staffing levels in fiscal 2017 as compared to fiscal 2018 , ii ) increased staffing needs due to earlier ski season opening dates and higher attendance in fiscal 2018 , and iii ) increases in the minimum wage which impacted certain of our resorts . other resort operating expenses increased by $ 3.0 million , or 14.6 % , primarily
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in connection with the sale of company-owned restaurants to new or existing franchisees in existing markets , we intend to enter into agreements that also provide for the development of new restaurants . after refranchising select company-owned restaurants , and as we grow with existing and new franchisees into the future , we expect franchise restaurants to represent a larger percentage of noodles & company system-wide restaurants than they currently constitute . the franchisor model requires significantly lower capital investment by the franchisor and generates revenues , in the form of development and franchise fees and royalties , which are less volatile than company-owned restaurant revenues . while we plan to embark on refranchising in 2017 , we are focused on identifying qualified franchisees , and it may take multiple years to complete this effort . data breach liabilities . on june 28 , 2016 , we announced that a data security incident compromised the security of the payment information of some customers who used debit or credit cards at certain noodles & company locations between january 31 , 2016 and june 2 , 2016. the malware involved in the incident has been removed , and we believe that it no longer poses a risk to credit or debit cards currently being used at affected locations . we have been implementing additional security procedures to further secure customers ' debit and credit card information . in the fourth quarter of 2016 , we recorded a charge of $ 10.6 million for estimated losses associated with claims and anticipated claims by payment card companies for non-ordinary course operating expenses , card issuer losses and card replacement costs for which we expect to be liable ( the “ data breach liabilities ” ) . however , we may ultimately be subject to data breach liabilities that are up to $ 5.5 million greater than that amount . in addition to claims by payment card companies with respect to the data security incident , we are the defendant in a purported class action lawsuit in the united states district court for the district of colorado , selco community credit union vs. noodles & company , alleging that we negligently failed to provide adequate security to protect the payment card information of customers of the plaintiffs and those of other similarly situated credit unions , banks and other financial institutions alleged to be part of the putative class , causing those institutions to suffer financial losses . see “ legal proceedings—data security litigation ” and “ risk factors—we have incurred and in the future may incur costs resulting from breaches of security of confidential consumer information related to our electronic processing of credit and debit card transactions ” for more information . restaurant closing liabilities . our anticipated plan of restaurant closings will result in liabilities to landlords from the termination of our leases for such restaurants , fees to be paid to our real estate advisor and brokers related to such terminations and other costs of closing restaurants , such as severance for terminated employees , or restaurant closing liabilities . we currently anticipate that the restaurant closing liabilities future cash outlays will total $ 24.0 million to $ 29.0 million , which will include ( i ) $ 23.0 million to $ 28.0 million relating to the termination of leases , including related fees and expenses , to be paid out over the next 12 to 18 months , and ( ii ) approximately $ 1.0 million relating to severance for terminated employees . however , it is possible that the restaurant closing liabilities will exceed such amounts . we expect to recognize accounting charges for the restaurant closing liabilities aggregating between $ 17.5 million to $ 19.5 million , at the time such restaurants are closed , subject to adjustment as lease terminations occur . key measures we use to evaluate our performance to evaluate the performance of our business , we utilize a variety of financial and performance measures . these key measures include revenue , auvs , comparable restaurant sales , restaurant contribution , restaurant contribution margin , ebitda and adjusted ebitda . 33 revenue restaurant revenue represents sales of food and beverages in company-owned restaurants . several factors affect our restaurant revenue in any period , including the number of restaurants in operation and per-restaurant sales . franchise royalties and fees represent royalty income and initial franchise fees . while we expect that the majority of our revenue and net income growth will be driven by company-owned restaurants , our franchise restaurants remain an important factor impacting our revenue and financial performance . seasonal factors cause our revenue to fluctuate from quarter to quarter . our revenue per restaurant is typically lower in the first and fourth quarters due to reduced winter and holiday traffic and higher in the second and third quarters . as a result of these factors , our quarterly and annual operating results and comparable restaurant sales may fluctuate significantly . average unit volumes ( “ auvs ” ) auvs consist of the average annualized sales of all company-owned restaurants for the trailing 12 periods . auvs are calculated by dividing restaurant revenue by the number of operating days within each time period and multiplying by 361 , which is equal to the number of operating days we have in a typical year . this measurement allows management to assess changes in consumer traffic and per person spending patterns at our restaurants . comparable restaurant sales comparable restaurant sales refer to year-over-year sales comparisons for the comparable restaurant base . we define the comparable restaurant base to include restaurants open for at least 18 full periods . as of the end of 2016 , 2015 and 2014 , there were 393 , 322 and 295 restaurants , respectively , in our comparable restaurant base for company-owned locations . this measure highlights performance of existing restaurants , as the impact of new restaurant openings is excluded . story_separator_special_tag changes in comparable restaurant sales are generated by changes in traffic , which we calculate as the number of entrées sold , or changes in per person spend , calculated as sales divided by traffic . per person spend can be influenced by changes in menu prices and the mix and number of items sold per person . measuring our comparable restaurant sales allows us to evaluate the performance of our existing restaurant base . various factors impact comparable restaurant sales , including : consumer recognition of our brand and our ability to respond to changing consumer preferences ; overall economic trends , particularly those related to consumer spending ; our ability to operate restaurants effectively and efficiently to meet consumer expectations ; pricing ; per person spend and average check amount ; marketing and promotional efforts ; local competition ; trade area dynamics ; introduction of new and seasonal menu items and limited time offerings ; and opening of new restaurants in the vicinity of existing locations . consistent with common industry practice , we present comparable restaurant sales on a calendar-adjusted basis that aligns current year sales weeks with comparable periods in the prior year , regardless of whether they belong to the same fiscal period or not . since opening new company-owned and franchise restaurants will be a significant component of our revenue growth , comparable restaurant sales are only one measure of how we evaluate our performance . restaurant contribution 34 restaurant contribution is defined as restaurant revenue less restaurant operating costs which are cost of sales , labor , occupancy and other restaurant operating costs . we expect restaurant contribution to increase in proportion to the number of new restaurants we open and our comparable restaurant sales growth . fluctuations in restaurant contribution margin can also be attributed to those factors discussed above for the components of restaurant operating costs . restaurant contribution margin restaurant contribution margin is defined as restaurant revenue less restaurant operating costs . ebitda and adjusted ebitda we define ebitda as net income ( loss ) before interest expense , provision ( benefit ) for income taxes and depreciation and amortization . we define adjusted ebitda as net income ( loss ) before interest expense , provision ( benefit ) for income taxes , depreciation and amortization , restaurant impairments , closure costs and asset disposals , data breach liabilities , certain litigation settlements , severance costs and stock-based compensation . ebitda and adjusted ebitda provide clear pictures of our operating results by eliminating certain non-cash expenses that may vary widely from period to period and are not reflective of the underlying business performance . the presentation of this financial information is not intended to be considered in isolation or as a substitute for , or to be superior to , the financial information prepared and presented in accordance with accounting principles generally accepted in the united states of america ( “ gaap ” ) . we use these non-gaap financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons . we believe that they provide useful information about operating results , enhance the overall understanding of financial performance and future prospects and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making . results of operations the following table presents a reconciliation of net ( loss ) income to ebitda and adjusted ebitda : replace_table_token_6_th _ ( a ) expenses related to the purchase of 19 franchise restaurants . see note 2 , business combinations in the consolidated financial statements . key financial definitions cost of sales cost of sales includes the direct costs associated with the food , beverage and packaging of our menu items . cost of sales also includes any costs related to discounted menu items . cost of sales is a substantial expense and can be expected to change proportionally as 35 our restaurant revenue changes . fluctuations in cost of sales are caused primarily by volatility in the cost of commodity food items and related contracts for such items . other important factors causing fluctuations in cost of sales include seasonality , discounting activity and restaurant level management of food waste . labor costs labor costs include wages , payroll taxes , workers ' compensation expense , benefits and bonuses paid to our management teams . similar to certain other expense items , we expect labor costs to change proportionally as our restaurant revenue changes . factors that influence fluctuations in our labor costs include minimum wage and payroll tax legislation , the frequency and severity of workers ' compensation claims , health care costs and the performance of our restaurants . occupancy costs occupancy costs include rent , common area maintenance charges and real estate tax expense related to our restaurants and are expected to grow proportionally as we open new restaurants . other restaurant operating costs other restaurant operating costs include the costs of repairs and maintenance , utilities , restaurant-level marketing , credit card processing fees , restaurant supplies and other restaurant operating costs . similar to certain other costs , they are expected to grow proportionally as restaurant revenue grows . general and administrative expense general and administrative expense is composed of payroll , other compensation , travel , marketing , accounting and legal fees , insurance and other expenses related to the infrastructure required to support our restaurants . general and administrative expense also includes the non-cash stock compensation expense related to our employee stock incentive plan . depreciation and amortization our principal depreciation and amortization charges relate to depreciation of long-lived assets , such as property , equipment and leasehold improvements , from restaurant construction and ongoing maintenance . pre-opening costs pre-opening costs relate to the costs incurred prior to the opening of a restaurant . these include management labor costs , staff labor costs during training , food and supplies utilized during training , marketing costs and other pre-opening related costs .
| cost of sales cost of sales increased by $ 10.2 million , or 8.4 % , in 2016 compared to 2015 , due primarily to the increase in restaurant revenue in 2016 . as a percentage of restaurant revenue , cost of sales increased to 27.1 % in 2016 from 26.7 % in 2015 . this increase was primarily the result of modest commodity inflation . 39 labor costs labor costs increased by $ 18.1 million , or 12.6 % , in 2016 compared to 2015 , due primarily to the increase in restaurant revenue in 2016 . as a percentage of restaurant revenue , labor costs increased to 33.4 % in 2016 from 31.8 % in 2015 . the increase as a percentage of restaurant revenue resulted from an increase in wage rates and benefit costs , as well as the deleveraging impact of lower auvs . occupancy costs occupancy costs increased by $ 5.6 million , or 11.2 % , in 2016 compared to 2015 , due primarily to the opening of new restaurants . as a percentage of restaurant revenue , occupancy costs increased to 11.6 % in 2016 from 11.2 % in 2015 . the slight increase was due primarily to the deleveraging impact of lower auvs . other restaurant operating costs other restaurant operating costs increased by $ 9.5 million , or 14.9 % , in 2016 compared to 2015 , due primarily to the increase in restaurant revenue in 2016 . as a percentage of restaurant revenue , other restaurant operating costs increased to 15.1 % in 2016 from 14.1 % in 2015 . the increase in other restaurant operating cost percentage was primarily due to increased marketing initiatives , the deleveraging impact of lower auvs and additional maintenance costs in 2016 . general and administrative expense general and administrative expense increased by $ 18.4 million , or 49.4 % , in 2016 compared to 2015 , primarily due to a $ 10.6 million charge for estimated losses associated with claims and anticipated claims by payment card companies from the data security
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projects are often planned for many years in advance , and are sometimes part of fifty-year build out plans . however , in the near term , we expect strained governmental and water agency budgets will impact the water transmission group . fluctuating steel costs will be a factor in both our tubular products group and our water transmission group , as the ability to adjust our selling prices as steel costs fluctuate will depend on market conditions . critical accounting policies the discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements , which have been prepared in accordance with accounting principles generally accepted in the united states . management estimates : the preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets , liabilities , revenues and expenses , and disclosure of contingent assets and liabilities . we base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances . on an on-going basis , we evaluate all of our estimates , including those related to revenue recognition , allowance for doubtful accounts , goodwill , property and equipment including depreciation and amortization , inventories , income taxes , and litigation and other contingencies . actual results may differ from these estimates under different assumptions or conditions . we believe the following critical accounting policies and related judgments and estimates affect the preparation of our consolidated financial statements . revenue recognition : revenue from construction contracts in our water transmission group is recognized on the percentage-of-completion method , measured by the costs incurred to date as a percentage of the estimated total costs of each contract ( cost-to-cost method ) . contract costs include all direct material and labor costs and those indirect costs related to contract performance , such as indirect labor , supplies , tools , repairs and depreciation . selling , general and administrative costs are charged to expense as incurred . the cost of steel is recognized as a project cost when the steel is introduced into the manufacturing process . estimated total costs of each contract are reviewed on a monthly basis by project management and operations personnel for substantially all projects that are 50 % or more complete except that major projects , usually over $ 5.0 million , are reviewed earlier if sufficient production has been completed to provide enough information to revise the original estimated total cost of the project . all cost revisions that result in the gross profit as a percent of sales increasing or decreasing by more than two percent are reviewed by senior management personnel . we begin recognizing revenue on a project when we have persuasive evidence of an arrangement and project costs are incurred . costs may be incurred before we have persuasive evidence of an arrangement . in those cases , if we believe we will obtain persuasive evidence of an arrangement and if recoverability from that arrangement is probable , the project costs are deferred and revenue recognition is delayed . 29 provisions for losses on uncompleted contracts are made in the period such losses are known . changes in job performance , job conditions and estimated profitability , including those arising from contract penalty provisions , foreign currency exchange rate movements , and final contract settlements may result in revisions to revenue , costs and income and are recognized in the period in which the revisions are determined . historically , our estimates of total job costs for each job have been reasonably dependable . revenue from our tubular products group is recognized when all four of the following criteria have been satisfied : persuasive evidence of an arrangement exists ; the price is fixed or determinable ; delivery has occurred ; and collectability is reasonably assured . allowance for doubtful accounts : we maintain allowances for estimated losses resulting from the inability of our customers to make required payments based on historical experience and management 's judgment . the extension and revision of credit is established by obtaining credit rating reports or financial information on the customer . an allowance is recorded based on a variety of factors , including our historical collection experience and our historical product warranty claims . at least monthly , we review past due balances to identify the reasons for non-payment . we will write off a receivable account once the account is deemed uncollectible for reasons such as a bankruptcy filing , deterioration in the customer 's financial position , contract dispute or other similar events . we believe the reported allowances at december 31 , 2011 are adequate . if the customers ' financial conditions were to deteriorate resulting in their inability to make payments , additional allowances may need to be recorded which would result in additional expenses being recorded for the period in which such determination was made . goodwill : goodwill related to our tubular products group , one of our operating segments and reporting units , represents the excess of cost over the assigned value of the net assets in connection with the segment 's acquisitions . goodwill is reviewed for impairment annually at december 31 or whenever events occur or circumstances change that would more likely than not reduce the fair value of the tubular products group below its carrying amount . in 2011 , fair value of the tubular products group 's goodwill was first evaluated using a qualitative approach which takes into account industry and market conditions , cost factors , overall financial performance , and other relevant entity specific events and changes . if this analysis had determined that it was more likely than not that events and circumstances reduced the fair value of goodwill below its carrying value , fair value would have been quantitatively determined with consideration of the income , market , and cost approaches as applicable . story_separator_special_tag the income approach is based upon projected future after-tax cash flows ( less capital expenditures ) discounted to present value using factors that consider the timing and risk associated with the future after-tax cash flows . the market approach is based upon historical and forward-looking measures using multiples of revenue and a price-to-book ratio . the forward-looking measures are more heavily weighted than the historical measures . we do not utilize the cost approach as relevant data is not available . we utilize an average of the income and market approaches , with a heavier weighting on the income approach because of the relatively limited number of comparable entities for which relevant multiples are available . we also utilize a sensitivity analysis to determine the impact of changes in discount rates and cash flow forecasts on the valuation of the tubular operating segment . fair value of goodwill was evaluated under a qualitative approach which took into account industry and market conditions , cost factors , overall financial performance , and other relevant entity specific events and changes . the qualitative analysis concluded it was not more likely than not that the fair value of goodwill was less than its carrying value at december 31 , 2011 , and no further quantitative analysis was required . fair value of goodwill was estimated under the income approach and the market approach for the performance of our 2010 goodwill impairment test . goodwill was not impaired as of december 31 , 2010. if our assumptions about goodwill change as a result of events or circumstances , and management believes the assets may have declined in value , then impairment charges will be recorded , resulting in lower profits . the operations of the tubular 30 products group are cyclical and its sales and profitability may fluctuate from year to year . in the evaluation of our operating segment , we look at the long-term prospects for the reporting unit and recognize that current performance may not be the best indicator of future prospects or value , which requires management judgment . property and equipment : property and equipment are recorded at cost . we depreciate the net book value using either the units of production method or a straight-line method depending on the classification of the asset . depreciation expense calculated under the units of production method may be less than , equal to , or greater than depreciation expense calculated under the straight-line method . we evaluate historical and projected units of production at each plant to reassess the units of production expected on an annual basis . we assess impairment of property and equipment whenever changes in circumstances indicate that the carrying values of the assets may not be recoverable . the recoverable value of long-lived assets is determined by estimating future undiscounted cash flows using assumptions about our expected future operating performance . our estimates of undiscounted cash flows may differ from actual cash flow due to , among other things , technological changes , economic conditions , or changes to our business operations . if we determine the carrying value of the property and equipment will not be recoverable , we calculate and record an impairment loss . due to the nature of our manufacturing process and the equipment used in the process , our machinery and equipment assets are long-lived and the risk of obsolescence is low . each of our facilities has equipment that is interchangeable , as the same product can , for the most part , be produced at a number of our facilities . inventories : inventories are stated at the lower of cost or market . determining market value of inventories involves judgments and assumptions made by us , including projecting selling prices and cost of sales . to project market value , we review recent sales and gross profit history , existing customer orders , current contract prices , industry supply and demand , forecasted steel prices , replacement costs , seasonal factors , general economic trends and other information , as applicable . if future market conditions are less favorable than those projected by us , inventory write-downs may be required . at december 31 , 2011 , the inventory balance of $ 109.6 million is reported net of lower of cost or market adjustments totaling $ 3.4 million . raw material inventories of steel are stated at cost either on a specific identification basis or on an average cost basis . all other raw materials , as well as supplies , are stated on an average cost basis . finished goods are stated at cost using the first-in , first-out method of accounting . income taxes : we account for income taxes using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns . valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized . the determination of our provision for income taxes requires significant judgment , the use of estimates and the interpretation and application of complex tax laws . our provision for income taxes primarily reflects a combination of income earned and taxed in the various u.s. federal and state and , to a lesser extent , foreign jurisdictions . jurisdictional tax law changes , increases or decreases in permanent differences between book and tax items , accruals or adjustments of accruals for unrecognized tax benefits or valuation allowances , and our change in the mix of earnings from these taxing jurisdictions all affect the overall effective tax rate . we record tax reserves for federal , state , local and international exposures relating to periods subject to audit . the development of reserves for these exposures requires judgments about tax issues , potential outcomes and timing , and is a subjective estimate .
| the higher production volume needed to support these increased sales was enabled by our investment in our bossier city , louisiana facility in 2010 , and upgrades to our houston , texas facility , which increased our energy pipe manufacturing capacity . the increases in average selling prices principally reflect higher steel costs . steel costs per ton increased by 13 % in 2011 compared to 2010. gross profit . gross profit increased 99.2 % to $ 59.1 million ( 11.6 % of total net sales ) in 2011 from $ 29.7 million ( 7.7 % of total net sales ) in 2010. water transmission gross profit increased 122.2 % to $ 43.2 million ( 15.9 % of segment net sales ) in 2011 from $ 19.4 million ( 8.8 % of segment net sales ) in 2010. the increase in gross profit was driven by the increases in tons produced and the increases in average selling price per ton . the increase was also driven by a more favorable mix of contracts , partially as a result of the completion of lower margin contracts awarded in 2009 , which flowed through the income statement in 2010 and which were replaced by higher margin contracts bid in 2010 and reflected in the 2011 income statement , and by the favorable impact of higher volume on the fixed portion of our cost of goods sold as a percent of sales . this was partially offset by an increase in steel cost per ton , discussed above in the net sales analysis . gross profit from tubular products increased 55.5 % to $ 16.0 million ( 6.7 % of segment net sales ) in 2011 from $ 10.3 million ( 6.2 % of segment net sales ) in 2010. as noted above , demand for our tubular products increased significantly , particularly for our energy products . energy pipe , which has a higher gross profit as a percent of sales than other tubular products , represented 70 % of
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the company will continue to look for additional ways to create efficiencies within its technology and web-development team , allowing it further to leverage the company 's technological capabilities and expertise and to build upon the value that it offers to buyers and sellers of real estate while maintaining a streamlined approach without compromising quality . the company will continue to explore and identify potential strategic partners that have developed technologies , applications or other proprietary assets of value within the real estate space and that would benefit from access to the resources we possess internally as well as those made possible by our geographic reach , mobility and interconnectivity . the company also expects to continue to make available to its agents opportunities for savings and efficiency in pursuit of their business goals and career objectives whenever possible whether in the form of discounts or service enhancements , continuing education opportunities , or otherwise . the company upgraded its cloud office to an enhanced platform in march of 2015. our cloud office now has an increased capacity that will accommodate our existing and continual growing agent base . we have invested in a second server for agent services and agent onboarding outside of what we refer to as the cloud campus . this is where our agent onboarding staff work with agents new to exp realty prior to integrating into the larger campus where the larger trainings take place . currently the cloud-campus can accommodate 80 simultaneous sessions and agent services can accommodate 10 simultaneous sessions . we anticipate increasing the session count for the cloud-campus in the near future as well as launching other servers for various meetings and collaboration sessions . 19 market conditions and trends the united states housing market was adversely impacted beginning in 2006 by the combination of a number of factors , including but not limited to more stringent lending guidelines , increased unemployment , and an overall macroeconomic decline . overall u.s. sales volume declined as did the market value of homes which in turn created a swell in foreclosures and mortgage defaults . it was this combination of factors which , in part , served as the impetus for the company 's business model as traditional real estate brokerages on a large scale experienced a diminishment of revenues without , in many cases , a corresponding reduction in fixed expenses , resulting in an erosion of profits . while markets throughout much of the united states have recovered , the company still estimates that a significant number of real estate brokerages today are not profitable or are marginally profitable due to the impact of high or fixed overhead and a costly struggle to drive higher productivity among their agents . continued upward trends in market activity and continued acceleration of home values is susceptible to macroeconomic conditions , including signals by the federal reserve bank that it intends to raise interest rates which increases could take effect in 2015 and which could impact the ability of new home buyers seeking purchase money mortgages as well as existing borrowers with adjustable mortgage rates . in the event that market activity slows , many traditional brokerage owners will again be pressured by an operating cost structure that is n't responsive to cyclical turns in the market with overhead costs that hold steady or continue to climb . technology continues to disrupt traditional business models in many different ways . recently there has been a viral post in social media talking about the largest media company by market cap being facebook and yet it generates none of their own content . it is supplied by its members . uber now has one of the largest market caps for a transportation company and yet it does not own any of the underlying assets that being the automobiles . those are owned by its drivers . alibaba which went public last year as one of the all time largest ipo 's is an ecommerce company in china that does n't manage or own physical inventory . everyone is familiar with amazon which has its roots in books and which has no physical footprint bookstore . exp realty as a residential real estate brokerage generally speaking only maintains the physical footprint of a brokerage that is required by the states we operate in rather than trying to have an office on every corner . with the continual improvement of high speed internet everywhere we tend to see the office be more and more mobile for all agents and brokers in all areas of the business and we believe that in some cases the physical office actually detracts from collaboration rather than encourages it . we plan on continuing to pursue these efforts through the use of the cloud-office and other mobile collaboration platforms . we believe this is great for the agents , brokers , and consumers who understand it but more importantly it is a much easier business model to facilitate and grow than trying to grow and manage the 100 's of physical offices that would be necessary to cover the geographic footprint that exp realty currently covers . the exp realty cloud office has enabled would be brokerage owners who join the company to shed enormous overhead expenses and staffing costs while still retaining a percentage of commissions generated by the agents they bring with them or attract and while availing themselves of an opportunity to scale their business in a way that traditional models do not easily support . market conditions prospectively are susceptible to impact from , among other factors , employment growth or decline , population trends , the re-entry into the market of former homeowners who suffered delinquencies , foreclosures , short-sales , or bankruptcies during the downturn . story_separator_special_tag these factors , coupled with uncertain federal reserve policy , suggests that the real estate industry could continue to see growth in sales during the upcoming fiscal year but at the same time could experience a decline . in either turn , the company expects to adhere to its low-cost , high-engagement model , affording a growing number of agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to survive and thrive in a wide range of economic conditions . we believe that the opportunities in the real estate business are what might be considered the industry 's sacred cows , or those things that the majority of agents and brokers believe to be the way it will always be but which will be challenged by up and coming companies . we are challenging the notion of there needing to be a physical office in order to run a growing and thriving real estate brokerage model . there are many broker owners that believe this is necessary and will challenge exp realty for pursuing this path and may suggest that it is bad for the agent and the consumer in order to defend what has been the model for so many years . there are millions of dollars being poured into start-ups all over the united states aimed at disrupting the cooperative commission model that we rely on as a brokerage in order to continue to be profitable . if someone figures out a way to credibly crack the commission model this may adversely impact exp realty as well as many other more traditional real estate brokerages . we are not focusing our energy there as a brokerage however we do look to see what is happening in the industry in order to stay ahead and relevant to our agents and brokers who are our effective customers and partners . 20 potential challenges for exp realty and other brokerages come our way through the large third party syndicators . the relevancy of a brokerage in the face of a significant percentage of lead generation for the agents who work for the firm being generated through third party portals does raise the question of relevancy to the agents that work for the brand . we see this as a very real threat to us as a brokerage and we are proactively developing low cost lead generation platforms that our agents can take advantage of which provide significant cost savings vs going through third party syndicators . as a small brokerage covering a large geographic area it is relatively easy for exp realty to generate leads at a lower cost than the portals however as we grow this may become harder and harder to do . in the first quarter of 2015 we launched the making it rain program for our agents and brokers to take advantage of . over 10 % of our agent base signed up and since then we have seen leads generated by participants in a range between $ 7.00 - $ 40.00 / lead . leads may become more expensive over time and in some cases may exceed the cost of leads from other third party syndicators so we need to be aware of this and continually innovate on behalf of our agents and brokers again with the goal of being relevant in their business . if agents believe that their business is generated from third party syndicators then it may follow that agents may pursue the lowest expense brokerage in order to maximize their income . over the last number of years , again propelled by technology , numerous firms whether brokerage , vendor or even those outside of the real estate brokerage business have used education as a major attractor in order to develop a following and or customers . activerain was one of the first companies to push into education with activerain university . they were later acquired by market leader which was eventually purchased by trulia and most recently acquired by zillow . zillow had their own educational outreach initiatives called zillow academy . both of these initiatives were facilitated by exp realty 's own brad andersohn when he was with the respective companies , first at activerain and then eventually at zillow prior to all of the consolidation of the above companies . chris smith and jimmy mackin provide free classes and training in support of their company curaytor . numerous real estate coaches provide training and classes in facilitation of selling coaching services . brian buffini , the largest real estate coaching business in the world , does livestream events where brokerages and others can sponsor these events to provide education to real estate professionals for free while facilitating a flow of coaching clients to the buffini organization . education is a differentiator however the space is getting crowded . even outside of the real estate space , free education is part of the larger mooc movement or massive open online course movement where major universities and educational institutions are taking some of their most popular classes and putting them online so that individuals can take the classes and in some cases get degrees at a very low cost if not free from certain institutions . technology has allowed for this disrupting of education such that education is less valuable as a differentiator and yet not offering education is definitely a detractor of a brokerage business model . agile management systems : one of the ways that we believe that we have been able to grow into as many states and again in our opinion remain relevant is by adopting an agile mindset as a company .
| in 2015 , the company has also transitioned all of its agents , brokers and staff into a new campus-style , cloud office environment which is significantly larger than the company 's previous environments and which , in addition to serving as the locus for the company 's office and workplace for agents , staff and brokers , will serve as a destination point for real estate professionals within the industry , irrespective of their brokerage affiliation , seeking exposure to , and participation and immersion in , a busy calendar of networking , training , education , and professional development classes , seminars , and events as part of the company 's re tech campus initiative , which is being administered and overseen by mr. andersohn . in addition to providing valuable instruction to agents and brokers industry-wide , the re tech campus initiative will also expose increasing numbers of real estate professionals to the benefits and opportunities available through the utilization of an engaging and interactive cloud-based environment , all of which are leveraged by the company 's own agents as part of the development and growth of their own businesses , and most of which are not accessible through traditional brokerages with a brick-and-mortar foundation . in early 2015 , the company also launched a lead generation program for the benefit of its agents and brokers , utilizing a number of different strategies as well as data the company possesses as a result of its memberships in a large and growing number of multiple listing services across the united states and canada . the program , called “ making it rain ” has , thus far in its earliest stages , generated leads for company agents and brokers at up to a 75 % discount compared to what agents and brokers across the industry are paying for leads through subscriptions and contracts with popular third-party syndicators . as 2015 progresses , the company anticipates continuing to develop and expand the making it rain program , thereby providing a direct benefit to the company 's agents and brokers as well as an additional revenue source to
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among the temporary assistance for needy families , or tanf , medicaid population the medicaid group that includes mostly mothers and children pmpm premiums range between approximately $ 110 in california to $ 250 in missouri . among our medicaid aged , blind or disabled , or abd , membership , pmpm premiums range from approximately $ 330 in utah to $ 1,400 in ohio . contributing to the variability in medicaid rates among the states is the practice of some states to exclude certain benefits from the managed care contract ( most often pharmacy , inpatient , behavioral health and catastrophic case benefits ) and retain responsibility for those benefits at the state level . medicare membership generates the highest average pmpm premiums , at approximately $ 1,200 pmpm . the following table sets forth the approximate total number of members by state health plan as of the dates indicated : replace_table_token_5_th 38 replace_table_token_6_th ( 1 ) we acquired the wisconsin health plan on september 1 , 2010. as of december 31 , 2011 , the wisconsin health plan had approximately 2,000 medicare advantage members covered under a reinsurance contract with a third party ; these members are not included in the membership tables herein . molina medicaid solutions segment the payments received by our molina medicaid solutions segment under its state contracts are based on the performance of multiple services . the first of these is the design , development and implementation , or ddi , of a medicaid management information system , or mmis . an additional service , following completion of ddi , is the operation of the mmis under a business process outsourcing , or bpo arrangement . while providing bpo services ( which include claims payment and eligibility processing ) we also provide the state with other services including both hosting and support and maintenance . because we have determined the services provided under our molina medicaid solutions contracts represent a single unit of accounting , we recognize revenue associated with such contracts on a straight-line basis over the period during which bpo , hosting , and support and maintenance services are delivered . composition of expenses health plans segment operating expenses for the health plans segment include expenses related to the provision of medical care services , g & a expenses , and premium tax expenses . our results of operations are impacted by our ability to effectively manage expenses related to medical care services and to accurately estimate medical costs incurred . expenses related to medical care services are captured in the following four categories : fee-for-service : physician providers paid on a fee-for-service basis are paid according to a fee schedule set by the state or by our contracts with these providers . most hospitals are paid on a fee-for-service basis in a variety of ways , including per diem amounts , diagnostic-related groups or drgs , percent of billed charges , and case rates . as discussed below , we also pay a small portion of hospitals on a capitated basis . we also have stop-loss agreements with the hospitals with which we contract . under all fee-for-service arrangements , we retain the financial responsibility for medical care provided . expenses related to fee-for-service contracts are recorded in the period in which the related services are dispensed . the costs of drugs administered in a physician or hospital setting that are not billed through our pharmacy benefit managers are included in fee-for-service costs . capitation : many of our primary care physicians and a small portion of our specialists and hospitals are paid on a capitated basis . under capitation contracts , we typically pay a fixed per-member per-month , or pmpm , payment to the provider without regard to the frequency , extent , or nature of the medical services actually furnished . under capitated contracts , we remain liable for the provision of certain health care services . certain of our capitated contracts also contain incentive programs based on service delivery , quality of care , utilization management , and other criteria . capitation payments are fixed in advance of the periods covered and are not subject to significant accounting estimates . these payments are expensed in the period the providers are obligated to provide services . the financial risk for pharmacy services for a small portion of our membership is delegated to capitated providers . pharmacy : pharmacy costs include all drug , injectibles , and immunization costs paid through our pharmacy benefit managers . as noted above , drugs and injectibles not paid through our pharmacy benefit managers are included in fee-for-service costs , except in those limited instances where we capitate drug and injectible costs . 39 other : other medical care costs include medically related administrative costs , certain provider incentive costs , reinsurance cost , and other health care expense . medically related administrative costs include , for example , expenses relating to health education , quality assurance , case management , disease management , 24-hour on-call nurses , and a portion of our information technology costs . salary and benefit costs are a substantial portion of these expenses . for the years ended december 31 , 2011 , 2010 , and 2009 , medically related administrative costs were approximately $ 102.3 million , $ 85.5 million , and $ 74.6 million , respectively . our medical care costs include amounts that have been paid by us through the reporting date as well as estimated liabilities for medical care costs incurred but not paid by us as of the reporting date . see critical accounting policies below for a comprehensive discussion of how we estimate such liabilities . molina medicaid solutions segment cost of service revenue consists primarily of the costs incurred to provide business process outsourcing and technology outsourcing services under our contracts in idaho , louisiana , maine , new jersey , west virginia , and florida . general and administrative costs consist primarily of indirect administrative costs and business development costs . story_separator_special_tag in some circumstances we may defer recognition of incremental direct costs ( such as direct labor , hardware , and software ) associated with a contract if revenue recognition is also deferred . such deferred contract costs are amortized on a straight-line basis over the remaining original contract term , consistent with the revenue recognition period . we began to recognize deferred contract costs for our maine contract in september 2010 , at the same time we began to recognize revenue associated with that contract . in idaho , we expect to begin recognition of deferred contract costs in 2012 , in a manner consistent with our anticipated recognition of revenue . story_separator_special_tag width= '' 5 % '' > pharmacy costs ( excluding the addition of pharmacy benefits at our ohio health plan effective october 1 , 2011 ) increased approximately 7 % pmpm . approximately two-thirds of the increase in pharmacy costs was attributable to higher unit costs , with the remainder due to increased utilization . capitation costs decreased approximately 14 % pmpm , primarily due to the transition of members in michigan and washington into fee-for-service networks . fee-for-service costs increased approximately 8 % pmpm , partially due to the transition of members from capitated provider networks into fee-for-service networks . fee-for-service and capitation costs combined increased approximately 4 % pmpm . excluding the texas health plan , fee-for-service and capitation costs combined increased approximately 2 % pmpm . hospital utilization decreased approximately 5 % . the medical care ratio of the california health plan increased to 85.8 % for the year ended december 31 , 2011 , from 83.5 % for the year ended december 31 , 2010. the california health plan received premium reductions of approximately 3 % and 1 % effective july 1 , 2011 , and october 1 , 2011 , respectively . in the second half of 2011 , the california health plan added approximately 14,500 new abd members with average premium revenue of approximately $ 385 pmpm . the medical care ratio of the florida health plan decreased to 91.9 % for the year ended december 31 , 2011 , from 95.4 % for the year ended december 31 , 2010 , primarily due to initiatives that have reduced pharmacy and behavioural health costs , and a premium rate increase of approximately 7.5 % effective september 1 , 2011. the medical care ratio of the michigan health plan decreased to 81.2 % for the year ended december 31 , 2011 , from 83.7 % for the year ended december 31 , 2010 , primarily due to improved medicare performance and lower inpatient facility costs . the michigan health plan received a premium rate increase of approximately 1 % effective october 1 , 2011. the medical care ratio of the missouri health plan decreased to 85.3 % for the year ended december 31 , 2011 , from 85.5 % for the year ended december 31 , 2010. the health plan received a premium rate increase of approximately 5 % effective july 1 , 2011 . 42 the medical care ratio of the new mexico health plan decreased to 80.2 % for the year ended december 31 , 2011 , from 80.6 % for the year ended december 31 , 2010. the new mexico health plan received a premium rate reduction of approximately 2.5 % effective july 1 , 2011. as discussed above , the new mexico health plan entered into a contract amendment changed the calculation of the amount of revenue that may be recognized relative to medical costs in the fourth quarter of 2011. consequently , premium revenue recognized in the year ended december 31 , 2011 , includes $ 5.6 million related to periods prior to 2011. the medical care ratio of the ohio health plan decreased to 77.6 % for the year ended december 31 , 2011 , from 79.1 % for the year ended december 31 , 2010 , due to an increase in medicaid premium pmpm of approximately 4.5 % effective january 1 , 2011 , and relatively flat fee-for-service costs . the pharmacy benefit was restored to all managed care plans in ohio effective october 1 , 2011. the medical care ratio of the texas health plan increased to 93.4 % for the year ended december 31 , 2011 , from 86.2 % for the year ended december 31 , 2010. effective february 1 , 2011 , we added approximately 30,000 abd members in the dallas-fort worth area and effective september 1 , 2011 , we added approximately 8,000 abd members and 3,000 tanf members in the jefferson service area . medical costs in the dallas-fort worth area were well in excess of premium revenue . excluding the abd population in the dallas-fort worth region , the medical care ratio of the texas health plan was 85.7 % for the year ended december 31 , 2011. the medical care ratio of the utah health plan decreased to 78.1 % for the year ended december 31 , 2011 , from 91.3 % for the year ended december 31 , 2010 , primarily due to reduced fee-for-service inpatient and physician costs and an increase in medicaid premiums pmpm . effective july 1 , 2010 , the utah health plan received a premium rate increase of approximately 7 % . lower fee-for-service costs were the result of both lower unit costs and lower utilization . during the second quarter of 2011 we settled certain claims with the state regarding the savings share provision of our contract in effect from 2003 through june of 2009. we settled for the contract years 2006 through 2009 and recognized $ 6.9 million in premium revenue without any corresponding charge to expense . the utah health plan received a premium rate reduction of approximately 2 % effective july 1 , 2011. the medical care ratio of the washington health plan remained flat at 83.9 % for the year ended december 31 , 2011 compared with the year ended december 31 , 2010. higher fee-for-service and pharmacy costs were offset by lower capitation costs .
| during 2011 , we continued to pursue the expansion of our health plans segment ; membership grew 8.4 % on a member-month basis over 2010. we have expanded our growing presence in texas , where new contracts in 2010 and 2011 have led to the addition of approximately 61,000 members in 2011 , which includes nearly 45,000 new abd members . this membership growth not only provides increased scale for leveraging our resources in texas , it makes us an increasingly important player in a state where the potential revenue opportunity will grow as new medicaid beneficiaries qualify for coverage under health care reform . our texas and wisconsin health plans continue to face challenges . we have undertaken a number of measuresfocused on both utilization and unit cost reductionsto improve the profitability of these health plans . we remain concerned about state budget deficits , which are not expected to improve in 2012. accordingly , the rate environment for our health plans remains uncertain , and we have received several rate reductions in 2011 , including a 2.5 % reduction in new mexico effective july 1 , 2011 , a 2 % reduction in utah effective july 1 , 2011 , a 2 % rate reduction in texas effective september 1 , 2011 , and a 1 % reduction in california effective october 1 , 2011. additionally , we have received a proposed rate reduction in california that we believe will translate into a premium reduction of approximately 3.5 % retroactive to july 1 , 2011. however , we have also received rate increases , including a 5 % rate increase at our missouri health plan effective july 1 , 2011 , a 7.5 % rate increase at our florida plan effective september 1 , 2011 , and a 1 % rate increase at our michigan plan effective october 1 , 2011. with respect to our molina medicaid solutions business , our mmis in maine received full certification from cms in december 2011. the state of idaho has sent their formal request for system certification to cms , and we anticipate certification review in early 2012 , with formal certification in the second half of 2012. health plans segment premium
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critical accounting policies our discussion and analysis of our financial condition and the results of our operations are based upon our consolidated financial statements and the data used to prepare them . the company 's consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the united states of america . on an ongoing basis we re-evaluate our judgments and estimates including those related to product returns , bad debts , inventories , and income taxes . we base our estimates and judgments on our historical experience , knowledge of current conditions , and our beliefs of what could occur in the future considering available information . actual results may differ from these estimates under different assumptions or conditions . our estimates are guided by observing the following critical accounting policies . revenue recognition the company generates revenue by selling pet medication products and pet supplies primarily to retail consumers . the company 's policy is to recognize revenue from product sales upon shipment , when the rights of ownership and risk of loss have passed to the customer . outbound shipping and handling fees are included in sales and are billed upon shipment . shipping expenses are included in cost of sales . the majority of the company 's sales are paid by credit cards and the company usually receives the cash settlement in two to three banking days . credit card sales minimize accounts receivable balances relative to sales . the company maintains an allowance for doubtful accounts for losses that the company estimates will arise from customers ' inability to make required payments , arising from either credit card charge-backs or insufficient funds checks . the company determines its estimates of the uncollectability of accounts receivable by analyzing historical bad debts and current economic trends . the allowance for doubtful accounts was approximately $ 35,000 at march 31 , 2018 , compared to $ 27,000 at march 31 , 2017. valuation of inventory inventories consist of prescription and non-prescription pet medications and pet supplies that are available for sale and are priced at the lower of cost or net realizable value using a weighted average cost method . the company writes down its inventory for estimated obsolescence . the inventory reserve was approximately $ 58,000 and $ 51,000 at march 31 , 2018 and 2017 , respectively . advertising the company 's advertising expense consists primarily of internet marketing and direct mail/print advertising . internet costs are expensed in the month incurred and direct mail/print advertising costs are expensed when the related catalogs , brochures , and postcards are produced , distributed , or superseded . 16 accounting for income taxes the company accounts for income taxes under the provisions of asc topic 740 , ( “ accounting for income taxes ” ) , which generally requires the recognition of deferred tax assets and liabilities for the expected future tax benefits or consequences of events that have been included in the consolidated financial statements or tax returns . under this method , deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and the tax bases of assets and liabilities , and are measured by applying enacted tax rates and laws for the taxable years in which those differences are expected to reverse . story_separator_special_tag favorable advertising environment may positively impact future new order sales , whereas a less favorable advertising environment may negatively impact future new order sales . as a percentage of sales , advertising expense was 7.0 % and 7.1 % for the fiscal years ended march 31 , 2018 and 2017 , respectively . the decrease in advertising expense as a percentage of total sales for the fiscal year ended march 31 , 2018 can be mainly attributed to increased sales . the company currently anticipates advertising as a percentage of sales to be between approximately 7 % and 8 % for fiscal 2019. however , the advertising percentage may fluctuate quarter to quarter due to seasonality and advertising availability . depreciation depreciation increased by approximately $ 757,000 , to approximately $ 2.1 million for the fiscal year ended march 31 , 2018 , from approximately $ 1.4 million for the fiscal year ended march 31 , 2017. this increase to depreciation expense for the fiscal year ended march 31 , 2018 can be attributed to an increase in new property and equipment additions related to the company 's new corporate headquarters and distribution facility which were placed into service in fiscal 2017. other income other income increased by approximately $ 1.2 million , to approximately $ 1.7 million for the fiscal year ended march 31 , 2018 from approximately $ 441,000 for the fiscal year ended march 31 , 2017. the increases to other income for the fiscal year ended march 31 , 2018 are related to increased rental and advertising revenue , and increased interest income . interest income may decrease in the future as the company utilizes its cash balances on its share repurchase plan , with approximately $ 10.2 million remaining at march 31 , 2018 , on any quarterly dividend payment , or on its operating activities . provision for income taxes for the fiscal years ended march 31 , 2018 and 2017 , the company recorded an income tax provision for approximately $ 16.5 million and $ 14.10 million , respectively . the increase to the income tax provision for fiscal 2018 is related to an increase in operating income offset by the income tax rate reduction pursuant to the tax cuts and jobs act of 2017 ( “ 2017 act ” ) . the effective tax rate for the fiscal years ended march 31 , 2018 and 2017 were 30.7 % and 37.2 % , respectively . story_separator_special_tag the decrease to the effective rate for the fiscal year ended march 31 , 2018 is due to a reduction in the company 's corporate tax rate pursuant to the 2017 act . in accordance with sec staff bulletin no . 118 , fiscal year end companies were required to determine the appropriate blended rate to apply based on their respective fiscal year end dates . therefore , instead of applying a 35.0 % federal tax rate for the fiscal year ended march 31 , 2018 , the company applied a blended federal rate of 31.5 % . this blended rate was applied to fiscal 2018 , resulting in a tax benefit of approximately $ 1.9 million . the company also recognized a stock compensation windfall benefit of $ 1.1 million , a one-time benefit of $ 430,000 based on the remeasurement reduction of our deferred tax liabilities due to the federal tax rate reduction , and recognized a one-time net benefit of $ 150,000 related to a return to provision true up of the fiscal 2017 income tax provision . the company estimates its effective tax rate will be approximately 24.0 % for fiscal 2019. net income net income increased by approximately $ 13.5 million , or 57 % , to approximately $ 37.3 million for the fiscal year ended march 31 , 2018 from approximately $ 23.8 million for the fiscal year ended march 31 , 2017. the increase was primarily due to an increase to gross profit due to increased sales and a product mix shift to higher margin items during fiscal 2018. the increase was also attributed to a reduction to the company 's income tax provision due to the 2017 act . 19 fiscal 2017 compared to fiscal 2016 sales sales increased by approximately $ 14.5 million , or 6.2 % , to approximately $ 249.2 million for the fiscal year ended march 31 , 2017 , from approximately $ 234.7 million for the fiscal year ended march 31 , 2016. the increase in sales for the fiscal year ended march 31 , 2017 was primarily due to increased new order and reorder sales . the company acquired approximately 514,000 new customers for the fiscal year ended march 31 , 2017 , compared to approximately 489,000 new customers for the same period the prior year . the following chart illustrates sales by various sales classifications : replace_table_token_9_th going forward sales may be adversely affected due to increased competition and consumers giving more consideration to price . no guarantees can be made that sales will continue to grow in the future . the majority of our product sales are affected by the seasons , due to the seasonality of mainly heartworm , and flea and tick medications . for the quarters ended june 30 , september 30 , december 31 , and march 31 of fiscal 2017 , the company 's sales were approximately 29 % , 25 % , 21 % , and 25 % , respectively . for the quarters ended june 30 , september 30 , december 31 , and march 31 of fiscal 2016 , the company 's sales were approximately 30 % , 24 % , 22 % , and 24 % , respectively . cost of sales cost of sales increased by $ 11.5 million , or 7.2 % to $ 169.9 million for the fiscal year ended march 31 , 2017 , from $ 158.4 million for the fiscal year ended march 31 , 2016. the increase in cost of sales in fiscal 2017 is directly related to the increase in sales during the fiscal year . as a percentage of sales , cost of sales was 68.2 % in fiscal 2017 , as compared to 67.5 % in fiscal 2016. the cost of sales percentage increase can be mainly attributed to an increase in product costs on certain brands and additional discounts given to customers to increase sales during the fiscal year . gross profit gross profit increased by $ 3.0 million , or 4.0 % , to $ 79.3 million for the fiscal year ended march 31 , 2017 , from $ 76.3 million for the fiscal year ended march 31 , 2016. the increase in gross profit in fiscal 2017 is directly related to the increase in sales during the fiscal year . gross profit as a percentage of sales for fiscal 2017 was 31.8 % compared to 32.5 % for fiscal 2016. the gross profit percentage decrease in fiscal 2017 can be mainly attributed to an increase in product costs on certain brands and additional discounts given to customers to increase sales during the fiscal year . general and administrative expenses general and administrative expenses increased by $ 1.5 million , or 7.0 % , to $ 22.8 million for the fiscal year ended march 31 , 2017 from $ 21.3 million for the fiscal year ended march 31 , 2016. the increase in general and administrative expenses for the fiscal year ended march 31 , 2017 was primarily due to the following : a $ 1.2 million increase in payroll expenses related to increased stock compensation expense and additional expenses related to the move of our corporate headquarters in december 2016 ; a $ 347,000 increase in bank service fees due to increased sales ; a $ 162,000 increase in bad debt expenses relating to increased credit card chargebacks for the year ; and a $ 174,000 increase in other expenses which included professional fees , telephone , and office expenses . offsetting the increase was a $ 261,000 decrease to property expense ; an $ 80,000 decrease to insurance expenses ; and a $ 37,000 decrease in other expenses which included licenses , and travel expenses .
| cost of sales cost of sales increased by $ 6.1 million , or 3.6 % to $ 176.0 million for the fiscal year ended march 31 , 2018 , from $ 169.9 million for the fiscal year ended march 31 , 2017. the increase in cost of sales in fiscal 2018 is directly related to the increase in sales during the fiscal year . as a percentage of sales , cost of sales was 64.3 % in fiscal 2018 , as compared to 68.2 % in fiscal 2017. the cost of sales percentage decrease can be mainly attributed to a product mix shift to higher margin items , offset by additional discounts given to customers to increase sales during the fiscal year . gross profit gross profit increased by $ 18.5 million , or 23 % , to $ 97.8 million for the fiscal year ended march 31 , 2018 , from $ 79.3 million for the fiscal year ended march 31 , 2017. the increase in gross profit in fiscal 2018 is directly related to the increase in sales during the fiscal year . gross profit as a percentage of sales for fiscal 2018 was 35.7 % compared to 31.8 % for fiscal 2017. the gross profit percentage increase in fiscal 2018 can be mainly attributed to a product mix shift to higher margin items , offset by additional discounts given to customers to increase sales during the fiscal year . general and administrative expenses general and administrative expenses increased by $ 1.5 million , or 6.5 % , to $ 24.3 million for the fiscal year ended march 31 , 2018 from $ 22.8 million for the fiscal year ended march 31 , 2017. the increase in general and administrative expenses for the fiscal year ended march 31 , 2018 was primarily due to the following : a $ 1.8 million increase in payroll expenses related to increased stock compensation expense ; a $ 554,000 increase in bank service fees due to increased sales ; and a $ 179,000 increase in professional fees . offsetting the increase was a $ 620,000 decrease to property expense ; a $ 310,000 decrease to bad debt expenses relating to decreased credit card chargebacks ; and a $ 66,000
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in december 2010 , oramed ltd. was awarded a second grant , or the second grant , amounting to a total net amount of nis 2.9 million ( approximately $ 720,000 ) from the iia , which was designated for research and development expenses for the period of july 2010 to november 2011. as a result of a delay in the research and development plan , as of november 30 , 2011 , oramed ltd. had used only nis 1,473,000 ( approximately $ 365,000 ) of the second grant . in may 2012 , oramed ltd. was awarded an extension of nine months to use the funds of the second grant until august 2012. in addition , in may 2012 , oramed ltd. was granted a third grant amounting to a total net amount of nis 595,000 ( approximately $ 148,000 ) from the iia , which was designated for research and development expenses for the period of september 2012 to december 2012. in may 2013 , oramed ltd. was awarded a fourth grant amounting to a total net amount of nis 975,000 ( approximately $ 265,000 ) from the iia , which was designated for research and development expenses for the period of january 2013 to december 2013. in march 2014 , the iia accepted oramed ltd. 's application to shorten that period to ten months , due to the rapid utilization of the grant , ending october 31 , 2013. in march 2014 , oramed ltd. was also granted a fifth grant amounting to a total amount of nis 1,206,990 ( approximately $ 345,000 ) from the iia , which was designated for research and development expenses for the period of november 2013 to october 2014. in september 2014 , this period was extended by two months until december 2014. we used the funds to support further research and development and clinical studies of our oral insulin capsule and oral glp-1 analog . the five grants are subject to repayment according to the terms determined by the iia and applicable law . see “ —government grants ” below . research and development expenses for the year ended august 31 , 2016 increased by 61 % to $ 7,709,000 from $ 4,781,000 for the year ended august 31 , 2015. the increase is attributed to expenses related to clinical trials and mainly our phase iib clinical trial . this increase was partially offset by a decrease in stock based compensation costs . during the year ended august 31 , 2016 , stock based compensation costs totaled $ 304,000 , as compared to $ 616,000 during the year ended august 31 , 2015. research and development expenses for the year ended august 31 , 2015 increased by 46 % to $ 4,781,000 from $ 3,277,000 for the year ended august 31 , 2014. the increase is attributed to expenses related to clinical trials , as well as to the decrease in iia grants in the year ended august 31 , 2015. during the year ended august 31 , 2015 , stock based compensation costs totaled $ 616,000 , as compared to $ 905,000 during the year ended august 31 , 2014. government grants the government of israel encourages research and development projects through the iia , pursuant to the r & d law . under the r & d law , a research and development plan that meets specified criteria is eligible for a grant of up to 50 % of certain approved research and development expenditures . each plan must be approved by the iia . in the year ended august 31 , 2016 , we did not recognize any research and development grants and in the years ended august 31 , 2015 and 2014 , we recognized research and development grants in an amount of $ 49,000 and $ 428,000 , respectively . as of august 31 , 2016 , we incurred a liability to pay royalties to the iia of $ 466,000. under the terms of the grants we received from the iia , we are obligated to pay royalties of 3.5 % on all revenues derived from the sale of the products developed pursuant to the funded plans , including revenues from licensed ancillary services . royalties are generally payable up to a maximum amount equaling 100 % of the grants received ( dollar linked ) with the addition of interest at an annual rate based on the libor rate . 28 the r & d law generally requires that a product developed under a program be manufactured in israel . however , when applying for a grant , the applicant may declare that part of the manufacturing will be performed outside of israel or by non-israeli residents and if the iia is convinced that performing some of the manufacturing abroad is essential for the execution of the program , it may still approve the grant . this declaration will be a significant factor in the determination of the iia as to whether to approve a program and the amount and other terms of the benefits to be granted . if a company wants to increase the volume of manufacturing outside of israel after the grant has been approved , it may transfer up to 10 % of the company 's approved israeli manufacturing volume , measured on an aggregate basis , outside of israel after first notifying the iia thereof ( provided that the iia does not object to such transfer within 30 days ) . in addition , upon the approval of the iia , a portion greater than 10 % of the manufacturing volume may be performed outside of israel . in any case of transfer of manufacturing out of israel , the grant recipient is required to pay royalties at an increased rate , which may be substantial , and the aggregate repayment amount is increased up to 120 % , 150 % or 300 % of the grant , depending on the portion of the total manufacturing volume that is performed outside of israel . story_separator_special_tag the r & d law further permits the iia , among other things , to approve the transfer of manufacturing rights outside of israel in exchange for the import of different manufacturing into israel as a substitute , in lieu of the increased royalties . the r & d law also provides that know-how developed under an approved research and development program may not be transferred to third parties in israel without the approval of the research committee . such approval is not required for the sale or export of any products resulting from such research or development . the r & d law further provides that the know-how developed under an approved research and development program may not be transferred to any third parties outside israel absent iia approval which may be granted in certain circumstances as follows : ( a ) the grant recipient pays to the iia a portion of the sale price paid in consideration for such iia -funded know-how or the price paid in consideration for the sale of the grant recipient itself , as the case may be , in accordance with certain formulas included in the r & d law ; ( b ) the grant recipient receives know-how from a third party in exchange for its iia -funded know-how ; or ( c ) such transfer of iia -funded know-how is made in the context of iia approved research and development cooperation projects or consortia . the r & d law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient . the r & d law requires the grant recipient to notify the iia of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-israeli entity becoming an interested party in the recipient , and requires the new non-israeli interested party to undertake to the iia to comply with the r & d law . in addition , the rules of the iia may require the provision of additional information or representations in respect of certain such events . for this purpose , “ control ” is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company . a person is presumed to have control if such person holds 50 % or more of the means of control of a company . “ means of control ” refers to voting rights or the right to appoint directors or the chief executive officer . an “ interested party ” of a company includes a holder of 5 % or more of its outstanding share capital or voting rights , its chief executive officer and directors , someone who has the right to appoint its chief executive officer or at least one director , and a company with respect to which any of the foregoing interested parties holds 25 % or more of the outstanding share capital or voting rights or has the right to appoint 25 % or more of the directors . failure to meet the r & d law 's requirements may subject us to mandatory repayment of grants received by us ( together with interest and penalties ) , as well as expose us to criminal proceedings . in addition , the israeli government may from time to time audit sales of products which it claims incorporate technology funded through iia programs which may lead to additional royalties being payable on additional products . amendment number 7 to the r & d law , or the amendment , came into force on january 1 , 2016. under the amendment , various regulations and many sections of the r & d law , including those sections governing such matters as transfer of know-how or manufacturing out of israel , have been deleted and replaced with general guidelines . specific rules will be addressed by the terms of field-specific tracks that the iia will establish . the amendment includes transitional provisions and provides that the provisions of the r & d law as they were in place prior to the enactment of the amendment , as well as the various regulations , will continue to apply to pre-existing tracks for a limited transitional period . we are still in this transitional period and can not at this stage foresee the potential impact on us , if any , of the provisions of the field-specific tracks that the iia is required to establish under the amendment . grants from bio-jerusalem the bio-jerusalem fund was founded by the jerusalem development authority in order to support the biomed industry in jerusalem . we are committed to pay royalties to the bio-jerusalem fund on proceeds from future sales at a rate of 4 % and up to 100 % of the amount of the grants received by the company ( israeli cpi linked ) in the total aggregate amount of $ 65,000 as of august 31 , 2016. for the years ended august 31 , 2016 , 2015 and 2014 , there were no grants received from the bio-jerusalem fund . as of august 31 , 2016 , we incurred a liability to pay royalties to the bio-jerusalem fund of $ 18,000 . 29 general and administrative expenses general and administrative expenses include the salaries and related expenses of our management , consulting costs , legal and professional fees , traveling , business development costs , insurance expenses and other general costs .
| we elected to recognize compensation cost for an award with only service conditions that has a graded vesting schedule using the accelerated method based on the multiple-option award approach . when stock options are granted as consideration for services provided by consultants and other non-employees , the transaction is accounted for based on the fair value of the consideration received or the fair value of the stock options issued , whichever is more reliably measurable . the fair value of the options granted is measured on each reporting date , and the gains ( losses ) are recorded to earnings over the related service period using the straight-line method . revenue recognition : revenue is recognized when delivery has occurred , evidence of an arrangement exists , title and risks and rewards for the products are transferred to the customer , collection is reasonably assured and product returns can be reliably estimated . given our continuing involvement through the expected product submission ( june 2023 ) , revenue from the license agreement is recognized over the periods from which the company is entitled to the respective payments ( including milestones ) , and through the expected product submission date . 26 comparison of fiscal 2016 to fiscal 2015 and fiscal 2015 to fiscal 2014 the following table summarizes certain statements of operations data for us for the twelve month periods ended august 31 , 2016 , 2015 and 2014 : replace_table_token_4_th revenues revenues consist of proceeds related to the license agreement that are recognized over the term of the license agreement through june 2023. revenues for the year ended august 31 , 2016 totaled $ 641,000 , following the meeting of the license agreement 's closing conditions during december 2015. no revenues were recorded for the years ended august 31 , 2015 and 2014. cost of revenues cost of revenues consists of royalties related to the license agreement with htit that will be paid over the term of the license agreement in accordance with the revenue recognition and the law
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beginning march 1 , 2015 , we agreed to pay manager $ 0.1 million per month until we no longer required such services or until the australia management agreement was terminated , which was terminated in the third quarter of 2015 , effective october 31 , 2015. the $ 2.7 million incurred pursuant to the cooperation agreement for the year ended december 31 , 2015 , is included in general and administrative expenses in our consolidated financial statements . there is no future obligation to pay any fees to manager . effective october 1 , 2014 , we engaged cbre to provide property management services for our u.s. properties . we pay cbre a property-by-property management fee and may engage cbre from time-to-time to perform project management services , such as coordinating and overseeing the completion of tenant improvements and other capital projects at the properties . we reimburse cbre for certain expenses incurred in the performance of its duties , including certain personnel and equipment costs . for the years ended december 31 , 2015 and 2014 , we incurred expenses of $ 42.7 million and $ 8.8 million , respectively , related to our property management agreement with cbre , for property management fees , typically calculated as a portion of the properties revenues , and salary and benefits reimbursements for property personnel , such as property managers , engineers and maintenance staff . as of december 31 , 2015 and december 31 , 2014 , we had amounts payable pursuant to these services of $ 3.5 million and $ 6.7 million , respectively . property operations occupancy data for 2015 and 2014 are as follows ( square feet in thousands ) : replace_table_token_7_th ( 1 ) based on properties owned continuously from january 1 , 2014 through december 31 , 2015 , and excludes properties sold during the period ended december 31 , 2015 and properties classified as discontinued operations for the period ended december 31 , 2014 . ( 2 ) percent leased includes ( i ) space being fitted out for occupancy pursuant to existing leases and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . 24 the weighted average lease term based on square feet for leases entered into during the year ended december 31 , 2015 was 6.3 years . commitments made for leasing expenditures and concessions , such as tenant improvements and leasing commissions , for leases entered into during the year ended december 31 , 2015 totaled $ 156.4 million , or $ 32.08 per square foot on average ( approximately $ 5.06 per square foot per year of the lease term ) . as of december 31 , 2015 , approximately 9.9 % of our leased square feet and 10.0 % of our annualized rental revenue , determined as set forth below , are included in leases scheduled to expire through december 31 , 2016. renewed and new leases and rental rates at which available space may be relet in the future will depend on prevailing market conditions at the times these leases are negotiated . we believe that the in-place cash rents for leases expiring in 2016 are slightly below market . lease expirations by year , as of december 31 , 2015 , are as follows ( square feet and dollars in thousands ) : replace_table_token_8_th ( 1 ) square feet is pursuant to existing leases as of december 31 , 2015 , and includes ( i ) space being fitted out for occupancy and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . ( 2 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of december 31 , 2015 , plus estimated recurring expense reimbursements ; includes triple net lease rents and excludes lease value amortization , straight line rent adjustments , free rent periods , and parking revenue . ( 3 ) square footage expiring in 2016 includes 0.1 million square feet related to month-to-month and self storage tenants . annualized rental revenue expiring in 2016 includes $ 3.3 million of month-to-month and self storage rent . 25 a principal source of funds for our operations is rents from tenants at our properties . rents are generally received from our tenants monthly in advance , except from our government tenants , who usually pay rents monthly in arrears . as of december 31 , 2015 , tenants representing 1 % or more of our total annualized rental revenue were as follows ( square feet in thousands ) : replace_table_token_9_th ( 1 ) square footage is pursuant to existing leases as of december 31 , 2015 , and includes ( i ) space being fitted out for occupancy and ( ii ) space which is leased but is not occupied or is being offered for sublease by tenants . ( 2 ) annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of december 31 , 2015 , plus estimated recurring expense reimbursements ; includes triple net lease rents and excludes lease value amortization , straight line rent adjustments , free rent periods , and parking revenue . ( 3 ) groupon , inc. statistics include 207,536 square feet that are sublet from bankers life and casualty company . ( 4 ) subsequent to december 31 , 2015 , carmike cinemas ' lease was extended . the weighted average remaining lease term is 14.7 years . financing activities on december 1 , 2015 , we repaid at par the $ 116.0 million of 5.24 % mortgage debt at 111 monument circle and recognized a gain on early extinguishment of debt of $ 0.6 million for the year ended december 31 , 2015 from the write-off of an unamortized premium , net of the write-off of unamortized deferred financing fees . story_separator_special_tag on august 3 , 2015 , we defeased the $ 141.4 million outstanding balance of the mortgage loan secured by 111 east wacker drive , one of the buildings included in illinois center . the defeasance costs and write off of the unamortized deferred financing costs , net of the write off of the unamortized premium , resulted in a net loss on early extinguishment of debt of $ 3.9 million for the year ended december 31 , 2015 . 26 on june 5 , 2015 , we prepaid $ 10.0 million of 7.36 % mortgage debt at 2501 20th place south and recognized a loss on early extinguishment of debt of $ 0.6 million for the year ended december 31 , 2015 , which consisted of a prepayment premium and the write off of unamortized deferred financing fees , net of the write off of an unamortized premium . on june 3 , 2015 , we defeased the $ 38.7 million outstanding balance of the mortgage loan secured by 1320 main street . the defeasance costs and write off of the unamortized deferred financing costs , net of the write off of the unamortized premium , resulted in a net loss on early extinguishment of debt of $ 6.2 million for the year ended december 31 , 2015 . on may 22 , 2015 , title to 225 water street was transferred to the lender pursuant to the consensual foreclosure in full satisfaction of the mortgage debt , with a principal balance of $ 40.1 million . the transaction resulted in a gain on early extinguishment of debt of $ 17.3 million for the year ended december 31 , 2015 . on may 1 , 2015 , we redeemed at par $ 138.8 million of our 5.75 % senior unsecured notes due 2015 and recognized a loss on early extinguishment of debt of $ 0.1 million for the year ended december 31 , 2015 . on january 29 , 2015 , we entered into a new credit agreement , pursuant to which the lenders agreed to provide ( i ) a $ 750.0 million unsecured revolving credit facility , ( ii ) a $ 200.0 million 5-year term loan facility and ( iii ) a $ 200.0 million 7-year term loan facility . the new credit agreement , which replaced our prior credit agreement and our prior term loan agreement , reduces the interest rate and extends the term of our revolving credit facility and term loan borrowings . the revolving credit facility has a scheduled maturity date of january 28 , 2019 , with two six-month extension options subject to certain conditions and the payment of an extension fee . the 5-year term loan and the 7-year term loan have scheduled maturity dates of january 28 , 2020 and january 28 , 2022 , respectively , and have been fully funded . we used the proceeds from the new term loans to repay all amounts outstanding and due under the previous term loan agreement . we do not currently have any amounts outstanding under the revolving credit facility . for more information regarding our financing sources and activities , please see the section captioned “ liquidity and capital resources—our investment and financing liquidity and resources ” below . 27 results of operations year ended december 31 , 2015 compared to year ended december 31 , 2014 replace_table_token_10_th ( 1 ) comparable properties consist of 65 properties ( 127 buildings ) owned continuously from january 1 , 2014 to december 31 , 2015 . ( 2 ) other properties consist of properties sold . ( 3 ) during the year ended december 31 , 2015 , we recognized non-recurring charges against revenues of $ 2.7 million related to a parking tax matter and a tenant lease termination at 600 west chicago avenue . ( 4 ) we calculate net operating income , or noi , as shown above . we define noi as income from our real estate including lease termination fees received from tenants less our property operating expenses . noi excludes amortization of capitalized tenant improvement costs and leasing commissions . we consider noi to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties . we use noi internally to evaluate property level performance , and we believe that noi provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods and with other reits . noi does not represent cash generated by operating activities in accordance with gaap and should not be considered as an alternative to net income , net income attributable to equity commonwealth common shareholders , operating income or cash flow from operating activities , determined in accordance with gaap , or as an indicator of our financial performance or liquidity , nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs . this measure should be considered in conjunction with net income , net income attributable to equity commonwealth common shareholders , operating income and cash flow from operating activities as presented in our consolidated statements of operations , consolidated statements of comprehensive income and consolidated statements of cash flows . other reits and real estate companies may calculate noi differently than we do . we refer to the 65 properties ( 127 buildings ) we owned continuously from january 1 , 2014 to december 31 , 2015 , as comparable properties . we refer to the sold properties as other properties . our consolidated statements of operations for the 28 years ended december 31 , 2015 and 2014 include the operating results of 65 properties for the entire periods , as we owned these properties as of january 1 , 2014. rental income .
| rental income includes non-cash straight line rent adjustments totaling $ 12.5 million in the 2014 period and $ 31.8 million in the 2013 period , which includes $ 5.7 million related to sir , and net reductions for amortization of acquired real estate leases and assumed real estate lease obligations totaling $ 10.7 million in the 2014 period and $ 10.3 million in the 2013 period . rental income also includes the recognition of lease termination fees totaling $ 4.7 million in the 2014 period and $ 2.8 million in the 2013 period . tenant reimbursements and other income . tenant reimbursements and other income decreased $ 19.6 million in the 2014 period , compared to the 2013 period , due to a decrease in tenant reimbursements and other income totaling $ 13.5 million primarily related to the deconsolidation of sir discussed above , and a decrease in tenant reimbursements and other income at our comparable properties totaling $ 6.1 million . the decrease in comparable property tenant reimbursements and other income from our comparable properties primarily reflects decreases in real estate taxes and the related tenant reimbursements at some of our properties . operating expenses . the decrease in operating expenses during the 2014 period totaling $ 22.1 million reflects a decrease in operating expenses totaling $ 17.2 million primarily related to the deconsolidation of sir discussed above , and a decrease in operating expenses at our comparable properties totaling $ 4.9 million . the decrease in operating expenses at our comparable properties primarily reflects decreases in real estate tax assessments and reduced rates in certain markets , partially offset by increases in utility expenses and snow removal costs related to the more severe winter season during the 2014 period , compared to the 2013 period . general and administrative expense . the increase in general and administrative expenses primarily relates to $ 23.4 million for the shareholder approval of reimbursement of expenses incurred by related/corvex in connection with their consent solicitation to remove our former trustees , $ 3.6 million of expenses related to the termination and cooperation agreement with rmr , the internalization of our management and an increase of $ 15.0 million related to business management incentive fees . these increases were partially offset by a $ 19.6 million
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these claims-related costs may be comprised of expenses incurred for : ( i ) medical management , including case and utilization management ; ( ii ) health and wellness , including disease management services for such conditions as diabetes , high-risk pregnancies , congestive heart failure and asthma management and wellness initiatives like weight-loss programs and smoking cessation treatments ; and ( iii ) clinical health policy . these types of claims-related costs are designed to ultimately lower our members ' cost of care . our selling expense consists of external broker commission expenses , and generally varies with premium or membership volume . our general and administrative expense consists of fixed and variable costs . examples of fixed costs are depreciation , amortization and certain facilities expenses . certain variable costs , such as premium taxes , vary directly with premium volume . other variable costs , such as salaries and benefits , do not vary directly with changes in premium but are more aligned with changes in membership . the acquisition or loss of a significant block of business would likely impact staffing levels and thus , associated compensation expense . other variable costs include professional and consulting expenses and advertising . other factors can impact our administrative cost structure , including systems efficiencies , inflation and changes in productivity . our results of operations depend in large part on our ability to accurately predict and effectively manage healthcare costs through effective contracting with providers of care to our members and our medical management and health and wellness programs . several economic factors related to healthcare costs , such as regulatory mandates of coverage as well as direct-to-consumer advertising by providers and pharmaceutical companies , have a direct impact on the volume of care consumed by our members . the potential effect of escalating healthcare costs , any changes in our ability to negotiate competitive rates with our providers and any regulatory or market driven restrictions on our ability to obtain adequate premium rates to offset overall inflation in healthcare costs , including increases in unit costs and utilization resulting from the aging of the population and other demographics , as well as advances in medical technology , may impose further risks to our ability to profitably underwrite our business , and may have a material adverse impact on our results of operations . on december 22 , 2017 , the federal government enacted a tax bill , h.r.1 , an act to provide for reconciliation pursuant to titles ii and v of the concurrent resolution on the budget for fiscal year 2018 , or the tax cuts and jobs act . the tax cuts and jobs act contains significant changes to corporate taxation , including , but not limited to , reducing the u.s. federal corporate income tax rate from 35 % to 21 % and modifying or limiting many business deductions . at december 31 , 2017 , we had not completed our accounting for the tax effects resulting from the enactment of the tax cuts and jobs act ; however , we have made a reasonable estimate of the effects on our existing deferred tax balances . we remeasured deferred tax assets and liabilities based on the rates at which they are expected to be utilized in the future , which is generally 21 % . however , we are still analyzing certain aspects of the tax cuts and jobs act and refining our calculations , which could potentially affect the measurement of those balances or give rise to new deferred tax amounts . the provisional amount recorded related to the remeasurement of our deferred tax balance was a non-recurring benefit of $ 1,108.3 and is included as a component of income tax expense . on february 15 , 2018 , we completed our acquisition of freedom health , inc. , optimum healthcare , inc. , america 's 1st choice of south carolina , inc. and related entities , or collectively , america 's 1st choice , a medicare advantage organization that offers hmo products , including chronic special needs plans and dual-eligible special needs plans under its freedom health and optimum healthcare brands in florida and its america 's 1st choice of south carolina brand in south carolina . through its medicare advantage plans , america 's 1st choice currently serves approximately one hundred and thirty - 44 - thousand members in twenty-five florida and three south carolina counties . the acquisition of america 's 1st choice aligns with our plans for continued growth in the medicare advantage and special needs populations . on december 21 , 2017 , we completed our acquisition of healthsun health plans , inc. , or healthsun , which serves approximately forty thousand members in the state of florida through its medicare advantage plans , which received a five-star rating from the centers for medicare & medicaid services , or cms . the healthsun acquisition aligns with our plans for continued growth in the medicare advantage and dual-eligible populations . in march 2016 , we filed a lawsuit against our vendor for pharmacy benefit management services , express scripts , inc. , or express scripts , seeking to recover damages for pharmacy pricing that is higher than competitive benchmark pricing and damages related to operational breaches , as well as various declarations under the agreement between the parties . in april 2016 , express scripts filed an answer to the lawsuit disputing our contractual claims and alleging various defenses and counterclaims . for additional information regarding this lawsuit , see note 13 , “ commitments and contingencies - litigation , ” to our audited consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. in october 2017 , we announced that we are establishing a new pharmacy benefits manager , or pbm , called ingeniorx , and have entered into a five-year agreement with caremarkpcs health , l.l.c. story_separator_special_tag , or cvs health , to begin offering a full suite of pbm solutions starting on january 1 , 2020 , which coincides with the conclusion of our current agreement with express scripts . on july 24 , 2015 , we and cigna corporation , or cigna , announced that we entered into an agreement and plan of merger , or cigna merger agreement , dated as of july 23 , 2015 , to acquire all outstanding shares of cigna . in july 2016 , the u.s. department of justice , along with certain state attorneys general , filed a civil antitrust lawsuit in the u.s. district court for the district of columbia , or district court , seeking to block the merger . on february 14 , 2017 , cigna purported to terminate the cigna merger agreement and commenced litigation against us in the delaware court of chancery , or delaware court , seeking damages , including the $ 1,850.0 termination fee pursuant to the terms of the cigna merger agreement , and a declaratory judgment that its purported termination of the cigna merger agreement was lawful , among other claims , which is captioned cigna corp. v. anthem inc. we believe cigna 's allegations are without merit . also on february 14 , 2017 , we initiated our own litigation against cigna in the delaware court seeking a temporary restraining order to enjoin cigna from terminating the cigna merger agreement , specific performance compelling cigna to comply with the cigna merger agreement and damages , which is captioned anthem inc. v. cigna corp . on april 28 , 2017 , the u.s. circuit court of appeals for the district of columbia affirmed the ruling of the district court , which blocked the merger . on may 11 , 2017 , the delaware court denied our motion to enjoin cigna from terminating the cigna merger agreement . on may 12 , 2017 , we delivered to cigna a notice terminating the cigna merger agreement . for additional information about these lawsuits , see note 13 , “ commitments and contingencies - litigation , ” to our audited consolidated financial statements included in part ii , item 8 of this annual report on form 10-k. on february 17 , 2015 , we completed our acquisition of simply healthcare holdings , inc. , or simply healthcare , a leading managed care company for people enrolled in medicaid and medicare programs in the state of florida . this acquisition aligns with our strategy for continued growth in our government business segment . for additional information related to the acquisitions of america 's 1st choice , healthsun and simply healthcare , see note 3 , “ business acquisitions '' included in part ii , item 8 of this annual report on form 10-k. the future results of our operations will also be impacted by certain external forces and resulting changes in our business model and strategy . the patient protection and affordable care act and the health care and education reconciliation act of 2010 , as amended , or collectively , the aca , has changed and may continue to make broad-based changes to the u.s. healthcare system . the aca presented us with new growth opportunities , but also introduced new risks , regulatory challenges and uncertainties , and required changes in the way products are designed , underwritten , priced , distributed and administered . changes to our business are likely to continue for the next several years as elected officials at the national and state levels have proposed significant modifications to existing laws and regulations , including the potential repeal or replacement of the aca and the reduction or elimination of federal subsidies made available through the aca for certain public exchange individual products , including the discontinuance of the cost-sharing reduction subsidy effective october 2017. as a result of the complexity of the aca , its impact on healthcare in the united states and the continuing modification and interpretation of the aca rules , we will continue to evaluate the impact of the aca as additional guidance is made - 45 - available . for additional discussion , see part i , item 1 “ business - regulation , ” and part i , item 1a “ risk factors ” in this annual report on form 10-k. product pricing remains competitive and we strive to price our healthcare benefit products consistent with anticipated underlying medical trends . we believe our pricing strategy , based on predictive modeling , proprietary research and data-driven processes has positioned us to benefit from the potential growth opportunities available through entry into new markets , expansions in existing markets and as a result of any subsequent changes to the current regulatory scheme . we believe that our pricing strategy , brand name and network quality will provide a strong foundation for membership growth opportunities in the future . in the individual and small group markets , we offer on-exchange products through state or federally facilitated marketplaces , referred to as public exchanges , and off-exchange products . federal subsidies are available for certain members , subject to income and family size , who purchase public exchange products . during 2017 , we notified various state regulators of our decision to dramatically reduce our participation in the individual aca-compliant marketplaces within their respective states . the uncertainty around , and subsequent termination of , the federal funding of the cost-sharing reduction subsidy available through the aca was an important factor as we evaluated the appropriate level of our marketplace participation . our strategy has been , and will continue to be , to only participate in rating regions where we have an appropriate level of confidence that these markets are on a path toward sustainability , including , but not limited to , factors such as expected financial performance , regulatory environment , and underlying market characteristics . in 2018 , we will continue to offer individual aca-compliant products in 56 of the 143 rating regions in which we operate .
| the increase in administrative fees primarily resulted from membership growth in our self-funded large group business . - 55 - net investment income increased $ 87.0 , or 11.2 % , to $ 866.5 in 2017 , primarily due to higher income from alternative investments and higher investment yields on fixed maturity securities , partially offset by lower dividend yields on equity securities . net realized gains on financial instruments increased $ 139.9 , or 2,855.1 % , to $ 144.8 in 2017 , primarily due to a decrease in net realized losses on derivative financial instruments and an increase in net realized gains on sales of fixed maturity securities , partially offset by a decrease in net realized gains on sales of equity securities . other-than-temporary impairment losses on investments decreased $ 82.3 , or 71.3 % , to $ 33.1 in 2017 , primarily due to a decrease in impairment losses on fixed maturity securities . benefit expense increased $ 5,401.8 , or 8.1 % , to $ 72,236.2 in 2017 , primarily due to increased costs as a result of overall cost trends across our businesses . the increase was further attributable to membership growth in our medicare advantage and large group business product offerings . these increases were partially offset by the impact of membership declines in both our non-aca-compliant and aca-compliant off-exchange individual product offerings . our benefit expense ratio increased 160 basis points to 86.4 % in 2017 . the increase in the ratio was largely driven by the loss of revenue associated with the hip fee suspension for 2017 , higher medical cost experience in our medicare business and adjustments to prior year estimates for the aca risk adjustment premium stabilization program . the increase in the ratio was partially offset by improved medical cost experience in our individual business . selling , general and administrative expense increased $ 91.7 , or 0.7 % , to $ 12,649.6 in
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we have determined that each region represents a reporting unit for the purpose of assessing goodwill for impairment . our only recognized identifiable intangible assets , other than goodwill , are rights under franchise agreements with manufacturers , which are recorded at an individual dealership level . we evaluate goodwill and intangible franchise rights for impairment annually in the fourth quarter as of october 31 , or more frequently if events or circumstances indicate possible impairment has occurred . in evaluating goodwill and intangibles for impairment , an optional qualitative assessment may be initially performed to determine whether it is more-likely-than-not ( i.e. , a likelihood of greater than 50 % ) that an impairment exists . if it is concluded that it is more-likely-than-not that an impairment exists , a quantitative test is required to measure the amount of impairment which , for goodwill , consists of comparing the fair value of the reporting unit to its carrying amount and , for intangibles , consists of comparing the fair value of the intangible asset to its carrying amount . when a quantitative impairment test is performed , we estimate fair value of goodwill using a combination of the discounted cash flow , or income approach , and the market approach . we weight the income approach and market approach 80 % and 20 % , respectively , in the fair value model . for our intangible franchise rights , we estimate the fair value of the respective franchise right using a discounted cash flow , or income approach . the income approach measures fair value by discounting expected future cash flows at a wacc that proportionately weights the cost of debt and equity . significant assumptions in the model include revenue growth rates , future gross margins , future sg & a expenses , the wacc and terminal growth rates . we apply a five year projection period which aligns with our strategic plan . key considerations in the assumed growth rates include industry saar projections , macroeconomic conditions including consumer confidence levels , unemployment rates and gross domestic product growth , and internal measures such as historical financial performance , cost control and planned capital expenditures . the revenue growth rates assume a significant increase in 2021 as the business recovers from the pandemic and limited increases in the next four years corresponding with the industry saar projections plus a return to more normal vehicle gross margins as inventories recover . beyond the five forecasted years , the terminal value is determined using a perpetuity growth rate based on long-term inflation projections for each reporting unit . significant inputs to the wacc include the risk free rate , an adjustment for stock market risk , an adjustment for company size risk and country risk adjustments for the u.k. and brazil . in 2020 , the wacc applied in the impairment tests for the u.s. , u.k. and brazil was 11 % , 13 % and 16 % , respectively . for the market approach , we utilize recent market multiples of guideline companies for both revenue and pre-tax net income weighted as appropriate by reporting unit . developing these assumptions requires applying management 's knowledge of the industry , recent transactions and reasonable performance expectations for its operations . the qualitative test includes a review of changes , since the last quantitative test was performed , in those assumptions having the most significant impact on the current year fair value , which are consistent with the significant assumptions identified in the quantitative test above . during the year ended december 31 , 2020 , we recorded goodwill impairment charges of $ 10.7 million within the brazil reporting unit , largely due to the impact of the covid-19 pandemic on our brazilian markets and our operations . there was no remaining goodwill balance in the brazil segment following the impairment charges recorded in 2020. as of the last quantitative test performed for the u.s. and u.k. reporting units in the fourth quarter of 2018 , the fair value of the reporting units each exceeded their respective carrying values by over 90 % . based on the qualitative test performed for the u.s. and u.k. reporting units in the fourth quarter of 2020 , no quantitative test was deemed necessary . no goodwill impairments were recorded on any reporting units during the year ended december 31 , 2019. during the years ended december 31 , 2020 and 2019 , we recorded $ 20.8 million and $ 19.0 million , respectively , of impairments of intangible franchise rights . as our intangible franchise rights are tested for impairment at the dealership level , any impairments are specific to the performance and outlook of the respective dealership . the impact of the covid-19 pandemic on the economy and unemployment in 2020 adversely impacted our long-term outlook projections , which resulted in the impairment charges on certain dealerships in the u.s. , u.k. and brazil . see item 1. business for a discussion of the impact of covid-19 pandemic on each of our regions and our response to date . if the covid-19 pandemic and any lockdowns or other restrictions to contain the pandemic continue and impact our long-term projections , we may be required to record additional impairment charges in the future . refer to note 11. intangible franchise rights and goodwill within our notes to consolidated financial statements for further discussion of our goodwill and intangibles , including the results of our impairment testing . 22 story_separator_special_tag v > year ended december 31 , 2020 compared to 2019 the following discussion of our u.k. operating results is on a same store basis . the difference between reported amounts and same store amounts is related to acquisition and disposition activity , as well as new add-point openings . our u.k. dealership operations have been impacted by the restrictions put in place by the national government in efforts to contain the covid-19 pandemic . story_separator_special_tag revenues total revenues in the u.k. during the year ended december 31 , 2020 decreased $ 316.8 million , or 13.1 % , as compared to the same period in 2019. total same store revenues in the u.k. during the year ended december 31 , 2020 decreased $ 367.5 million , or 15.6 % , as compared to the same period in 2019. on a constant currency basis , total same store revenues decreased 16.3 % driven by decreases in all of our operations due to the covid-19 pandemic . beginning march 21 , 2020 , the government mandated the closure of all u.k. dealerships in efforts to stop the spread of the virus . the government shutdown remained in effect through may 18 , 2020 for service , with the exception of emergency vehicle repairs . u.k. showrooms were allowed to reopen on june 1 , 2020. however , cases of covid-19 started to rise again causing another government-ordered lockdown beginning november 5 , 2020 , continuing at different levels through december . business recovered between june and november but not enough to offset the declines caused by the shutdowns . new vehicle retail same store revenues on a constant currency basis decreased 17.7 % , as a 23.3 % decrease in new vehicle retail same store unit sales was partially offset by a 7.2 % increase in new vehicle retail same store average sales price per unit sold . on a constant currency basis , used vehicle retail same store revenues decreased 11.9 % , as a 15.1 % decline in used vehicle retail same store unit sales was partially offset by a 3.8 % increase in used vehicle retail same store average sales price per unit sold . parts and service same store revenues decreased 16.1 % on a constant currency basis driven by declines of 9.4 % in customer-pay , 24.8 % i n warranty , 29.9 % in collision and 23.0 % in wholesale parts revenues . the decreases in all parts and service businesses are a result of the limitations put in place due to the covid-19 pandemic . f & i same store revenues on a constant currency basis decreased 21.8 % driven by the decline in retail unit sales and lower penetration rates . gross profit total gross profit in the u.k. during the year ended december 31 , 2020 decreased $ 19.6 million , or 7.3 % , as compared to the same period in 2019. total same store gross profit in the u.k. during the year ended december 31 , 2020 decreased $ 24.8 million , or 9.6 % , as compared to the same period in 2019. on a constant currency basis , total same store gross profit decreased 10.4 % driven by decreases in all of our operations , except for used vehicle , as a result of the covid-19 pandemic . new vehicle retail same store gross profit on a constant currency basis decreased 16.4 % driven by the decline in retail units discussed above , partially offset by a 9.0 % increase in new vehicle retail same store average gross profit per unit sold . the increase in new vehicle retail same store gross profit per unit sold reflects supply constraints related to the covid-19 pandemic as many manufacturers had put a hold on production earlier in the year . used vehicle retail same store gross profit on a constant currency basis increased 19.6 % , as a 15.1 % decrease in used vehicle retail same store unit sales was more than offset by a 40.8 % increase in used vehicle retail same store average gross profit per unit sold . the increase in used vehicle retail same store average gross profit per unit sold reflects supply constraints similar to new vehicles . used vehicle wholesale same store gross profit improved 196.6 % on a constant currency basis driven by an increase in auction prices due to supply constraints and improved processes . parts and service same store gross profit on a constant currency basis decreased 14.7 % as a result of a 16.1 % decline in revenues discussed above . f & i same store gross profit on a constant currency basis decreased 21.8 % as discussed above . sg & a expenses our sg & a expenses consist primarily of personnel costs , including salaries , commissions and incentive-based compensation , as well as rent and facility costs , advertising and other expenses , which include legal , professional fees and general corporate expenses . total sg & a expenses in the u.k. during the year ended december 31 , 2020 decreased $ 45.6 million , or 19.3 % , as compared to the same period in 2019. total same store sg & a expenses in the u.k. during the year ended december 31 , 2020 , decreased $ 47.5 million , or 21.1 % , as compared to the same period in 2019. on a constant currency basis , total same store sg & a expenses decreased 21.9 % driven by the implementation and execution of cost reduction strategies as a reaction to the covid-19 pandemic coupled with a temporary suspension of the city tax . these cost savings enabled us to more than offset the decline in gross profit . total same store sg & a expenses in 2020 included $ 1.2 million in severance costs for redundancy due to the covid-19 pandemic . total same store sg & a expenses in 2019 included $ 0.2 million in losses on dealership and real estate transactions . as a percentage of gross profit , total same store sg & a expenses improved from 87.2 % for the year ended 2019 to 76.0 % for the same period in 2020 . 31 reported operating data — brazil ( in millions , except unit data ) replace_table_token_10_th 32 same store operating data — brazil ( in millions , except unit data ) replace_table_token_11_th 33 year ended december 31 , 2020 compared to 2019 the following discussion of our brazil operating results is on a same store basis .
| the constant currency performance measures should not be considered a substitute for , or superior to , the measures of financial performance prepared in accordance with u.s. gaap . additionally , we caution investors not to place undue reliance on non-gaap measures , but also to consider them with the most directly comparable u.s. gaap measures . our management also uses constant currency and adjusted cash flows from operating , investing and financing activities in conjunction with u.s. gaap financial measures to assess our business , including communication with our board of directors , investors and industry analysts concerning financial performance . we disclose these non-gaap measures , and the related reconciliations , because we believe investors use these metrics in evaluating longer-term period-over-period performance . these metrics also allow investors to better understand and evaluate the information used by management to assess operating performance . certain amounts in the financial statements may not compute due to rounding . all computations have been calculated using unrounded amounts for all periods presented . additionally , refer to item 7. management 's discussion and analysis of financial condition and results of operations in our 2019 annual report on form 10-k for management 's discussion and analysis of financial condition and results of operations for the fiscal year 2019 compared to fiscal year 2018 . 23 the following tables summarize our operating results on a reported basis and on a same store basis for the year ended december 31 , 2020 as compared to 2019. reported operating data — consolidated ( in millions , except unit data ) replace_table_token_4_th ( 1 ) floorplan assistance is included within new vehicle retail gross profit above and new vehicle retail cost of sales in our consolidated statements of operations . 24 same store operating data — consolidated ( in millions , except unit data ) replace_table_token_5_th 25 reported operating data — u.s. ( in millions , except unit data ) replace_table_token_6_th 26 same store operating data — u.s. ( in millions , except unit data ) replace_table_token_7_th 27 year ended december 31 , 2020 compared to 2019 the following
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the series b preferred stock will not bear dividends , will not be entitled to receive any distributions in the event of any liquidation , dissolution or winding up of the company , and will have no other preferences , rights , restrictions , or qualifications , except as otherwise provided by law or the articles of incorporation of the company . the holders of class b stock shall have the right , at such holder 's option , at any time to convert such shares into common stock , in a conversion ratio of one share of common stock for each share of class b stock . if the common stock trades or is quoted at a price per share in excess of $ 2.25 for any twenty consecutive day trading period , ( subject to appropriate adjustment for forward or reverse stock splits , recapitalizations , stock dividends and the like ) , the series b stock will automatically be convertible into the common stock in a conversion ratio of one share of common stock for each share of series b stock . the series b stock may not be sold , hypothecated , transferred , assigned or disposed without the prior written consent of the company and the holders of the outstanding series b preferred stock . 20 bellridge capital , lp on december 6 , 2016 , we entered into a securities purchase agreement and a registration rights agreement ( the “ registration rights agreement ” ) with bellridge , pursuant to which bellridge has agreed to purchase from us up to $ 5,000,000 in shares of our common stock , subject to certain limitations from time to time over a 36 month period commencing on the date of effectiveness of the registration statement which provides for the resale of such shares pursuant to the registration rights agreement . we may direct bellridge , at our sole discretion and subject to certain conditions , to purchase a minimum of $ 25,000 and a maximum of $ 500,000 of shares ( each a “ draw down ” ) that is no more than 300 % of the average trading volume of our common stock during the 10 day period immediately prior to the draw down . in addition , we may direct bellridge to purchase shares only if during the fifteen consecutive days following a draw down request by us , the common stock equals or exceeds $ 0.06 per share . we will control the timing and amount of any sales of common stock to bellridge but we may not request a draw down less than ten business days apart . the proceeds received by us are expected to be used for general corporate purposes . the securities purchase agreement limits our sales of shares of common stock to bellridge to no more than the number of shares that would result in the beneficial ownership by bellridge , at any single point in time , of more than 4.99 % of the then outstanding shares of our common stock . however , the 4.99 % limitation may be increased by bellridge up to 9.99 % upon at least 61 days ' prior notice to us . as consideration for its commitment to purchase shares of common stock pursuant to the securities purchase agreement , we issued to bellridge 1,250,000 shares of common stock on february 16 , 2017. on december 6 , 2016 , we also entered into a note purchase agreement which provides for the purchase by bellridge of up to an aggregate of $ 150,000 principal amount of convertible promissory notes ( the “ notes ” ) . the notes have a 5 % original issue discount and bear interest at 5 % per annum ( or the lesser of 22 % per annum or the maximum amount permitted by applicable law in the event of a default as described in the notes ) . on december 7 , 2016 , $ 85,000 was paid pursuant to the initial note ( after the deduction of $ 10,000 for bellridge 's legal expenses ) which is due on december 5 , 2017. on december 28 , 2016 , after the filing by the company of a registration statement with the sec , the company issued bellridge another note in the original principal amount of $ 50,000 for $ 47,500. the notes may be prepaid in whole or in part by the company at a 115 % premium if within 120 days of the issue date or 125 % after 120 days of the issue date . the notes are convertible into common stock ( “ conversion shares ” ) at a 30 % discount to the lowest trading price for the ten trading days immediately prior to the delivery of a conversion notice , provided that the conversion price will not be less than $ 0.06 per share . if the price per share of the common stock closes at less than $ 0.06 for any five out of ten consecutive trading days after the sooner to occur of the filing of the registration statement , ( the “ market price decline period ” ) , or six months from the date of the note , the company has the right to prepay the note at an amount equal to 125 % of the then principal and interest due on the note . however , if the company fails to prepay the note in its entirety during the thirty days following a market price decline period , then the conversion price floor of $ 0.06 per share will no longer be applicable . if the company fails to timely deliver shares to bellridge upon conversion of the notes , bellridge will be entitled to liquidated damages of $ 10 per trading day for each $ 1,000 being converted ( and $ 20 per day after the tenth trading day ) . story_separator_special_tag if the company fails to timely deliver share certificates and bellridge is required by its brokerage firm to purchase , or its brokerage firm otherwise purchases , common stock to deliver in satisfaction of a sale by bellridge of the conversion shares which bellridge was entitled to receive , then the company will ( a ) pay in cash the amount by which ( x ) bellridge 's total purchase price for the common stock so purchased exceeds ( y ) the product of ( 1 ) the aggregate number of shares of common stock that bellridge was entitled to receive from the conversion multiplied by ( 2 ) the actual sale price at which the sell order giving rise to such purchase obligation was executed and ( b ) at the option of bellridge , either reissue ( if surrendered ) the note in a principal amount equal to the principal amount of the attempted conversion ( in which case such conversion shall be deemed rescinded ) or deliver to bellridge the number of shares of common stock that would have been issued if the company had timely complied with its delivery requirements . the notes may not be converted to the extent that after giving effect to the conversion bellridge and its affiliates would beneficially own in excess of 4.99 % of the number of shares of the common stock outstanding , which percentage may be increased to 9.99 % upon not less than 61 days ' prior notice to the company . the notes includes antidilution protection in the event of certain subsequent equity sales and dilutive issuances , purchase rights in subsequent rights offerings and pro rata distributions in the event of a dividend or other distribution by the company . if the company engages in a fundamental corporate action as described in the notes , bellridge will be entitled to receive shares or other consideration that it would have received for each share that would have been issuable upon conversion immediately before such fundamental corporate action . 21 so long as the notes are outstanding , unless with the consent of the holders of the majority in principal amount of the then outstanding notes , the company will not create certain indebtedness , amend its charter to adversely affect bellridge , or enter into transactions with affiliates , unless at arm 's length and approved by the majority of disinterested directors . the note purchase agreements also provided that it is an event of default if the company does not obtain finra 's approval to effectuate a 1:15 reverse stock split no later than january 15 , 2017 , which was subsequently extended by bellridge to april 24 , 2017. on february 16 , 2017 , bellridge agreed that in lieu of a reverse stock split the company increase its authorized shares of common stock . the company also agreed to reserve the greater of ( i ) 1,000,000 shares of common stock or ( ii ) 300 % of the maximum aggregate number of shares issued or issuable to bellridge ( without giving effect to any beneficial ownership restrictions ) . so long as bellridge owns the notes and the shares issuable under the notes , if the company fails to satisfy certain current public information requirements under rule 144 for more than 30 consecutive days , the company will be required to pay liquidated damages to bellridge in cash equal to 5 % of the aggregate conversion price of the note ( s ) on the day of a such failure and on every 30th day thereafter . if the company fails to make such liquidated damages payments in a timely manner , such payments will bear interest of 1.5 % per month until paid in full . on march 14 , 2017 , the company entered into an additional securities purchase agreement pursuant to which we issued bellridge a one-year 5 % convertible note in the principal amount of $ 78,750 for which we received $ 75,000. the terms of the securities purchase agreement entered into and the note issued to bellridge on march 14 , 2017 are the same as the terms of the securities purchase agreement and notes dated december 6 , 2016 described above . we filed an amendment to our articles of amendment with the secretary of state of the state of nevada increasing our authorized shares of common stock , from 140,000,000 shares to 350,000,000 shares , effective march 22 , 2017. we currently believe that the increase in authorized share capital eliminates the need for any other type of corporate action such as a reverse stock split . craftsmen industries , inc. as a consequence of the first public demonstration of the mg 30 kilovolt amp ( “ kva ” ) system at the north america international auto show in detroit in january , the company entered into an agreement in principle , dated february 21 , 2017 , with craftsmen industries , inc. ( “ craftsmen ' ) , a company engaged in the design , engineering and production of mobile marketing vehicles , experiential marketing platforms and industrial mobile solutions . beginning in april of 2017 , cool technologies will deliver to craftsmen industries , a class iii vehicle ( ford f-350 dually ) up-fitted with a production-ready mg 30 kva ( single phase/three phase ) system . for up to 60 days , the two companies will test , tune and finalize the system 's design to ensure it meets the technical criteria required by craftsmen 's customer base and cool tech 's target customers . subsequently , craftsmen invited the company to demonstrate its mobile generation technology and the potential benefits for craftsmen products at craftsmen 's 35 th anniversary party on april 27 , 2017. over 400 current and prospective craftsmen customers are expected to be in the audience for the demonstrations . in addition , the company believe that prospective customers and important industry contacts will accept invitations to be in attendance as well .
| the legal settlement expense in 2016 represents the difference between the value of the original warrants and the replacement warrants issued to spirit bear under the waiver of performance and second amendment to settlement agreement with spirit bear . net loss and noncontrolling interest since we have incurred losses since inception , we have not recorded any income tax expense or benefit . accordingly , our net loss is driven by our operating and other expenses . noncontrolling interest represents the 5 % third-party ownership in upt , which is subtracted to calculate net loss to shareholders . liquidity and capital resources we have historically met our liquidity requirements primarily through the public sale and private placement of equity securities , debt financing , and exchanging common stock warrants and options for professional and consulting services . at december 31 , 2016 , we had cash and cash equivalents of $ 62,291. working capital is the amount by which current assets exceed current liabilities . we had negative working capital of $ 8,257,987 and $ 3,252,314 , at december 31 , 2016 and 2015 , respectively . the decrease in working capital was due to an increase in derivative liability , accounts payable , amounts due to related parties , and incurring debt for working capital purposes . september 2015 convertible note -- in september 2015 , we entered into a convertible note agreement , which allows us to borrow up to $ 250,000 , bearing interest at 10 % , with principal and interest payable on september 15 , 2017. we borrowed $ 75,000 in september 2015 and $ 50,000 in november 2015 , for a total of $ 125,000 due on september 15 , 2017. at the holder 's option , a portion or all of the unpaid principal and interest may be converted into shares of our common stock at the lesser of $ 0.305 per share or 65 % of the volume weighted average price of our common stock during the five consecutive trading days immediately preceding the applicable conversion date . we determined that the conversion feature meets the requirements for derivative treatment and have
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gross profit gross profit , both in dollars and as a percent of sales , for the years ended december 31 , 2015 and 2014 were as follows : replace_table_token_9_th the 2015 gross profit increase over the comparable prior year period was primarily due to higher overall sales volumes . sales and marketing , general and administrative and research and development expenses sales and marketing , general and administrative and research and development expenses for the years ended december 31 , 2015 and 2014 were : replace_table_token_10_th sales and marketing expenses increased due to the addition of experienced professionals and to support vbhh initiatives including the acquisition the assets of pc werth through our intricon uk subsidiary . general and administrative expenses and research and development are greater than 2014 primarily due to vbhh initiatives and support costs related to our erp system upgrade . restructuring charges on june 13 , 2013 , the company announced a global strategic restructuring plan designed to accelerate the company 's future growth by focusing resources on the highest potential growth areas and reduce costs . during 2014 , the company incurred restructuring charges of $ 83 , primarily related to employee termination benefits , from the restructuring of its continuing operations . the company incurred no restructuring charges in 2015 . 27 interest expense interest expense for 2015 was $ 369 , a decrease of $ 92 from $ 461 in 2014. the decrease in interest expense was primarily due to lower interest rates compared to the prior year . other expense , net in 2015 , other expense , net was $ ( 261 ) compared to $ ( 1 ) in 2014. the increase was primarily due to the costs incurred in the acquisition of the assets of pc werth in 2015 and a royalty payment that was received in 2014. income tax expense income taxes were as follows : replace_table_token_11_th the expense in 2015 and 2014 was primarily due to foreign taxes on german and indonesia operations partially offset by a singapore tax benefit . the company was in a net operating loss position ( “ nol ” ) for us federal and state income tax purposes , but our deferred tax asset related to the nol carry forwards had been largely offset by a full valuation allowance . we incurred minimal income tax expense from the current period domestic operations . loss from discontinued operations loss from discontinued operations , net of income taxes , for the year ended december 31 , 2015 was $ 965 compared to a loss of $ 1,141 for the year ended december 31 , 2014 which includes discontinued operations loss of $ 1,021 and a loss on the sale of discontinued operations of $ 120. loss allocated to non-controlling interest loss allocated to non-controlling interest of ( $ 111 ) for the year ended december 31 , 2015 was due to earventure losses allocated to our joint venture partner . liquidity and capital resources our primary sources of cash have been cash flows from operations , bank borrowings , and sales of equity . for the last three years , cash has been used for repayments of bank borrowings , purchases of equipment and working capital to support research and development . as of december 31 , 2016 , we had approximately $ 667 of cash on hand . sources of our cash for the year ended december 31 , 2016 have been from our financing activities , as described below . consolidated net working capital decreased to $ 8,456 at december 31 , 2016 from $ 11,302 at december 31 , 2015. our cash flows from operating , investing and financing activities , as reflected in the statement of cash flows for the years ended december 31 , are summarized as follows : replace_table_token_12_th 28 operating activities . the most significant items that contributed to the $ 405 of cash used in operating activities was a net loss of $ 4,744 , decreases in accounts payables and accrued expenses and increases in other assets , partially offset by add backs for non-cash depreciation and stock based compensation and decreases in accounts receivable and inventory . days sales in inventory decreased from 100 at december 31 , 2015 to 84 at december 31 , 2016. days payables outstanding decreased from 57 days at december 31 , 2015 to 54 days at december 31 , 2016. day sales outstanding decreased from 44 days at december 31 , 2015 to 37 days at december 31 , 2016. cash generated from operations may be affected by a number of factors . see “ forward looking statements ” and “ item 1a risk factors ” contained in this form 10-k for a discussion of some of the factors that can negatively impact the amount of cash we generate from our operations . investing activities . net cash used in investing activities of $ 2,302 consisted of $ 1,766 of purchases of property , plant and equipment and $ 536 for the purchase of the 20 percent interest in hearing help express . financing activities . net cash provided by financing activities of $ 3,531 was comprised primarily of proceeds from an equity offering . we had the following bank arrangements at december 31 : replace_table_token_13_th domestic credit facilities the company and its domestic subsidiaries are parties to a credit facility with the privatebank and trust company . the credit facility , as amended through december 31 , 2016 , provides for : ■ a $ 9,000 revolving credit facility , with a $ 200 sub facility for letters of credit . under the revolving credit facility , the availability of funds depends on a borrowing base composed of stated percentages of the company 's eligible trade receivables and eligible inventory , and eligible equipment less a reserve ; and ■ a term loan in the original amount of $ 6,000. in august 2016 , the company and its domestic subsidiaries entered into a ninth amendment to the loan and security agreement and waiver with the privatebank and trust company . story_separator_special_tag the amendment , among other things : ■ amended the definition of ebitda to permit the add back of certain transactions expenses and expense reductions ; ■ amended the funded debt to ebitda and fixed charge coverage covenants ; and ■ waived a default in the funded debt to ebitda covenant as of june 30 , 2016. all of the borrowings under this agreement have been characterized as either a current or long-term liability on our balance sheet in accordance with the repayment terms described more fully below . loans under the credit facility are secured by a security interest in substantially all of the assets of the company and its domestic subsidiaries including a pledge of the stock of its domestic subsidiaries . loans under the credit facility bear interest at varying rates based on the company 's leverage ratio of funded debt / ebitda , at the option of the company , at : ■ the london interbank offered rate ( “ libor ” ) plus 2.50 % to 4.00 % , or 29 ■ the base rate , which is the higher of ( a ) the rate publicly announced from time to time by the lender as its “ prime rate ” and ( b ) the federal funds rate plus 0.5 % , plus 0.00 % to 1.25 % ; in each case , depending on the company 's leverage ratio . interest is payable monthly in arrears , except that interest on libor based loans is payable at the end of the one , two or three month interest periods applicable to libor based loans . intricon is also required to pay a non-use fee equal to 0.25 % per year of the unused portion of the revolving line of credit facility , payable quarterly in arrears . weighted average interest on our domestic credit facilities was 4.36 % , 3.68 % , and 4.51 % for 2016 , 2015 , and 2014 , respectively . the outstanding balance of the revolving credit facility was $ 3,218 and $ 4,674 at december 31 , 2016 and 2015 , respectively . the total remaining availability on the revolving credit facility was approximately $ 5,121 and $ 3,326 at december 31 , 2016 and 2015 , respectively . the outstanding principal balance of the term loan , as amended , is payable in quarterly installments of $ 250. any remaining principal and accrued interest is payable on february 28 , 2019. intricon is also required to use 100 % of the net cash proceeds of certain asset sales ( excluding inventory and certain other dispositions ) , sale of capital securities or issuance of debt to pay down the term loan . the borrowers are subject to various covenants under the credit facility , including a maximum funded debt to ebitda , a minimum fixed charge coverage ratio and maximum capital expenditure financial covenants . under the credit facility , except as otherwise permitted , the borrowers may not , among other things : incur or permit to exist any indebtedness ; grant or permit to exist any liens or security interests on their assets or pledge the stock of any subsidiary ; make investments ; be a party to any merger or consolidation , or purchase of all or substantially all of the assets or equity of any other entity ; sell , transfer , convey or lease all or any substantial part of its assets or capital securities ; sell or assign , with or without recourse , any receivables ; issue any capital securities ; make any distribution or dividend ( other than stock dividends ) , whether in cash or otherwise , to any of its equity holders ; purchase or redeem any of its equity interests or any warrants , options or other rights to equity ; enter into any transaction with any of its affiliates or with any director , officer or employee of any borrower ; be a party to any unconditional purchase obligations ; cancel any claim or debt owing to it ; make payment on or changes to any subordinated debt ; enter into any agreement inconsistent with the provisions of the credit facility or other agreements and documents entered into in connection with the credit facility ; engage in any line of business other than the businesses engaged in on the date of the credit facility and businesses reasonably related thereto ; or permit its charter , bylaws or other organizational documents to be amended or modified in any way which could reasonably be expected to materially adversely affect the interests of the lender . on march 9 , 2017 , the company entered into an amendment with the privatebank to waive certain covenant violations at december 31 , 2016 and reset certain financial covenant thresholds set forth in the credit facility . after giving effect to the waiver , the company was in compliance with all applicable covenants under the credit facility as of december 31 , 2016. upon the occurrence and during the continuance of an event of default ( as defined in the credit facility ) , the lender may , among other things : terminate its commitments to the borrowers ( including terminating or suspending its obligation to make loans and advances ) ; declare all outstanding loans , interest and fees to be immediately due and payable ; take possession of and sell any pledged assets and other collateral ; and exercise any and all rights and remedies available to it under the uniform commercial code or other applicable law . in the event of the insolvency or bankruptcy of any borrower , all commitments of the lender will automatically terminate and all outstanding loans , interest and fees will be immediately due and payable .
| on april 15 , 2016 , the company and its domestic subsidiaries entered into an eighth amendment to the loan and security agreement and waiver with the privatebank and trust company , which among other things provided an additional $ 2,000 under our term note and increased borrowing capacity under our revolving credit facility by an additional $ 1,000. forward–looking statements the following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes appearing in item 8 of this report . this discussion and analysis contains forward-looking statements that involve risks , uncertainties and assumptions . our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors , including but not limited to those under the heading “ risk factors ” in item 1a of this annual report on form 10-k. see also item 1 . “ business—forward-looking statements ” for more information . 24 results of operations : 2016 compared with 2015 consolidated net sales our net sales are comprised of two segments : our body-worn device segment ( consisting of three markets : medical , hearing health , and professional audio ) and our hearing health direct-to-consumer segment . below is a recap of our sales by main markets for the years ended december 31 , 2016 and 2015 : replace_table_token_4_th in 2016 , we experienced a 5.1 percent decrease in medical sales primarily driven by lower sales to medtronic . sales to medtronic were down as they managed transition of their new fda product approval and launch for the minimed 630g and 670g systems . management believes that the industry-wide trend to shift the point of care from expensive traditional settings , such as hospitals , to less expensive non-traditional settings like the home , will result in growth of the medical bio-telemetry industry . intricon currently serves this market by offering medical manufacturers the capabilities to design , develop , manufacture and distribute medical devices that are easier to use , are more miniature , use less power , and are lighter . intricon has a strong presence in the diabetes market , with its medtronic partnership , as well as other bio-telemetry markets . the company believes there are growth opportunities
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such agencies may require us to recognize additions to the allowance based on their judgments of information available to them at the time of their examination . see note 1 . “ basis of financial statement presentation and summary of significant accounting policies ” in the notes to consolidated financial statements for a discussion of the risk components . we consistently review the risk components to identify any changes in trends . business combinations . we account for business combinations under the purchase method of accounting . the application of this method of accounting requires the use of significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed in order to properly allocate purchase price consideration between assets that are amortized , accreted or depreciated from those that are recorded as goodwill . our estimates of the fair values of assets acquired and liabilities assumed are based upon assumptions that we believe to be reasonable , and whenever necessary , include assistance from independent third-party appraisal and valuation firms . goodwill , trade names and other intangible assets . we account for goodwill , trade names and other intangible assets in accordance with gaap , which , in general , requires that goodwill and trade names not be amortized , but rather that they be tested for impairment at least annually . we assess qualitative factors to determine whether it is more likely than not ( i.e. , a likelihood of more than 50 percent ) that the fair value of a reporting unit is less than its carrying amount . in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount , we assess relevant events and circumstances ( e.g. , macroeconomic conditions , industry and market considerations , overall financial performance and other relevant company-specific events ) . if , after assessing the totality of events or circumstances such as those described above , we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount , then further steps of the goodwill impairment test are unnecessary . testing for impairment of goodwill , trade names and other intangible assets is performed annually and involves the identification of reporting units and the estimation of fair values . the estimation of fair values involves a high degree of judgment and subjectivity in the assumptions used . changes in the local and national economy , the federal and state legislative and regulatory environments for financial institutions , the stock market , interest rates and other external factors ( such as natural disasters or significant world events ) may occur from time to time , often with great unpredictability , and may materially impact the fair value of publicly traded financial institutions and could result in an impairment charge at a future date . 26 we also use judgment in the valuation of other intangible assets . a core deposit base intangible asset has been recorded for core deposits ( defined as checking , money market and savings deposits ) that were acquired in acquisitions . the core deposit base intangible asset has been recorded using the assumption that the acquired deposits provide a more favorable source of funding than more expensive wholesale borrowings . an intangible asset has been recorded for the present value of the difference between the expected interest to be incurred on these deposits and interest expense that would be expected if these deposits were replaced by wholesale borrowings , over the expected lives of the core deposits . if we find these deposits have a shorter life than was estimated , we will write down the asset by expensing the amount that is impaired . deferred income taxes . we use the asset and liability method of accounting for income taxes . under this method , deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases . if current available information raises doubt as to the realization of the deferred tax assets , a valuation allowance is established . deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled . we exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets , including projections of future taxable income . these judgments and estimates are reviewed on a continual basis as regulatory and business factors change . interest income . interest income on loans , securities and other interest-earning assets is accrued monthly unless we consider the collection of interest to be doubtful . loans are placed on non-accrual status upon the earlier of ( i ) when payments are contractually past due 90 days or more ; or ( ii ) when we have determined that the borrower is unlikely to meet contractual principal or interest obligations , unless the assets are well secured and in the process of collection . at such time , unpaid interest is reversed by charging interest income for interest in the current fiscal year or the allowance for loan losses with respect to prior year income . interest payments received on non-accrual loans ( including impaired loans ) are not recognized as income unless future collections are reasonably assured . loans are returned to accrual status when collectability is no longer considered doubtful . loans we acquired in mergers are initially recorded at fair value , which involves estimating the amount and timing of principal and interest cash flows initially expected to be collected on the loans and discounting those cash flows at an appropriate market rate of interest . we continue to evaluate reasonableness of expectations for the timing and amount of cash to be collected . story_separator_special_tag subsequent decreases in expected cash flows may result in changes in the amortization or accretion of fair market value adjustments , and in some cases may result in the loan being considered impaired . general on january 27 , 2015 , the board amended our bylaws to change our fiscal year end from september 30 to december 31. as a result of the change in year end , we filed a transition report on form 10-kt with the sec on march 6 , 2015 , which included audited financial statements as of december 31 , 2014 and for the three months then ended . for comparative purposes we presented financial statements as of december 31 , 2013 and for the three months then ended , which were unaudited . in this report , in accordance with guidance that is applicable to a financial reporting period that follows a transition period , our discussion and analysis will present the more significant factors affecting our financial condition at december 31 , 2016 and december 31 , 2015. for the results of operations , our discussion and analysis will present the more significant factors affecting the periods presented as follows : the calendar year ended december 31 , 2016 ( “ calendar 2016 ” ) compared to the calendar year ended december 31 , 2015 ( “ calendar 2015 ” ) ; the transition periods from october 1 , 2014 through december 31 , 2014 ( the “ transition period ” ) compared to the year earlier period october 1 , 2013 through december 31 , 2013 ( the “ 2013 transition period ” ) ; and calendar 2015 compared to the fiscal year ended september 30 , 2014 ( “ fiscal 2014 ” ) . the hvb merger , the provident merger , and the other acquisitions discussed in note 2 . “ acquisitions ” in the notes to consolidated financial statements were accounted for as business combinations , and accordingly , their related results of operations are included from the date of acquisition . the discussion and analysis should be read in conjunction with the consolidated financial statements , notes to consolidated financial statements and other information contained in this report . on june 30 , 2015 , we completed the hvb merger . the hvb merger was consistent with our strategy of expanding in the greater new york metropolitan region and beyond , and building a diversified company with significant commercial and consumer banking capabilities . we believe the hvb merger created a larger , more efficient and more profitable bank by combining our differentiated team-based distribution channels with hvhc 's strong presence and deposit base in westchester county . the hvb merger accelerated organic loan growth , increased our ability to gather low cost core deposits and generated substantial cost savings and revenue enhancement opportunities . 27 story_separator_special_tag style= '' line-height:120 % ; text-align : left ; font-size:10pt ; '' > replace_table_token_12_th _ see legend on the following page . 30 replace_table_token_13_th _ ( 1 ) commercial loans include all commercial & industrial , commercial real estate ( including multi-family ) and acquisition , development and construction loans . ( 2 ) includes the effect of net deferred loan origination fees and costs , accretion of net purchase accounting adjustments , prepayment fees and late charges and non-accrual loans . ( 3 ) includes interest bearing mortgage escrow balances . 31 ( 4 ) net interest rate spread represents the difference between the tax equivalent yield on average interest earning assets and the cost of average interest bearing liabilities . ( 5 ) net interest earning assets represents total interest earning assets less total interest bearing liabilities . the following table presents the dollar amount of changes in interest income ( on a fully tax equivalent basis ) and interest expense for the major categories of our interest earning assets and interest bearing liabilities . information is provided for each category of interest earning assets and interest bearing liabilities with respect to ( i ) changes attributable to changes in volume ( i.e. , changes in average balances multiplied by the prior period average rate ) ; and ( ii ) changes attributable to rate ( i.e. , changes in average rate multiplied by prior period average balances ) . for purposes of this table , changes attributable to both rate and volume , which can not be segregated , have been allocated proportionately to the change due to volume and the change due to rate . 32 replace_table_token_14_th 33 calendar 2016 compared to calendar 2015 tax equivalent net interest income increased $ 99,295 to $ 417,014 for calendar 2016 compared to $ 317,719 for calendar 2015 . the increase was mainly the result of an increase in average balances due to the hvb merger and organic loan growth from our commercial banking teams . the increase was also due to an increase in average loan balances due to the nsbc acquisition and the acquisition of the restaurant franchise financing portfolio from ge capital . the average volume of interest earning assets increased $ 3,107,837 , or 35.9 % , for calendar 2016 relative to calendar 2015 . the tax equivalent net interest margin decreased 12 basis points to 3.55 % for calendar 2016 from 3.67 % in calendar 2015 . the decrease in the net interest margin was mainly due to a decline in the yield on loans as a result of the continuing low interest rate environment . interest earning assets yielded 4.03 % for calendar 2016 compared to 4.10 % for calendar 2015 and the cost of interest bearing liabilities was 0.73 % in the year ended december 31 , 2016 compared to 0.64 % for calendar 2015 . the average balance of loans outstanding increased $ 2,258,897 , or 36.1 % , in calendar 2016 compared to calendar 2015 . loans accounted for 72.5 % of average interest earning assets in calendar 2016 compared to 72.4 % in calendar 2015 .
| selected operating data , return on average assets , return on average common equity and dividends per common share for the comparable periods follow : replace_table_token_11_th net income ( loss ) for calendar 2016 , net income was $ 139,972 compared to net income of $ 66,114 for calendar 2015 . results for calendar 2016 include the impact of the following items : net gain on sale of securities of $ 7,522 , net gain on sale of the trust division of $ 2,255 , a pre-tax merger-related expense of $ 265 incurred in connection with the nsbc acquisition ; a pre-tax charge for asset write-downs , retention and severance of $ 4,485 , which included charges incurred in connection with the divestiture of our residential mortgage originations business , charges incurred in connection with the nsbc acquisition and the continued consolidation of financial centers and other locations ; a pre-tax charge of $ 9,729 in connection with the early extinguishment of a portion of our outstanding $ 100,000 principal amount of 5.50 % fixed rate senior notes ( the “ senior notes ” ) and federal home loan bank of new york ( “ fhlb ” ) borrowings ; and 28 pre-tax amortization of non-compete agreements and acquired customer list of $ 3,514 . excluding the impact of these items , adjusted net income ( non-gaap ) was $ 145,518 , and adjusted diluted earnings per share ( non-gaap ) were $ 1.11 for calendar 2016 . please refer to item 6 . “ selected financial data ” for a reconciliation of this non-gaap financial measure . results for calendar 2015 include the impact of the hvb merger since the effective date of june 30 , 2015. in connection with the hvb merger , the damian acquisition and the fcc acquisition , we incurred pre-tax merger-related expense of $ 17,079 , pre-tax charges for asset write-downs , retention and severance of $ 29,046 ; a pre-tax charge to terminate our defined benefit pension plan of $ 13,384 ; and pre-tax amortization of non-compete agreements and customer list intangible assets of $ 3,526 . excluding the impact of these items , adjusted net income ( non-gaap ) was $ 105,398
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the allowance for credit losses is a significant estimate and is regularly evaluated by the company for adequacy by taking into consideration factors such as changes in the nature and volume of the loan and lease portfolio ; trends in actual and forecasted portfolio credit quality , including delinquency , charge-off and bankruptcy rates ; and current economic conditions that may affect a borrower 's ability to pay . in determining an adequate allowance for credit losses , management makes numerous assumptions , estimates and assessments . the use of different estimates or assumptions could produce different provisions for credit losses . see “ item 7. management 's discussion and analysis of financial condition and results of operations – results of operations – provision for credit losses and allowance for credit losses ” included herein for more information . at december 31 , 2011 , the allowance for credit losses was $ 195.1 million , representing 2.10 % of total loans and leases , net of unearned income . other real estate owned other real estate owned , consisting of assets that have been acquired through foreclosure or in satisfaction of loans , is carried at the lower of cost or fair value , less estimated selling costs . fair value is based on independent appraisals and other relevant factors . other real estate owned is revalued on an annual basis or more often if market conditions necessitate . valuation adjustments required at foreclosure are charged to the allowance for credit losses . subsequent valuation adjustments on the periodic revaluation of the property are charged to net income as noninterest expense . significant judgments and complex estimates are required in estimating the fair value of other real estate owned , and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility , as experienced during the past two years . as a result , the net proceeds realized from sales transactions could differ significantly from appraisals , comparable sales , and other estimates used to determine the fair value of other real estate owned . goodwill the company 's policy is to assess goodwill for impairment at the reporting segment level on an annual basis or sooner if an event occurs or circumstances change which indicate that the fair value of a reporting unit is below its carrying amount . impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value . accounting standards require management to estimate the fair value of each reporting segment in assessing impairment at least annually . the company 's annual assessment date is during the company 's fourth quarter . because of the volatile market conditions during which the company 's market value fell below book value , however , the company performed a complete goodwill impairment analysis for all of its reporting segments during the second quarter of 2011 and a roll-forward of that analysis during the third quarter of 2011. based on these analyses , the estimated fair value of all of the company 's reporting segments exceeded the respective carrying values . the company 's annual goodwill impairment evaluation performed during the fourth quarter of 2011 also indicated no impairment of goodwill for its reporting units . therefore , no goodwill impairment was recorded . in the current environment , forecasting cash flows , credit losses and growth in addition to valuing the company 's assets with any degree of assurance is very difficult and subject to significant changes over very short periods of time . management will continue to update its analysis as circumstances change . if market conditions continue to be volatile and unpredictable , impairment of goodwill related to the company 's reporting segments may be necessary in future periods . goodwill was $ 271.3 million at december 31 , 2011. assessment for other-than-temporary impairment of securities securities are evaluated periodically to determine whether a decline in their value is other-than-temporary . the term “ other-than-temporary ” is not intended to indicate a permanent decline in value . rather , it means that the prospects for near-term recovery of value are not necessarily favorable . management reviews criteria such as the 29 magnitude and duration of the decline , as well as the reasons for the decline , and whether the company would be required to sell the securities before a full recovery of costs in order to predict whether the loss in value is other-than-temporary . once a decline in value is determined to be other-than-temporary , the impairment is separated into ( a ) the amount of the impairment related to the credit loss and ( b ) the amount of the impairment related to all other factors . the value of the security is reduced by the other-than-temporary impairment with the amount of the impairment related to credit loss recognized as a charge to earnings and the amount of the impairment related to all other factors recognized in other comprehensive income . mortgage servicing rights the company recognizes as assets the rights to service mortgage loans for others , known as mortgage servicing rights ( “ msrs ” ) . the company records msrs at fair value on a recurring basis with subsequent remeasurement of msrs based on change in fair value in accordance with financial accounting standards board ( “ fasb ” ) accounting standards codification ( “ asc ” ) 860 , transfers and servicing ( “ fasb asc 860 ” ) . an estimate of the fair value of the company 's msrs is determined utilizing assumptions about factors such as mortgage interest rates , discount rates , mortgage loan prepayment speeds , market trends and industry demand . because the valuation is determined by using discounted cash flow models , the primary risk inherent in valuing the msrs is the impact of fluctuating interest rates on the estimated life of the servicing revenue stream . the use of different estimates or assumptions could also produce different fair values . story_separator_special_tag the company does not hedge the change in fair value of msrs and , therefore , the company is susceptible to significant fluctuations in the fair value of its msrs in changing interest rate environments . at december 31 , 2011 , the company 's mortgage servicing asset was valued at $ 30.2 million . pension and postretirement benefits accounting for pension and other postretirement benefit amounts is another area where the accounting guidance requires management to make various assumptions in order to appropriately value any related asset or liability . estimates that the company makes to determine pension-related assets and liabilities include actuarial assumptions , expected long-term rate of return on plan assets , rate of compensation increase for participants and discount rate . estimates that the company makes to determine asset and liability amounts for other postretirement benefits include actuarial assumptions and a discount rate . changes in these estimates could impact earnings . for example , lower expected long-term rates of return on plan assets could negatively impact earnings , as would lower estimated discount rates or higher rates of compensation increase . in estimating the projected benefit obligation , actuaries must make assumptions about such factors as mortality rate , turnover rate , retirement rate , disability rate and the rate of compensation increases . the company accounts for the over-funded or under-funded status of its defined benefit and postretirement plans as an asset or liability in its consolidated balance sheets and recognizes changes in that funded status in the year in which the changes occur through comprehensive income as required by fasb asc 715 , compensation – retirement benefits ( “ fasb asc 715 ” ) . in accordance with fasb asc 715 , the company calculates the expected return on plan assets each year based on the balance in the pension asset portfolio at the beginning of the year and the expected long-term rate of return on that portfolio . in determining the reasonableness of the expected rate of return , the company considers a variety of factors including the actual return earned on plan assets , historical rates of return on the various asset classes of which the plan portfolio is comprised and current/prospective capital market conditions and economic forecasts . the company used an expected rate of return of 8 % on plan assets for 2011. the discount rate is the rate used to determine the present value of the company 's future benefit obligations for its pension and other postretirement benefit plans . the company determines the discount rate to be used to discount plan liabilities at the measurement date with the assistance of its actuary using the actuary 's proprietary model . the company developed a level equivalent yield using its actuary 's model as of december 30 , 2011 and the expected cash flows from the bancorpsouth , inc. retirement plan ( the “ basic plan ” ) , the bancorpsouth , inc. restoration plan ( the “ restoration plan ” ) and the bancorpsouth , inc. supplemental executive retirement plan ( the “ supplemental plan ” ) . based on this analysis , the company established its discount rate assumptions for determination of the projected benefit obligation at 4.80 % for the basic plan , 4.45 % for the restoration plan and 3.85 % for the supplemental plan based on a december 31 , 2011 measurement date . 30 results of operations net interest revenue net interest revenue is the difference between interest revenue earned on assets , such as loans , leases and securities , and interest expense paid on liabilities , such as deposits and borrowings , and continues to provide the company with its principal source of revenue . net interest revenue is affected by the general level of interest rates , changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities . the company 's long-term objective is to manage interest earning assets and interest bearing liabilities to maximize net interest revenue , while balancing interest rate , credit and liquidity risk . net interest margin is determined by dividing fully taxable equivalent net interest revenue by average earning assets . for purposes of the following discussion , revenue from tax-exempt loans and investment securities has been adjusted to a fully taxable equivalent ( “ fte ” ) basis , using an effective tax rate of 35 % . the following tables present average interest earning assets , average interest bearing liabilities , net interest revenue-fte , net interest margin-fte and net interest rate spread for the three years ended december 31 , 2011 : 31 2011 2010 2009 ( taxable equivalent basis ) average yield/ average yield/ average yield/ balance interest rate balance interest rate balance interest rate assets ( dollars in thousands , yields on taxable equivalent basis ) loans and leases ( net of unearned income ) ( 1 ) ( 2 ) $ 9,159,431 $ 464,413 5.07 % $ 9,621,529 $ 500,108 5.20 % $ 9,734,580 $ 520,315 5.35 % loans held for sale 53,504 2,219 4.15 % 68,980 3,024 4.38 % 115,181 3,965 3.44 % held-to-maturity securities : taxable ( 3 ) 547,471 13,266 2.42 % 985,606 36,718 3.73 % 1,015,440 47,397 4.67 % non-taxable ( 4 ) 133,827 8,673 6.48 % 236,530 16,014 6.77 % 194,370 13,619 7.01 % available-for-sale securities : taxable ( 5 ) 1,667,936 44,243 2.65 % 863,091 32,033 3.71 % 898,073 35,026 3.90 % non-taxable ( 6 ) 271,170 16,897 6.23 % 71,869 5,039 7.01 % 71,596 5,223 7.30 % federal funds sold , securities purchased under agreement to resell and short-term investments 310,052 868 0.28 % 376,328 961 0.26 % 49,197 205 0.42 % total interest earning assets and revenue 12,143,391 550,579 4.53 % 12,223,933 593,897 4.86 % 12,078,437 625,750 5.18 % other assets 1,347,685 1,293,963 1,275,150 less : allowance for credit losses ( 211,029 ) ( 213,060 ) ( 149,928 ) total $ 13,280,047 $ 13,304,836 $ 13,203,659 liabilities and shareholders ' equity deposits : demand - interest bearing $ 4,907,058 $ 22,646 0.46 % $ 4,649,235 $
| during 2011 , the company continued its focus on improving credit quality and reducing npls , especially in the real estate construction , acquisition and development loan portfolio , as evidenced by the decrease in that portfolio 's nonaccrual loans of $ 78.4 million to $ 133.1 million at december 31 , 2011 from $ 211.5 million at december 31 , 2010. the primary source of revenue for the company is net interest revenue earned by the bank . net interest revenue is the difference between interest earned on loans , investments and other earning assets and interest paid on deposits and other obligations . net interest revenue for 2011 was $ 434.9 million , compared to $ 441.1 million for 2010 and $ 444.9 million for 2009. net interest revenue is affected by the general level of interest rates , changes in interest rates and changes in the amount and composition of interest earning assets and interest bearing liabilities . the company 's long-term objective is to manage those assets and liabilities to maximize net interest revenue , while balancing interest rate , credit , liquidity and capital risks . the company experienced an increase in lower rate savings deposits and average demand deposits and a decrease in higher rate other time deposits and long-term borrowing , which resulted in a decrease in interest expense of $ 38.7 million , or 27.3 % , in 2011 compared to 2010. the 1.4 % decrease in net interest revenue in 2011 compared to 2010 was a result of the decrease in interest expense being more than offset by the decrease in interest revenue that resulted from the declining interest rate environment combined with the low loan demand , as interest revenue decreased $ 44.9 million , or 7.3 % , in 2011 compared to 27 2010. while loan demand has been weak , the company has managed to replace some loan runoff with new loan production , primarily in its texas and louisiana markets . the company attempts to diversify its revenue stream by increasing the amount of revenue received from mortgage lending operations , insurance agency activities , brokerage and securities activities and other activities that generate fee income . management believes this diversification is important to reduce the impact of fluctuations in net interest revenue on the overall operating results of the company . noninterest revenue for 2011
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revenues as part of reimbursing the travelers indemnity company ( “ travelers ” ) for certain of their transition related expenses ( the “ disentanglement costs ” ) , we recognized $ 26.3 million of such reimbursements as a reduction of our revenues during the year ended december 31 , 2014. we did not incur any reimbursements of disentanglement costs during the year ended december 31 , 2015 , and we do not anticipate incurring any additional reimbursements of disentanglement costs related to travelers going forward . for the year ended december 31 , 2015 , we had revenues of $ 628.5 million compared to revenues of $ 499.3 million ( net of $ 26.3 million of reimbursement of disentanglement costs to travelers ) for the year ended december 31 , 2014 , an increase of $ 129.2 million or 25.9 % . revenues from operations management services were $ 506.3 million for the year ended december 31 , 2015 compared to $ 433.7 million ( net of $ 26.3 million of reimbursement of disentanglement costs to travelers ) for the year ended december 31 , 2014. revenues from analytics services were $ 122.2 million for the year ended december 31 , 2015 compared to $ 65.6 million for the year ended december 31 , 2014. we serve clients mainly in the u.s. and the u.k. , with these two regions generating approximately 79.0 % and 17.3 % , respectively , of our total revenues for the year ended december 31 , 2015 and approximately 73.9 % and 20.4 % , respectively , of our revenues for the year ended december 31 , 2014. for the years ended december 31 , 2015 and 2014 , our total revenues from our top ten clients accounted for 40.5 % and 47.4 % of our total revenues , respectively . while we have reduced our revenue concentration with our top clients and are developing relationships with new clients to diversify our client base , we believe that the loss of any of our ten largest clients could have a material adverse effect on our financial performance . 40 our business our business is divided into two reporting segments : operations management and analytics . rpm 's results are included in our analytics segment . we market our services to our existing and prospective clients through our sales and client management teams , which are aligned by key industry verticals and cross-industry domains such as finance and accounting . our sales and client management teams operate from the u.s. , europe and australia . operations management : we provide our clients with a range of operations management solutions principally in the insurance , healthcare , utilities , banking and financial services , and travel , transportation and logistics sectors , among others , as well as cross-industry operations management solutions , such as finance and accounting services . our operations management solutions typically involve the transfer to the company of select business operations of a client such as claims processing , clinical operations , or financial transaction processing , after which we administer and manage the operations for our client on an ongoing basis . as part of this transfer , we hire and train employees to work at our operations centers on the relevant business operations , implement a process migration to these operations centers and then provide services either to the client or directly to the client 's customers . each client contract has different terms based on the scope , deliverables and complexity of the engagement . we have been observing a shift in industry pricing models toward transaction-based pricing , outcome-based pricing and other pricing models . we believe this trend will continue and we have begun to use transaction-based , outcome-based and other pricing models with some of our current clients and are seeking to move certain other clients from a billing rate model to a transaction-based or other pricing model . these transaction-based pricing models place the focus on operating efficiency in order to maintain our operating margins . in addition , we have also observed that prospective larger clients are entering into multi-vendor relationships with regard to their outsourcing needs . we believe that the trend toward multi-vendor relationships will continue . a multi-vendor relationship allows a client to seek more favorable pricing and other contract terms from each vendor , which can result in significantly reduced operating margins from the provision of services to such client for each vendor . to the extent our large clients expand their use of multi-vendor relationships and are able to extract more favorable contract terms from other vendors , our operating margins and revenues may be reduced with regard to such clients if we are required to modify the terms of our relationships with such clients to meet competition . as we increase our capabilities utilizing technology service platforms and other software-based services , we expect that revenues from such services will continue to grow in proportion to our total revenues . revenues from annual maintenance and support contracts for our software platforms provide us with a relatively predictable revenue base and are generally recognized ratably over the terms of the contracts . new license sales and implementation projects have a long selling cycle and it is difficult to predict the timing of when such new contracts will be signed , which may lead to fluctuations in our revenues over the short term . analytics : our analytics services focus on driving improved business outcomes for our customers by generating data-driven insights across all parts of our customers ' business . our teams deliver predictive and prescriptive analytics in the areas of customer acquisition and lifecycle management , risk underwriting and pricing , operational effectiveness , credit and operational risk monitoring and governance , regulatory reporting , and data management . we actively cross-sell and , where appropriate , integrate our analytics services with operations management as part of a comprehensive solution for our clients . story_separator_special_tag we anticipate that revenues from our analytics services will grow as we expand our service offerings and client base , both organically and through acquisitions . expenses cost of revenues our cost of revenues primarily consists of : employee costs , which include salary , bonus and other compensation expenses ; recruitment and training costs ; employee insurance ; transport and meals ; rewards and recognition for certain employees ; and non-cash stock compensation expense ; and costs relating to our facilities and communications network , which include telecommunication and it costs ; facilities and customer management support ; operational expenses for our outsourcing centers ; rent expenses ; and travel and other billable costs to our clients . the most significant components of our cost of revenues are salaries and benefits ( including stock based compensation ) , recruitment , training , transport , meals , rewards and recognition and employee insurance . salary levels , employee turnover 41 rates and our ability to efficiently manage and utilize our employees significantly affect our cost of revenues . salary increases for most of our operations personnel are generally awarded each year effective april 1. accordingly , employee costs are generally lower in the first quarter of each year compared to the rest of the year . we make every effort to manage employee and capacity utilization and continuously monitor service levels and staffing requirements . although we generally have been able to reallocate our employees as client demand has fluctuated , a contract termination or significant reduction in work assigned to us by a major client could cause us to experience a higher-than-expected number of unassigned employees , which would increase our cost of revenues as a percentage of revenues until we are able to reduce or reallocate our headcount . a significant increase in the turnover rate among our employees , particularly among the highly skilled workforce needed to execute certain services , would increase our recruiting and training costs and decrease our operating efficiency , productivity and profit margins . in addition , cost of revenues also includes a non-cash amortization of stock compensation expense relating to our issuance of equity awards to employees directly involved in providing services to our clients . we expect our cost of revenues to continue to increase as we continue to add professionals in our operating centers globally to service additional business and as wages continue to increase globally . in particular , we expect training costs to continue to increase as we continue to add staff to service new clients and provide existing staff with additional skill sets . there is significant competition for professionals with skills necessary to perform the services we offer to our clients . as our existing competitors continue to grow , and as new competitors enter the market , we expect competition for skilled professionals in each of these areas to continue to increase , with corresponding increases in our cost of revenues to reflect increased compensation levels for such professionals . however , a significant portion of our client contracts include inflation-based adjustments to our billing rates year over year which partially offset such increase in cost of revenues . see item 1a- '' risk factors-employee wage increases may prevent us from sustaining our competitive advantage and may reduce our profit margin. ” cost of revenues is also affected by our long selling cycle and implementation period for our operations management services , which require significant commitments of capital , resources and time by both our clients and us . before committing to use our services , potential clients require us to expend substantial time and resources educating them as to the value of our services and assessing the feasibility of integrating our systems and processes with theirs . in addition , once a client engages us in a new contract , our cost of revenues may represent a higher percentage of revenues until the implementation phase for that contract , generally three to four months , is completed . selling , general and administrative expenses ( `` sg & a '' ) our general and administrative expenses are comprised of expenses relating to salaries and benefits ( including stock based compensation ) as well as cost related to recruitment , training and retention of senior management and other support personnel in enabling functions , telecommunications , utilities , travel and other miscellaneous administrative costs . general and administrative ( `` g & a '' ) expenses also include acquisition-related costs , legal and professional fees ( which represent the costs of third party legal , tax , accounting and other advisors ) , bad debt allowance and non-cash amortization of stock compensation expenses related to our issuance of equity awards to members of our board of directors . we expect our general and administrative costs to increase as we continue to strengthen our support and enabling functions and invest in leadership development , performance management and training programs . selling and marketing expenses primarily consist of salaries and benefits ( including stock based compensation ) and other compensation expenses of sales and marketing and client management personnel , sales commission , travel and brand building , client events and conferences . we expect that sales and marketing expenses will continue to increase as we invest in our sales and client management functions to better serve our clients and in our branding . depreciation and amortization depreciation and amortization pertains to depreciation of our tangible assets , including network equipment , cabling , computers , office furniture and equipment , motor vehicles and leasehold improvements and amortization of intangible assets . as we add new facilities and expand our existing operations centers , we expect that depreciation expense will increase , reflecting additional investments in equipment such as desktop computers , servers and other infrastructure . we expect amortization of intangible assets to increase further as we pursue strategic relationships and acquisitions . foreign exchange we report our financial results in u.s. dollars .
| we also experienced an increase in facilities , technology and other operating expenses of $ 26.0 million ( including incremental cost of revenues of $ 23.6 million related to our acquisitions ) . this increase was partially offset by a decrease in reimbursable expenses of $ 0.8 million , resulting in a corresponding decrease in revenues and decrease of $ 10.5 million due to the impact of depreciation of the indian rupee , the u.k pound sterling and the philippine peso against the u.s. dollar during the year ended december 31 , 2015 compared to the year ended december 31 , 2014. gross profit . gross profit increased by $ 58.9 million , or 35.3 % , from $ 166.7 million for the year ended december 31 , 2014 to $ 225.6 million for the year ended december 31 , 2015. the increase is primarily due to the impact of reimbursement of disentanglement cost to travelers of $ 26.3 million during the year ended december 31 , 2014 , higher revenues in our analytics services , impact of our acquisitions and depreciation of the indian rupee , the philippine peso and the u.k. pound sterling against the u.s. dollar . 49 selling , general and administrative ( “ sg & a ” ) expenses . replace_table_token_5_th the increase in sg & a expenses was primarily due to an increase in employee-related costs of $ 17.6 million ( including $ 13.2 million of incremental employee-related costs related to our acquisitions ) . the remaining increase of $ 4.4 million in employee-related cost is primarily due to annual wage increments and an increase in our average headcount to support the increased business volumes . we also experienced an increase in our other sg & a expenses of $ 6.6 million ( including incremental sg & a expenses of $ 3.4 million related to our acquisitions ) , due to an increase in facility and other general and administrative expenses of $ 1.9 million primarily associated with our new operating centers in india , south africa
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in addition to restaurant margin , as a percentage of sales , we also focus on restaurant margin dollar growth per store week as a measure of restaurant level profitability . in terms of driving higher guest traffic counts , we remain focused on encouraging repeat visits by our guests through our continued commitment to operational standards relating to our quality of food and service . in order to attract new guests and increase the frequency of visits of our existing guests , we also continue to drive various localized marketing programs , to focus on speed of service and to increase throughput by adding seats in certain restaurants . leveraging our scalable infrastructure . to support our growth , we continue to make investments in our infrastructure . over the past several years , we have made significant investments in our infrastructure including information systems , real estate , human resources , legal , marketing , international and operations . in 2013 , general and administrative costs increased at a faster growth rate than our revenue , excluding the impact of a legal settlement charge of $ 5.0 million recorded in the first quarter of 2012. our goal is to have general and administrative costs increase at a slower growth rate than our revenue . whether we are able to leverage our infrastructure in future years will depend , in part , on our new restaurant openings , our comparable restaurant sales growth rate going forward and the level of investment we continue to make in our infrastructure . returning capital to shareholders . we continue to pay dividends and evaluate opportunities to return capital to our shareholders through repurchases of common stock . in 2011 , our board of directors declared our first quarterly dividend of $ 0.08 per share of common stock . we have consistently grown our per share dividend each year since that time and our long-term strategy includes increasing our regular quarterly dividend amount over time . on february 20 , 2014 , our board of directors declared a quarterly dividend of $ 0.15 per share of common stock . the declaration and payment of cash dividends on our common stock is at the discretion of our board of directors , and any 36 decision to declare a dividend will be based on a number of factors , including , but not limited to , earnings , financial condition , applicable covenants under our credit facility and other contractual restrictions , or other factors deemed relevant . on february 16 , 2012 , our board of directors approved a stock repurchase program under which we may repurchase up to $ 100.0 million of our common stock . any repurchases will be made through open market transactions . as of december 31 , 2013 , $ 57.9 million remains authorized for repurchase . in 2013 , we paid $ 12.8 million to repurchase 461,600 shares of our common stock . since 2008 , we have paid $ 158.3 million through our authorized stock repurchase programs to repurchase 12,733,362 shares of our common stock at an average price per share of $ 12.43. key operating personnel key personnel who have a significant impact on the performance of our restaurants include managing and market partners . each company restaurant has one managing partner who serves as the general manager . market partners can provide supervisory services for up to 10 to 15 managing partners and their respective management teams . market partners also assist with our site selection process and recruitment of new management teams . the managing partner of each company restaurant and their corresponding market partners are required , as a condition of employment , to sign a multi-year employment agreement . the annual compensation of our managing and market partners includes a base salary plus a percentage of the pre-tax net income of the restaurant ( s ) they operate or supervise . managing and market partners are eligible to participate in our equity incentive plan and , as a general rule , are required to make deposits of $ 25,000 and $ 50,000 , respectively . generally , the deposits are refunded after five years of service . key measures we use to evaluate our company key measures we use to evaluate and assess our business include the following : number of restaurant openings . number of restaurant openings reflects the number of restaurants opened during a particular fiscal period . for company restaurant openings we incur pre-opening costs , which are defined below , before the restaurant opens . typically , new restaurants open with an initial start-up period of higher than normalized sales volumes , which decrease to a steady level approximately three to six months after opening . however , although sales volumes are generally higher , so are initial costs , resulting in restaurant operating margins that are generally lower during the start-up period of operation and increase to a steady level approximately three to six months after opening . comparable restaurant sales growth . comparable restaurant sales growth reflects the change in sales over the same period of the prior years for the comparable restaurant base . we define the comparable restaurant base to include those restaurants open for a full 18 months before the beginning of the later fiscal period excluding restaurants closed during the period . comparable restaurant sales growth can be impacted by changes in guest traffic counts or by changes in the per person average check amount . menu price changes and the mix of menu items sold can affect the per person average check amount . average unit volume . average unit volume represents the average annual restaurant sales for company-owned texas roadhouse restaurants open for a full six months before the beginning of the period measured . average unit volume excludes sales on restaurants closed during the period . growth in average unit volume in excess of comparable restaurant sales growth is generally an indication that newer restaurants are operating with sales levels in excess of the company average . story_separator_special_tag conversely , growth in average unit volume less than growth in comparable restaurant sales growth is generally an indication that newer restaurants are operating with sales levels lower than the company average . 37 store weeks . store weeks represent the number of weeks that our company restaurants were open during the reporting period . restaurant margins . restaurant margins represent restaurant sales less cost of sales , labor , rent and other operating costs . depreciation and amortization expense , substantially all of which relates to restaurant-level assets , is excluded from restaurant operating costs and is shown separately as it represents a non-cash charge for the investment in our restaurants . restaurant margin is widely regarded as a useful metric by which to evaluate restaurant-level operating efficiency and performance . restaurant margin is not a measurement determined in accordance with generally accepted accounting principles ( `` gaap '' ) and should not be considered in isolation , or as an alternative , to income from operations or other similarly titled measures of other companies . restaurant margins , as a percentage of restaurant sales , may fluctuate based on inflationary pressures , commodity costs and wage rates . as such , we also focus on restaurant margin dollar growth per store week as a measure of restaurant-level profitability as it provides additional insight on operating performance . other key definitions restaurant sales . restaurant sales include gross food and beverage sales , net of promotions and discounts , for all company-owned restaurants . sales taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from restaurant sales in the consolidated statements of income and other comprehensive income . franchise royalties and fees . domestic franchisees typically pay a $ 40,000 initial franchise fee for each new restaurant . in addition , at each renewal period , we receive a fee equal to the greater of 30 % of the then-current initial franchise fee or $ 10,000 to $ 15,000. franchise royalties consist of royalties in an amount up to 4.0 % of gross sales , as defined in our franchise agreement , paid to us by our domestic franchisees . in addition , we include royalties and fees paid to us by our international franchisee . the terms of the international agreements may vary significantly from our domestic agreements . restaurant cost of sales . restaurant cost of sales consists of food and beverage costs . restaurant labor expenses . restaurant labor expenses include all direct and indirect labor costs incurred in operations except for profit sharing incentive compensation expenses earned by our restaurant managing partners . these profit sharing expenses are reflected in restaurant other operating expenses . restaurant labor expenses also include share-based compensation expense related to restaurant-level employees . restaurant rent expense . restaurant rent expense includes all rent , except pre-opening rent , associated with the leasing of real estate and includes base , percentage and straight-line rent expense . restaurant other operating expenses . restaurant other operating expenses consist of all other restaurant-level operating costs , the major components of which are utilities , supplies , advertising , repairs and maintenance , property taxes , credit card and gift card fees , gift card breakage income and general liability insurance . profit sharing allocations to managing partners and market partners are also included in restaurant other operating expenses . pre-opening expenses . pre-opening expenses , which are charged to operations as incurred , consist of expenses incurred before the opening of a new restaurant and are comprised principally of opening team and training compensation and benefits , travel expenses , rent , food , beverage and other initial supplies and expenses . pre-opening costs vary by location depending on a number of factors , including the size and physical layout of each location ; the number of management and hourly employees required to operate each restaurant ; the availability of qualified restaurant staff members ; the cost of travel and lodging for different geographic areas ; the timing of the restaurant opening ; and the extent of unexpected delays , if any , in obtaining final licenses and permits to open the restaurants . 38 depreciation and amortization expenses . depreciation and amortization expenses ( `` d & a '' ) includes the depreciation of fixed assets and amortization of intangibles with definite lives , substantially all of which relates to restaurant-level assets . impairment and closure costs . impairment and closure costs include any impairment of long-lived assets , including goodwill , associated with restaurants where the carrying amount of the asset is not recoverable and exceeds the fair value of the asset and expenses associated with the closure of a restaurant . closure costs also include any gains or losses associated with the sale of a closed restaurant and or assets held for sale as well as lease costs associated with closed restaurants . story_separator_special_tag to a 52-week basis . in addition to average unit volume on a 53 week basis , for comparative purposes , we also include 2013 average unit volume adjusted to a 52 week basis . replace_table_token_13_th ( 1 ) includes the impact of the year-over-year change in sales volume of all aspen creek restaurants , along with texas roadhouse restaurants open less than six months before the beginning of the period measured , and , if applicable , the impact of restaurants closed or acquired during the period . the increases in store weeks for the periods presented above are primarily attributable to the opening of new restaurants . in addition , the increase in store weeks in 2013 includes the impact of the 53 rd week and the impact of the acquisition of two franchise restaurants on december 25 , 2012 , partially offset by the closure of one non-texas roadhouse restaurant in the fourth quarter of 2012. company restaurant count activity is shown in the restaurant unit activity table above .
| managing partners are single unit operators who have primary responsibility for the day-to-day operations of the entire restaurant and are responsible for maintaining the standards of quality and performance we establish . market partners , generally , have supervisory responsibilities for up to 10 to 15 restaurants . in addition to supervising the operations of 39 our restaurants , they are also responsible for the hiring and development of each restaurant 's management team and assist in the new restaurant site selection process . replace_table_token_10_th 40 reconciliation of gaap and non-gaap information ( in thousands , except per share data ) in addition to the results provided in accordance with u.s. generally accepted accounting principles ( `` gaap '' ) throughout this document , the company has provided non-gaap measurements which present operating results on a basis before the impact of a settlement of a legal matter . this item is described in further detail throughout this document . the company used earnings before the impact of the legal settlement as a key performance measure of results of operations for purposes of evaluating performance internally . this non-gaap measurement is not intended to replace the presentation of our financial results in accordance with gaap . rather , the company believes that the presentation of results before the impact of the legal settlement provides additional information to facilitate the comparison of past and present operations , excluding items that the company does not believe are indicative of our ongoing operations in the 52 weeks ended december 25 , 2012. replace_table_token_11_th ( 1 ) amount reserved in the first quarter of 2012 for the settlement of a legal matter was $ 5.0 million before the statutory income tax rate . the settlement is included in general administrative costs in our consolidated statements of income and comprehensive income . 41 restaurant unit activity replace_table_token_12_th restaurant sales restaurant sales increased by 12.6 % in 2013 as compared to 2012. the increase was primarily attributable to the opening of new restaurants and the acquisition of two franchise restaurants on december 25 , 2012 coupled with the addition of a
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the merger consideration is subject to adjustment based upon screenvision 's adjusted ebitda for the twelve months ended april 30 , 2014 , which resulted in no adjustment and is subject to adjustment based upon screenvision 's positive working capital at closing up to a maximum of $ 10 million . on november 3 , 2014 , the doj filed the doj action , an antitrust lawsuit seeking to enjoin the proposed merger between ncm , inc. and screenvision . a trial date has been scheduled for april 13 , 2015 for the doj action . following the merger , ncm , inc. will evaluate whether to contribute the screenvision assets to ncm llc . although it is under no obligation to do so , upon approval of ncm , inc. 's board of directors and the founding members , ncm , inc. may contribute screenvision assets and ncm , inc. debt to ncm llc in exchange for 9,900,990 ncm llc membership units . ncm , inc. has secured a commitment from a group of financial institutions for a $ 250 million term loan to finance the $ 225 million portion of the merger consideration that will be paid in cash , along with fees and expenses incurred in connection with the term loan and the merger . in addition , ncm llc amended its senior secured credit facility to allow for the contribution of the screenvision assets and ncm , inc. debt to ncm llc following the closing of the merger . the commitment letter and 47 certain ncm llc senior secured credit facility amendments expire on april 1 , 2015. we are working with the merger financing bank group to extend the merger financing commitments to accommodate the litigation process . our operating results may be affected by a variety of internal and external factors and trends described more fully in the section entitled risk factors in this form 10-k. summary historical and operating data you should read this information in conjunction with the other information contained in this document , and our audited historical financial statements and the notes thereto included elsewhere in this document . the following table presents operating data and adjusted oibda ( dollars in millions , except share and margin data ) . refer to item 6. selected financial datanotes to the selected historical financial and operating data for a discussion of the calculation of adjusted oibda and reconciliation to consolidated net income . replace_table_token_10_th ( 1 ) merger-related costs represent legal , accounting , advisory and other professional fees associated with the proposed merger with screenvision and are included in administrative expense in the accompanying audited consolidated financial statements . ( 2 ) represents the total attendance within ncm llc 's advertising network . ( 3 ) excludes screens and attendance associated with certain amc rave and cinemark rave theatres for all periods presented . 48 basis of presentation prior to the completion of the ipo , ncm llc was wholly-owned by its founding members . in connection with the offering , ncm , inc. purchased newly issued common membership units from ncm llc and common membership units from ncm llc 's founding members , and became a member of and the sole manager of ncm llc . we entered into several agreements to effect the reorganization and the financing transaction and certain amendments were made to the existing esas to govern the relationships among ncm llc and ncm llc 's founding members after the completion of these transactions . the results of operations data discussed herein were derived from the audited consolidated financial statements and accounting records of ncm , inc. and should be read in conjunction with the notes thereto . we have a 52-week or 53-week fiscal year ending on the first thursday after december 25. fiscal year 2014 contained 53 weeks . fiscal years 2013 and 2012 contained 52 weeks . our 2015 fiscal year will contain 52 weeks . throughout this document , we refer to our fiscal years as set forth below : replace_table_token_11_th story_separator_special_tag access fees due to an increase in the number of digital screens ( connected to dcn ) , including higher quality digital cinema projectors and related equipment , partially offset by a $ 0.8 million decrease related to the 1.6 % decrease in founding member attendance in 2014 compared to 2013. the fees for digital screens and equipment increased $ 1.2 million related to an annual 5 % rate increase specified in the esas and $ 0.8 million from an increase of 2.5 % in the average number of founding member digital screens and an increase of 3.8 % in the average number of founding member theatres equipped with the higher quality digital cinema equipment year-over-year . the increases in digital screens and theatres with digital cinema equipment were due primarily to acquisitions by the founding members . selling and marketing costs . selling and marketing costs decreased $ 3.9 million , or 6.3 % , from $ 61.5 million for the year ended december 26 , 2013 to $ 57.6 million for the year ended january 1 , 2015. this decrease was primarily due to a decrease in bad debt expense of $ 2.2 million as actual advertising accounts receivable write-offs were lower than estimated , a decrease of $ 1.6 million in non-cash barter expense 51 related to timing of barter transactions and a decrease of $ 0.6 million in certain discretionary marketing expenses . these decreases to selling and marketing costs were partially offset by an increase of $ 0.3 million in personnel expense due primarily to higher share-based compensation expense and local commissions , partially offset by lower salaries , bonuses and related taxes ( related to lower performance against internal targets ) and lower benefit costs . merger-related administrative costs . merger-related administrative costs were $ 7.5 million for the year ended january 1 , 2015 due primarily to legal and accounting fees associated with the proposed screenvision merger . administrative and other costs . story_separator_special_tag other administrative and other costs increased $ 0.1 million , or 0.3 % , from $ 29.4 million for the year ended december 26 , 2013 to $ 29.5 million for the year ended january 1 , 2015 due primarily to a $ 0.9 million increase in personnel expense due primarily to lower capitalized labor , higher share-based compensation expense and the impact of an additional week in 2014 , partially offset by lower bonus expense and related taxes ( related to lower performance against internal targets ) and lower benefit costs , partially offset by a decrease in legal and professional fees of approximately $ 0.5 million . depreciation and amortization . depreciation and amortization expense increased $ 5.8 million , or 21.8 % , from $ 26.6 million for the year ended december 26 , 2013 to $ 32.4 million for the year ended january 1 , 2015. the increase was primarily due to higher amortization of intangible assets related to new affiliate agreements and ncm llc founding member common unit adjustments , primarily related to founding member theatre acquisitions and the impact of an additional week in 2014. non-operating expenses . total non-operating expenses increased $ 24.2 million , or 46.5 % , from $ 52.0 million for the year ended december 26 , 2013 to $ 76.2 million for the year ended january 1 , 2015. the following table shows the changes in non-operating expense for the years ended january 1 , 2015 and december 26 , 2013 ( in millions ) : replace_table_token_15_th the increase in non-operating expense was due primarily to the absence of the gain recorded in 2013 of $ 25.4 million , net of direct expenses , related to the sale of our fathom events business on december 26 , 2013. in addition , interest on borrowings increased $ 1.0 million due to an additional week in our 53-week year , compared to a 52-week year in 2013. interest due to ncm llc 's founding members under the tax receivable agreement increased $ 0.7 million due primarily to changes in tax rates and ncm llc ownership rates period over period . the increase in non-operating expense was partially offset by an increase in interest income of $ 1.4 million due primarily to interest accrued on the notes receivable from ncm llc 's founding members from the sale of fathom events and the absence of a $ 0.8 million impairment of an investment recorded in 2013. net income . net income decreased $ 27.8 million from $ 41.2 million for the year ended december 26 , 2013 to $ 13.4 million for the year ended january 1 , 2015. the decrease in net income was due to a decrease in operating income of $ 50.3 million that was due primarily to the decrease in our national advertising revenue and 52 was negatively impacted by the sale of the fathom events business and $ 7.5 million of merger-related expenses , and an increase of $ 24.2 million in non-operating expense , as described further above , partially offset by a $ 36.4 million decrease in income attributable to noncontrolling interests and a decrease in income tax expense of $ 10.3 million , due primarily to lower net income before taxes in the period . years ended december 26 , 2013 and december 27 , 2012 revenue . total revenue for the year ended december 26 , 2013 increased $ 14.0 million , or 3.1 % , to $ 462.8 million , compared to $ 448.8 million for the 2012 period . the following is a summary of revenue by category ( in millions ) . replace_table_token_16_th the following table shows data on revenue per attendee for the years ended december 26 , 2013 and december 27 , 2012 ( in millions ) : replace_table_token_17_th ( 1 ) represents the total attendance within ncm llc 's advertising network . ( 2 ) excludes screens and attendance associated with certain amc rave and cinemark rave theatres for all periods presented . national advertising revenue . the $ 6.3 million , or 2.2 % , increase in national advertising revenue ( excluding beverage revenue from ncm llc 's founding members ) was due primarily to an increase in national inventory utilization which rose from 98.8 % in 2012 to 109.3 % in 2013 on network attendance growth of 1.3 % . inventory utilization is calculated based on eleven 30-second salable national advertising units in our pre-show , which can be expanded , should market demand dictate . revenue and utilization increased primarily due to content partner revenue increasing 17.3 % to $ 84.0 million in 2013 , compared to $ 71.6 million in 2012 primarily due to several content partners spending over their annual contractual commitment in 2013. in addition , online and mobile advertising revenue increased $ 0.8 million , or 16.4 % , from $ 5.0 million in 2012 to $ 5.8 million in 2013. the increases to national advertising revenue were partially offset by a 7.6 % decrease in national advertising cpms ( excluding beverage revenue ) due primarily to the expansion of our client mix to new client industries , more aggressive pricing strategies and increased competition . 53 local and regional advertising revenue . the $ 8.8 million , or 10.9 % , increase in local and regional advertising revenue was driven by an increase in local advertising contract volume of 9.7 % and an increase in the average contract value of 1.1 % in 2013 , compared to 2012. the increase in contract volume was driven by an increase in sales to smaller local clients .
| national advertising revenue also decreased due to a decline in revenue by our content partners and scatter spending by our previous cell phone psa client , which decreased $ 5.1 million and $ 12.6 million , respectively , compared to 2013. the decline in national advertising revenue ( excluding beverage revenue ) was partially offset by an increase in utilized impressions of 4.0 % in 2014 compared to 2013. our national inventory utilization rose from 109.3 % for the year ended december 26 , 2013 to 115.7 % for the year ended january 1 , 2015 , primarily due to an overall expansion of our client base and the success of the october 1 , 2014 through december 31 , 2015 upfront selling campaign that positively impacted the fourth quarter of 2014. the number of advertising impressions decreased due to a 1.6 % year-over-year decrease in theatre attendance , resulting from a weaker film release schedule compared to 2013 , partially offset by an additional week in our 53-week year , compared to a 52-week year in 2013. inventory utilization is calculated based on eleven 30-second salable national advertising units in our pre-show , which can be expanded , should market demand dictate . local and regional advertising revenue . the $ 6.9 million , or 7.7 % , increase in local and regional advertising revenue was driven by an increase in local advertising contract volume of 7.9 % , partially offset by a slight decrease in the average contract value of 0.3 % for the year ended january 1 , 2015 , compared to the year ended december 26 , 2013. the increase in contract volume was driven primarily by the higher number of larger regional contracts ( greater than $ 250,000 ) , which grew 64 % due to the improving economy that benefited smaller businesses that make smaller advertising commitments and the continued expansion of the number of theatres in our network . while the number of our largest contracts grew ( those over $ 250,000 ) , the number of contracts between $ 50,000 and $ 250,000 declined 6.8 % . founding member beverage revenue . the $ 3.0 million , or 7.2 % , decrease in national advertising revenue from ncm llc 's founding members ' beverage concessionaire agreements was due to a 5.8 % decrease in beverage revenue cpms and a 1.6 % decrease in founding member attendance for the year ended january 1 , 2015 , compared to the
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changes in working capital balances resulted in a $ 11.5 million source of cash in 2013 compared to $ 32.9 million in the prior year . cash generated from operating activities in 2011 totaled $ 134.3 million and changes in working capital balances resulted in a $ 12.9 million source of cash . the source of cash related to working capital balances in 2013 was primarily driven from lower inventory of $ 1.6 million and increased current liabilities of $ 30.4 million . the increase in current liabilities is comprised of a $ 14.6 million increase in trade accounts payable , a $ 11.3 million increase in other accruals , namely compensation , marketing and freight expense accruals and a $ 4.5 million increase in tax-related accruals . these sources of cash were offset partially by a $ 21.0 million increase in trade receivables due to increased sales during the fourth quarter . the source of cash related to working capital balances in 2012 was primarily driven from lower inventory of $ 9.5 million and increased current liabilities of $ 32.2 million . the increase in current liabilities is comprised of a $ 25.4 million increase in trade accounts payable , a $ 2.1 million increase in other accruals , namely compensation and marketing expense accruals and a $ 4.7 million increase in tax-related accruals . these sources of cash were offset partially by a $ 7.0 million increase in trade receivables due to increased sales during the fourth quarter . the source of cash related to working capital balances in 2011 was primarily driven from increased current liabilities of $ 35.4 million . the increase in current liabilities is comprised of a $ 29.5 million increase in trade accounts payable , a $ 10.3 million increase in other accruals , namely compensation and marketing expense accruals , offset by a $ 4.4 million decrease in tax-related accruals . these sources of cash were offset partially by a $ 6.9 million increase in trade receivables and higher inventory of $ 11.3 million due to increased sales during the fourth quarter . the corporation places special emphasis on management and control of working capital with a particular focus on trade receivables and inventory levels . the success achieved in managing receivables is in large part a result of doing business with quality customers and maintaining close communication with them . management believes recorded trade receivable valuation allowances at the end of 2013 are adequate to cover the risk of potential bad debts . allowances for non-collectible trade receivables , as a percent of gross trade receivables , totaled 2.6 percent , 2.4 percent and 2.3 percent at the end of fiscal years 2013 , 2012 and 2011 , respectively . the corporation 's inventory turns were 15 , 14 and 16 , for 2013 , 2012 and 2011 , respectively . cash flow – investing activities - 26 - capital expenditures , including capitalized software , were $ 78.9 million in 2013 , $ 60.3 million in 2012 and $ 31.1 million in 2011 . these expenditures continue to focus on machinery and equipment and tooling required to support new products , continuous improvements in our manufacturing processes and cost savings initiatives as well as the implementation of new integrated information systems to support business process transformation . the corporation anticipates capital expenditures for 2014 to total $ 90 to $ 95 million , primarily related to new products , operational process improvements and capabilities and the business process transformation project referred to above . in 2012 , the investing activities reflected a net cash outflow of $ 25.5 million related to the acquisition of bp ergo and $ 1.5 million related to the acquisition of a pellet stove business . the addition of bp ergo provides the corporation a presence in the india office furniture market . in 2011 , investing activities reflected a net cash outflow of $ 55 million related to the acquisition of artcobell . the addition of artcobell increased the corporation 's presence in the educational furniture market . refer to the business combination note in the notes to consolidated financial statements for additional information . in 2011 , the corporation completed the sale of a facility located in owensboro , kentucky , a facility located in salisbury , north carolina and excess land located in meadville , pennsylvania . the proceeds from these sales of $ 3 million are reflected in the consolidated statement of cash flows as “ proceeds from sale of property , plant and equipment ” for 2011 . cash flow – financing activities on september 28 , 2011 , the corporation amended and restated its existing revolving credit facility dated june 11 , 2010. the corporation increased its borrowing capacity from $ 150 million to $ 250 million and has the option to increase its borrowing capacity by an additional $ 100 million . the corporation also extended the term to the earlier of ( i ) september 28 , 2016 or ( ii ) the date 90 days prior to the maturity date of the corporation 's senior notes ( april 6 , 2016 ) , subject to certain exceptions . the corporation effectively decreased interest costs . amounts borrowed under the credit agreement may be borrowed , repaid and reborrowed from time to time . the corporation paid approximately $ 1.2 million of debt issuance costs that are being amortized straight-line over the term of the credit agreement . during 2013 net borrowings under the revolving credit facility peaked at $ 69 million . as of december 28 , 2013 , there were no amounts outstanding under the revolving credit facility . in 2006 , the corporation refinanced $ 150 million of borrowings outstanding under its prior revolving credit facility with 5.54 percent , ten-year unsecured senior notes due in 2016 issued through the private placement debt market . story_separator_special_tag interest payments are due semi-annually on april 1 and october 1 of each year and the principal is due in a lump sum in 2016. additional borrowing capacity of $ 250 million is available through the revolving credit facility in the event cash generated from operations should be inadequate to meet future needs . the corporation does not currently expect access to future capital to be a constraint on planned growth . long-term debt , including capital lease obligations , was 26 % of total capitalization as of december 28 , 2013 , december 29 , 2012 and december 31 , 2011 . the credit agreement governing the revolving credit facility and the note purchase agreement pertaining to the senior notes contain covenants that , among other things , restrict , subject to certain exceptions , our ability to : incur additional indebtedness and lease obligations and make guarantees ; create liens on assets ; engage in any material line of business substantially different from existing lines of business ; sell assets ; make investments , loans and advances , including acquisitions ; engage in sale-leaseback transactions in excess of $ 50 million in the aggregate ; repay the senior notes or enter into certain amendments thereof ; and engage in certain transactions with affiliates . the credit agreement governing the revolving credit facility contains a number of covenants , including covenants requiring maintenance of the following financial ratios as of the end of any fiscal quarter : a consolidated interest coverage ratio of not less than 4.0 to 1.0 , based upon the ratio of ( a ) consolidated ebitda ( as defined in the credit agreement ) for the last four fiscal quarters to ( b ) the sum of consolidated interest charges ; and a consolidated leverage ratio of not greater than 3.0 to 1.0 , based upon the ratio of ( a ) the quarter-end consolidated funded indebtedness ( as defined in the credit agreement ) to ( b ) consolidated ebitda for the last four fiscal quarters ; or - 27 - a consolidated leverage ratio of not greater than 3.5 to 1.0 , based upon the ratio of ( a ) the quarter-end consolidated funded indebtedness to ( b ) consolidated ebitda for the last four fiscal quarters following any qualifying debt financed acquisition . the note purchase agreement governing the senior notes also contains a number of covenants , including a covenant requiring maintenance of consolidated debt to consolidated ebitda ( as defined in the note purchase agreement ) of not greater than 3.5 to 1.0 , based upon the ratio of ( a ) the quarter-end consolidated funded indebtedness ( as defined in the note purchase agreement ) to ( b ) consolidated ebitda for the last four fiscal quarters . the revolving credit facility and senior notes are the primary sources of committed funding from which the corporation finances its planned capital expenditures , strategic initiatives such as repurchases of common stock and certain working capital needs . non-compliance with the various financial covenant ratios could prevent the corporation from being able to access further borrowings under the revolving credit facility , require immediate repayment of all amounts outstanding with respect to the revolving credit facility and senior notes and increase the cost of borrowing . the most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.0 to 1.0 included in the credit agreement governing the revolving credit facility . under the credit agreement , adjusted ebitda is defined as consolidated net income before interest expense , income taxes and depreciation and amortization of intangibles , as well as non-cash nonrecurring charges and all non-cash items increasing net income . at december 28 , 2013 , the corporation was well below this ratio at 1.0 and was in compliance with all of the covenants and other restrictions in the credit agreement and note purchase agreement . the corporation currently expects to remain in compliance over the next twelve months . during 2013 , the corporation repurchased 740,000 shares of its common stock at a cost of approximately $ 27.5 million , or an average price of $ 37.15. the board authorized $ 200 million on august 8 , 2006 , and an additional $ 200 million on november 9 , 2007 , for repurchases of the corporation 's common stock . as of december 28 , 2013 approximately $ 87.3 million of this authorized amount remained unspent . during 2012 , the corporation repurchased 800,000 shares of its common stock at a cost of approximately $ 21.0 million , or an average price of $ 26.28. during 2011 , the corporation repurchased 323,965 shares of its common stock at a cost of approximately $ 10.0 million , or an average price of $ 30.87. a cash dividend has been paid every quarter since april 15 , 1955 , and quarterly dividends are expected to continue . cash dividends were $ 0.96 per common share for 2013 , $ 0.95 for 2012 and $ 0.92 for 2011 . the last quarterly dividend increase was from $ 0.23 to $ 0.24 per common share effective with the june 1 , 2012 dividend payment for shareholders of record at the close of business on may 18 , 2012. the average dividend payout percentage for the most recent three-year period has been 105 percent of prior year earnings or 34 percent of prior year cash flow from operating activities . cash , cash equivalents and short-term investments totaled $ 72.3 million at the end of 2013 compared to $ 49.0 million at the end of 2012 and $ 82.0 million at the end of 2011 . these funds , coupled with cash from future operations , borrowing capacity under the existing facility and the ability to access capital markets are expected to be adequate to fund operations and satisfy cash flow needs for at least the next twelve months . as of the end of 2013 , $ 15.2 million of cash was held overseas and considered permanently reinvested .
| the increase in 2013 was due to volume related expenses , investments in selling and growth initiatives , higher incentive-based compensation and a loss on sale of a small non-core office furniture business of $ 2.5 million . the increase in 2012 was due to volume related expenses , investments in selling and growth initiatives , higher incentive-based compensation and costs associated with acquisitions . selling and administrative expenses include freight expense for shipments to customers , product development costs and amortization expense of intangible assets . refer to summary of significant accounting policies and goodwill and other intangible assets in the notes to consolidated financial statements for further information regarding the comparative expense levels for these items . restructuring and impairment charges during 2011 , the corporation made the decision to transition out of its lithia springs , georgia office furniture distribution center and the transition was completed in the fourth quarter of 2012. the distribution center was operated by a third-party logistics provider . the corporation added distribution capacity to its cedartown , georgia office furniture manufacturing facility and - 24 - distribution center to make up for the loss of the lithia springs distribution center . to make room for the additional distribution capacity , the corporation consolidated some office furniture manufacturing production from the cedartown facility into exisiting office furniture manufacturing facilities in muscatine , iowa . in addition , during 2011 , the corporation made the decision to consolidate some office furniture manufacturing production from its hickory , north carolina facility into its wayland , new york facility . in connection with the closure , consolidations and realignment , the corporation recorded $ 2.0 million of pre-tax charges which included $ 0.2 million of accelerated depreciation of machinery and equipment recorded in cost of sales and $ 1.8 million of severance and facility exit costs recorded as restructuring costs in 2011. during 2012 , the corporation recorded current period charges which included $ 0.3 million
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miscellaneous , net for 2015 includes a $ 134 million special charge related to the write-off of unamortized non-cash debt discounts for the early redemption of the 6 % notes due 2026 ( 2026 notes ) and the 6 % notes due 2028 ( 2028 notes ) . 2014 miscellaneous , net includes a $ 64 million debt extinguishment charge related to the retirement of the $ 248 million 6 % convertible junior subordinated debentures due 2030 . 35 2014 compared to 2013 operating revenue the table below illustrates the year-over-year percentage change in the company 's operating revenues for the years ended december 31 ( in millions , except percentage changes ) : replace_table_token_13_th the table below presents the company 's selected passenger revenue and selected operating data based on geographic region ( regional flights consist primarily of domestic routes ) : replace_table_token_14_th ( a ) see part ii , item 6 of this report for the definition of these statistics . consolidated passenger revenue in 2014 increased $ 640 million , or 1.9 % , as compared to 2013. this increase was primarily due to an increase in consolidated yield of 1.7 % and an increase in average fare per passenger of 2.8 % . there was also an increase in capacity and traffic of 0.3 % and 0.2 % , respectively , as compared to 2013. the 2014 average fare increase was due in part to a strong domestic demand environment and a number of new long-haul routes that generated higher fares than the system average . also in 2014 , the company improved its revenue management demand forecast process related to close-in bookings which improved yields . 2013 consolidated passenger revenue was negatively impacted by factors including additional competitive capacity in china and the japanese yen weakening against the u.s. dollar , resulting in lower pacific yields . cargo revenue increased by $ 56 million , or 6.3 % , in 2014 as compared to 2013 , which was primarily due to higher freight volumes and an improvement in mail revenue year-over-year , partially offset by lower yield on freight . other operating revenue decreased $ 74 million , or 1.7 % , in 2014 as compared to 2013 , which was primarily due to the company 's decision to discontinue sales of aircraft fuel to a third party , partially offset by increases in ancillary , mileageplus and contract services revenue . 36 operating expense the table below includes data related to the company 's operating expense for the year ended december 31 ( in millions , except percentage changes ) : replace_table_token_15_th the decrease in aircraft fuel expense was primarily attributable to decreased fuel prices partially offset by losses from fuel hedge activity and a 0.3 % increase in capacity . the table below presents the significant changes in aircraft fuel cost per gallon for the year ended december 31 ( in millions , except percentage changes ) : replace_table_token_16_th salaries and related costs increased $ 310 million , or 3.6 % , in 2014 as compared to 2013 primarily due to higher pay rates driven by collective bargaining agreements , increased medical and dental costs and costs associated with crew shortages and new crew rest rules , partially offset by lower post-employment benefit costs . landing fees and other rent increased $ 184 million , or 8.8 % , in 2014 as compared to 2013 primarily due to a transition from paying regional carriers for landing fees to paying airports directly . landing fees also increased due to airport security services and modernization projects at certain airport locations . aircraft rent decreased $ 53 million , or 5.7 % , in 2014 as compared to 2013 primarily due to aircraft lease expirations and terminations of several boeing 757-200 aircraft leases resulting from the company 's purchase of the leased aircraft . 37 the table below presents special items incurred by ual during the years ended december 31 ( in millions ) : replace_table_token_17_th see note 16 to the financial statements included in part ii , item 8 of this report for additional information . nonoperating income ( expense ) the following table illustrates the year-over-year dollar and percentage changes in ual 's nonoperating income ( expense ) ( in millions , except percentage changes ) : replace_table_token_18_th the decrease in interest expense of $ 48 million , or 6.1 % , in 2014 as compared to 2013 was primarily due to the company 's extinguishment of certain of its debt instruments and the refinancing of certain of its debt instruments at lower interest rates . in 2014 , miscellaneous , net included a mtm loss of $ 462 million from fuel derivatives not qualifying for hedge accounting as compared to a gain of $ 79 million in 2013. miscellaneous , net also included foreign currency losses of $ 41 million and $ 29 million in 2014 and 2013 , respectively . 2014 miscellaneous , net includes a $ 64 million debt extinguishment charge related to the retirement of the $ 248 million 6 % convertible junior subordinated debentures due 2030. united 's nonoperating expense also included a net gain of $ 19 million associated with marking to market the fair value of derivative assets and liabilities related to agreements that provide for united 's convertible debt to be settled with ual common stock as compared to a net gain of $ 70 million in 2013. these net gains and related derivatives are reflected only in the united stand-alone financial statements as they are eliminated at the consolidated level . see note 9 to the financial statements included in part ii , item 8 of this report for additional information . story_separator_special_tag liquidity and capital resources as of december 31 , 2015 , the company had $ 5.2 billion in unrestricted cash , cash equivalents and short-term investments , an increase of $ 0.8 billion from december 31 , 2014. the company had its entire commitment capacity of $ 1.35 billion under the credit agreement available for letters of credit or borrowings as of december 31 , 2015. as of december 31 , 2015 , the company had $ 206 million of restricted cash and cash equivalents , which is primarily collateral for performance bonds , letters of credit and estimated future workers ' compensation claims . we may be required to post significant additional cash collateral to provide security for obligations . restricted cash and cash equivalents at december 31 , 2014 totaled $ 320 million . 38 as is the case with many of our principal competitors , we have a high proportion of debt compared to capital . we have a significant amount of fixed obligations , including debt , aircraft leases and financings , leases of airport property and other facilities and pension funding obligations . at december 31 , 2015 , the company had approximately $ 11.8 billion of debt and capital lease obligations , including $ 1.4 billion that are due within the next 12 months . in addition , we have substantial noncancelable commitments for capital expenditures , including the acquisition of new aircraft and related spare engines . as of december 31 , 2015 , our current liabilities exceeded our current assets by approximately $ 4.6 billion . however , approximately $ 5.9 billion of our current liabilities are related to our advance ticket sales and frequent flyer deferred revenue , both of which largely represent revenue to be recognized for travel in the near future and not actual cash outlays . the deficit in working capital does not have an adverse impact to our cash flows , liquidity or operations . the company made principal payments of debt and capital lease obligations totaling $ 2.3 billion in 2015. the company will continue to evaluate opportunities to prepay its debt , including open market repurchases , to reduce its indebtedness and related interest . for 2016 , the company expects between $ 2.7 billion and $ 2.9 billion of gross capital expenditures . see notes 11 and 15 to the financial statements included in part ii , item 8 of this report for additional information on commitments . as of december 31 , 2015 , a substantial portion of the company 's assets , principally aircraft , route authorities and loyalty program intangible assets , was pledged under various loan and other agreements . see note 11 to the financial statements included in part ii , item 8 of this report for additional information on assets provided as collateral by the company . although access to the capital markets improved in recent years as evidenced by our financing transactions , we can not give any assurances that we will be able to obtain additional financing or otherwise access the capital markets in the future on acceptable terms , or at all . we must sustain our profitability and or access the capital markets to meet our significant long-term debt and capital lease obligations and future commitments for capital expenditures , including the acquisition of aircraft and related spare engines . the following is a discussion of the company 's sources and uses of cash from 2013 through 2015. cash flows from operating activities 2015 compared to 2014 cash flow provided by operations for the year ended december 31 , 2015 was $ 6.0 billion compared to $ 2.6 billion in the same period in 2014. the $ 3.4 billion increase is primarily attributable to an increase of $ 3.1 billion in income before income taxes and a $ 0.4 billion increase in non-cash items for the year ended december 31 , 2015 as compared to the same period in 2014. working capital changes reduced cash flow from operations by $ 0.1 billion year-over-year in 2015 as compared to 2014. the following were significant working capital items in 2015 : cash flow increased by $ 0.2 billion from the return of hedge collateral net of the impact of changes in fuel derivative positions . cash flow from other liabilities , including accrued wages , decreased $ 0.2 billion , which included $ 0.8 billion in pension contributions offset by $ 0.7 billion in profit sharing accruals to be paid in 2016. frequent flyer deferred revenue and advanced purchase of miles decreased $ 0.2 billion . 2014 compared to 2013 cash flow provided by operations for the year ended december 31 , 2014 was $ 2.6 billion compared to $ 1.4 billion in the same period in 2013. the $ 1.2 billion increase was primarily attributable to an increase of $ 0.6 billion in income before income taxes and $ 0.6 billion of changes in working capital items year-over-year in 2014 as compared to 2013. the following were significant working capital items in 2014 : cash flow from advance ticket sales increased by $ 0.3 billion . accounts receivable decreased by $ 0.2 billion mainly due to the timing of settlements with airline partners for interline billing . cash flow from other liabilities , including accrued 39 wages , decreased $ 0.2 billion , which included $ 0.5 billion in pension contributions offset by $ 0.2 billion in profit sharing accruals . in 2014 , cash flow decreased by $ 0.1 billion from the posting of fuel hedge collateral , net of changes in fuel derivative positions . accounts payable decreased by $ 0.3 billion primarily due to the timing of settlements with airline partners for interline billing along with changes in various accruals . cash flows from investing activities 2015 compared to 2014 the company 's capital expenditures were $ 2.7 billion and $ 2.0 billion in 2015 and 2014 , respectively . the company 's capital expenditures for both years were primarily attributable to the purchase of aircraft , facility and fleet-related costs .
| ( chase ) , pursuant to which members of the company 's mileageplus ® loyalty program earn frequent flyer miles for making purchases using a mileageplus ® credit card issued by chase . the co-brand agreement also provides for joint marketing and other support for the mileageplus ® credit card . this increased 2015 operating revenues by approximately $ 200 million from the combined impact of the co-brand agreement , agreements ancillary to the co-brand agreement and updated accounting assumptions for accounting purposes . 2015 operational highlights consolidated rpms for 2015 increased 1.5 % as compared to 2014 , and consolidated asms increased 1.6 % from the prior year , resulting in a consolidated load factor of 83.4 % in 2015. for 2015 and 2014 , the company recorded a dot on-time arrival rate of 78.1 % and 76.0 % , respectively , and a system completion factor of 98.7 % and 98.6 % , respectively . 31 the company took delivery of 11 new boeing 787-9 dreamliners in 2015 , bringing its total dreamliner fleet to 25 aircraft . the company also took delivery of 23 new boeing 737-900ers , 11 new embraer e175s and four used boeing 737-700 aircraft in 2015. united exited from scheduled service 13 boeing 757-200s , 46 embraer erj 145s and one boeing 747-400. the company also exited one boeing 747-400 operating exclusively in charter service . effective march 1 , 2015 , the company modified its mileageplus program for most tickets from the prior model in which members earn redeemable miles based on distance traveled to the current model , which is based on ticket price ( including base fare and carrier imposed surcharges ) . members are now able to earn between five and eleven miles per dollar spent based on their mileageplus status . the modified program enhances the rewards for customers who spend more with united and gives them improved mileage-earning opportunities . 2016 outlook set forth below is a discussion of the principal matters that we believe could impact our financial and operating performance and cause our results of operations in future periods to differ materially from our historical operating
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accounting standards codification topic 740 , income taxes , requires that companies assess whether a valuation allowance should be established against their deferred tax assets based on the consideration of all available evidence using a “ more likely than not ” standard . a valuation allowance is established for deferred tax assets if , based on weight of available evidence , it is more likely than not that some portion or all of the deferred tax assets may not be realized . management evaluates the company 's deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence , including the company 's historical profitability and projections of future taxable income . the company is required to establish a valuation allowance for deferred tax assets and record a charge to income if management determines , based on available evidence at the time the determination is made , that it is more likely than not that some portion or all of the deferred tax assets may not be realized . there was no valuation allowance on deferred tax assets at december 31 , 2016 and 2015. the company is subject to the provisions of asc 740 , income taxes ( asc 740 ) . asc 740 prescribes a more likely than not threshold for the financial statement recognition of uncertain tax positions . asc 740 clarifies the accounting for income taxes by prescribing a minimum 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 . on a quarterly basis , the company undergoes a process to evaluate whether income tax accruals are in accordance with asc 740 guidance on uncertain tax positions . there were no uncertain tax positions at december 31 , 2016 and 2015. additional information regarding income taxes , including a reconciliation of the differences between the recorded income tax provision and the amount of tax computed by applying statutory federal and state income tax rates before income taxes , can be found in note 7 “ income taxes ” to the consolidated financial statements of this annual report on form 10-k beginning on page 75. balance sheet total assets increased $ 89.4 million to $ 710.6 million at december 31 , 2016 compared to $ 621.2 million at december 31 , 2015. the majority of the increase was in total loans of $ 87.3 million , or 16.1 % , to $ 630.8 million . total commercial real estate loans increased by 51.6 % to $ 272.1 million at december 31 , 2016 compared to 2015 , and comprised 43.1 % of the total loan portfolio . manufactured housing loans increased by 9.2 % to $ 194.2 million at december 31 , 2016 compared to 2015 , and represented 30.8 % of the total loan portfolio . total commercial loans including commercial agriculture loans decreased 2.1 % to $ 105.3 million at december 31 , 2016 compared to 2015 , and represented 16.7 % of the total loan portfolio . total liabilities increased $ 86.0 million , or 15.4 % to $ 645.2 million at december 31 , 2016 from $ 559.3 million at december 31 , 2015. the majority of this increase was due to deposit growth . total deposits increased by $ 67.9 million , or 12.5 % to $ 612.2 million at december 31 , 2016 from $ 544.3 million at december 31 , 2015. non-interest bearing demand deposits increased by $ 23.9 million to $ 100.4 million at december 31 , 2016 from $ 76.5 million at december 31 , 2015. certificates of deposit increased by $ 41.2 million to $ 244.8 million at december 31 , 2016 compared to $ 203.7 million at december 31 , 2015. interest-bearing demand deposits increased by $ 2.5 million to $ 253.0 million at december 31 , 2016 compared to 2015. savings deposits increased slightly to $ 14.0 million at december 31 , 2016 compared to $ 13.7 million at december 31 , 2015. other borrowings increased by $ 18.5 million to $ 29.0 million at december 31 , 2016 compared to 2015 due to increased fhlb advances which were $ 25.0 million at december 31 , 2016 compared to $ 5.0 million at december 31 , 2015. total stockholders ' equity increased to $ 65.3 million at december 31 , 2016 from $ 61.9 million at december 31 , 2015. this increase was primarily from 2016 net income of $ 5.2 million reduced by common stock repurchases of $ 1.3 million and quarterly common stock dividends of $ 1.1 million . 21 index the following tables present the company 's average balances as of the dates indicated : replace_table_token_12_th 22 index loan portfolio market summary total loans increased by $ 87.3 million during 2016 to $ 630.8 million . the majority of this increase was driven by $ 42.7 million of organic growth as the company expanded into the san luis obispo county market . total commercial real estate loans increased by $ 92.6 million and manufactured housing loans increased by $ 16.3 million . total commercial loans including commercial agriculture loans decreased slightly by $ 2.2 million . sba and single family real estate declined by $ 11.4 million and $ 6.3 million , respectively as the company no longer originates sba loans outside of california and did not focus on this product in 2016. the company exited from the single family real estate origination business in 2015 and the remaining portfolio balance will continue to decrease . with the recent rise in interest rates and our expansion into the san luis obispo and oxnard markets we believe the company is well positioned for continued growth . the table below summarizes the distribution of the company 's loans ( including loans held for sale ) at the year-end : replace_table_token_13_th commercial loans commercial loans consist of term loans and revolving business lines of credit . story_separator_special_tag under the terms of the revolving lines of credit , the company grants a maximum loan amount , which remains available to the business during the loan term . the collateral for these loans typically are secured by uniform commercial code ( “ ucc-1 ” ) lien filings , real estate and personal guarantees . the company does not extend material loans of this type in excess of two years . commercial real estate commercial real estate and construction loans are primarily made for the purpose of purchasing , improving or constructing , commercial and industrial properties . this loan category also includes sba 504 loans and land loans . commercial and industrial real estate loans are primarily secured by nonresidential property . office buildings or other commercial property primarily secure these types of loans . loan to appraised value ratios on nonresidential real estate loans are generally restricted to 75 % of appraised value of the underlying real property if occupied by the owner or owner 's business ; otherwise , these loans are generally restricted to 70 % of appraised value of the underlying real property . 23 index the company makes real estate construction loans on commercial properties and single family dwellings . these loans are collateralized by first and second trust deeds on real property . construction loans are generally written with terms of six to eighteen months and usually do not exceed a loan to appraised value of 80 % . sba 504 loans are made in conjunction with certified development companies . these loans are granted to purchase or construct real estate or acquire machinery and equipment . the loan is structured with a conventional first trust deed provided by a private lender and a second trust deed which is funded through the sale of debentures . the predominant structure is terms of 10 % down payment , 50 % conventional first loan and 40 % debenture . construction loans of this type must provide additional collateral to reduce the loan-to-value to approximately 75 % . conventional and investor loans are sometimes funded by our secondary-market partners and cwb receives a premium for these transactions . sba loans sba loans consist of sba 7 ( a ) and business and industry loans ( “ b & i ” ) . the sba 7 ( a ) loan proceeds are used for working capital , machinery and equipment purchases , land and building purposes , leasehold improvements and debt refinancing . at present , the sba guarantees as much as 85 % on loans up to $ 150,000 and 75 % on loans more than $ 150,000. the sba 's maximum exposure amount is $ 3,750,000. the company may sell a portion of the loans , however , under the sba 7 ( a ) loan program ; the company is required to retain a minimum of 5 % of the principal balance of each loan it sells into the secondary market . b & i loans are guaranteed by the u.s. department of agriculture . the maximum guaranteed amount is 80 % for loans of $ 5 million or less . b & i loans are similar to the sba 7 ( a ) loans but are made to businesses in designated rural areas . these loans can also be sold into the secondary market . agricultural loans for real estate and operating lines the company has an agricultural lending program for agricultural land , agricultural operational lines , and agricultural term loans for crops , equipment and livestock . the primary product is supported by guarantees issued from the u.s. department of agriculture ( “ usda ” ) , farm service agency ( “ fsa ” ) , and the usda b & i loan program . the fsa loans typically have a 90 % guarantee up to $ 1,399,000 ( amount adjusted annually based on inflation ) for up to 40 years , but not always . the company had $ 63.4 million of these loans at december 31 , 2016. cwb is an approved federal agricultural mortgage corporation ( “ farmer mac ” ) lender under the farmer mac i and farmer mac ii programs . under the farmer mac i program , loans are sourced by cwb , underwritten , funded and serviced by farmer mac . cwb does some servicing such as collecting client information , processing payments and performing site visits . cwb receives an origination fee and an ongoing field servicing fee for maintaining the relationship with the borrower and performing certain loan compliance monitoring , and other duties as directed by the central servicer . cwb underwrites loans under the farmer mac 1 program which are funded by farmer mac and do not have a guarantee . eligible loans include fsa and b & i loans . manufactured housing loans cwb originates loans secured by manufactured homes located in approved rental , co-operative ownership , condominium and planned unit development mobile home parks in santa barbara , ventura and san luis obispo counties as well as along the california coast from san diego to san francisco . the loans are made to borrowers for purchasing or refinancing new or existing manufactured homes . the loans are made under either fixed rate programs for terms of 10 to 20 years or adjustable rate programs with terms of 25 to 30 years . the adjustable rate loans have an initial fixed rate period of five to 10 years and then adjust annually subject to interest rate caps . heloc the bank holds a portfolio of lines of credit collateralized by residential real estate , home equity lines of credit ( “ heloc ” ) , for consumer related purposes . typically , helocs are collateralized by a second deed of trust . the combined loan-to-value , first trust deed and second trust deed , are not to exceed 75 % on all helocs . the bank is not actively originating new helocs . other installment loans installment loans consist of automobile and general-purpose loans made to individuals .
| interest income for the year ended december 31 , 2016 was $ 32.2 million , an increase from $ 30.2 million and $ 28.0 million , respectively , for the years ended december 31 , 2015 and 2014. the interest income was positively impacted by increased average earning assets primarily loans in 2016. average loans for the year increased 11.5 % over 2015 and 17.1 % over 2014. average asset yields declined for 2016 as competition for new quality loans continued to further compress the interest rates and the margin . in 2015 the margin benefited by 22 basis points from the payoff of two large nonaccrual loan relationships . these loan interest recoveries on nonaccrual loans in 2015 also accounted for the increased average yield on loans for 2015 compared to 2016 and 2014. interest expense for the year ended december 31 , 2016 increased compared to 2015 by $ 0.6 million and decreased compared to 2014 by $ 0.1 million , respectively , to $ 3.1 million . the increase for 2016 compared to 2015 was mostly the result of the increased volume of deposits and increased rates . average interest-bearing deposits increased 10.8 % in 2016 compared to 2015. the average cost on interest-bearing deposits also increased to 59 basis points in 2016 compared to 54 basis points in 2015. the net impact of the changes in yields on interest-earning assets and the rates paid on interest-bearing liabilities was to decrease the margin for 2016 compared to 2015. the net interest margin was 4.60 % for 2016 compared to 4.80 % for 2015 and 4.50 % in 2014. net interest income increased by $ 1.4 million for 2016 compared to 2015 and $ 4.4 million , compared to 2014. total interest income increased by $ 2.2 million to $ 30.2 million in 2015 compared to 2014. the interest income was positively impacted by increased yields on earning assets in 2015 which increased to 5.23 % compared to 5.10 % for 2014. the average yield on loans increased to 5.67 % for 2015 compared to 5.55 % for 2014 as the company benefited from loan interest recoveries on nonaccrual loans during the year . total interest expense decreased by $ 0.8 million in 2015 compared to 2014. this decline was primarily due to decreased total cost of funds which include non-interest bearing deposits from 67 basis points for 2014 to 49 basis points for 2015. net interest income
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management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of its consolidated financial statements . the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . if the financial condition of the company 's customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . the company determines a need for a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized . while the company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance , in the event the company were to determine that it would not be able to realize all or a part of its net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income in the period such determination was made . the company assesses the recoverability of long-lived assets , intangible assets and goodwill whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable . when the company determines that the carrying value of the long- lived assets , intangible assets and goodwill may not be recoverable , it measures any impairment based on comparing future cash flows ( undiscounted and without interest charges ) expected to result from the use or sale of the asset and its eventual disposition , to the carrying amount of the asset . the company believes the following are its most critical accounting policies in that they are the most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective or complex judgments . allowance for doubtful accounts the company regularly monitors and assesses its risk of not collecting amounts owed to it by its customers . this evaluation is based upon an analysis of amounts currently and past due along with relevant history and facts particular to the customer . based upon the results of this analysis , the company records an allowance for uncollectible accounts for this risk . this analysis requires the company to make significant estimates , and changes in facts and circumstances could result in material changes in the allowance for doubtful accounts . asset impairment the company reviews its long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . in performing the review for recoverability , the company estimates the future cash flows expected to result from the use of the asset and its eventual disposition . if the sum of the expected future cash flows ( undiscounted and without interest charges ) is less than the carrying amount of the asset , an impairment loss is recognized . otherwise , an impairment loss is not recognized . measurement of an impairment loss for long-lived assets and identifiable intangibles would be based on the fair value of the asset . 16 recent accounting pronouncements in july 2001 , the financial accounting standards board ( `` fasb '' ) issued statements of financial accounting standards ( `` sfas '' ) no . 141 , `` business combinations '' and no . 142 , `` goodwill and other intangible assets . '' sfas no . 141 and sfas no . 142 establish accounting and reporting standards for business combinations and for goodwill and intangible assets resulting from business combinations , respectively . sfas no . 141 prohibits the use of the pooling-of-interests method of accounting for business combinations and applies to all business combinations initiated after june 30 , 2001. sfas no . 142 discontinues the periodic amortization of goodwill ( and intangible assets deemed to have indefinite lives ) and requires impairment to be tested annually . further , sfas no . 142 replaces the measurement guidelines for impairment , whereby goodwill not considered impaired under previous accounting literature may be considered impaired under sfas no . 142. sfas no . 142 is effective for all fiscal years beginning after december 15 , 2001 , and can not be applied retroactively . sfas no . 142 is to be applied to all recorded goodwill and intangible assets as of the date of adoption . the company has applied sfas no . 142 for the accounting of goodwill and other intangible assets beginning march 1 , 2002. application of the non-amortization provisions of sfas no . 142 is expected to increase income from operations in fiscal 2003 by approximately $ 423,000 net of the income tax benefit of $ 77,000. additionally , the company is currently in the process of performing the required transitionary impairment test of goodwill under sfas no . 142. additionally , in august and october 2001 , the fasb issued sfas no . 143 , `` accounting for asset retirement obligations '' and sfas no . 144 , `` accounting for the impairment or disposal of long-lived assets , '' respectively . sfas no . 143 requires the fair value of a liability be recorded for an asset retirement obligation in the period in which it is incurred . sfas no.144 addresses the accounting and reporting for the impairment of long-lived assets , other than goodwill , and for long-lived assets to be disposed of . further , sfas no . 144 establishes a single accounting model for long-lived assets to be disposed of by sale . both sfas no . 143 and no . 144 are effective for story_separator_special_tag management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances . actual results may differ from these estimates under different assumptions or conditions . management believes the following critical accounting policies , among others , affect its more significant judgments and estimates used in the preparation of its consolidated financial statements . the company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments . if the financial condition of the company 's customers were to deteriorate , resulting in an impairment of their ability to make payments , additional allowances may be required . the company determines a need for a valuation allowance to reduce its deferred tax assets to the amount that it believes is more likely than not to be realized . while the company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance , in the event the company were to determine that it would not be able to realize all or a part of its net deferred tax assets in the future , an adjustment to the deferred tax assets would be charged to income in the period such determination was made . the company assesses the recoverability of long-lived assets , intangible assets and goodwill whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable . when the company determines that the carrying value of the long- lived assets , intangible assets and goodwill may not be recoverable , it measures any impairment based on comparing future cash flows ( undiscounted and without interest charges ) expected to result from the use or sale of the asset and its eventual disposition , to the carrying amount of the asset . the company believes the following are its most critical accounting policies in that they are the most important to the portrayal of the company 's financial condition and results of operations and require management 's most difficult , subjective or complex judgments . allowance for doubtful accounts the company regularly monitors and assesses its risk of not collecting amounts owed to it by its customers . this evaluation is based upon an analysis of amounts currently and past due along with relevant history and facts particular to the customer . based upon the results of this analysis , the company records an allowance for uncollectible accounts for this risk . this analysis requires the company to make significant estimates , and changes in facts and circumstances could result in material changes in the allowance for doubtful accounts . asset impairment the company reviews its long-lived assets and identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable . in performing the review for recoverability , the company estimates the future cash flows expected to result from the use of the asset and its eventual disposition . if the sum of the expected future cash flows ( undiscounted and without interest charges ) is less than the carrying amount of the asset , an impairment loss is recognized . otherwise , an impairment loss is not recognized . measurement of an impairment loss for long-lived assets and identifiable intangibles would be based on the fair value of the asset . 16 recent accounting pronouncements in july 2001 , the financial accounting standards board ( `` fasb '' ) issued statements of financial accounting standards ( `` sfas '' ) no . 141 , `` business combinations '' and no . 142 , `` goodwill and other intangible assets . '' sfas no . 141 and sfas no . 142 establish accounting and reporting standards for business combinations and for goodwill and intangible assets resulting from business combinations , respectively . sfas no . 141 prohibits the use of the pooling-of-interests method of accounting for business combinations and applies to all business combinations initiated after june 30 , 2001. sfas no . 142 discontinues the periodic amortization of goodwill ( and intangible assets deemed to have indefinite lives ) and requires impairment to be tested annually . further , sfas no . 142 replaces the measurement guidelines for impairment , whereby goodwill not considered impaired under previous accounting literature may be considered impaired under sfas no . 142. sfas no . 142 is effective for all fiscal years beginning after december 15 , 2001 , and can not be applied retroactively . sfas no . 142 is to be applied to all recorded goodwill and intangible assets as of the date of adoption . the company has applied sfas no . 142 for the accounting of goodwill and other intangible assets beginning march 1 , 2002. application of the non-amortization provisions of sfas no . 142 is expected to increase income from operations in fiscal 2003 by approximately $ 423,000 net of the income tax benefit of $ 77,000. additionally , the company is currently in the process of performing the required transitionary impairment test of goodwill under sfas no . 142. additionally , in august and october 2001 , the fasb issued sfas no . 143 , `` accounting for asset retirement obligations '' and sfas no . 144 , `` accounting for the impairment or disposal of long-lived assets , '' respectively . sfas no . 143 requires the fair value of a liability be recorded for an asset retirement obligation in the period in which it is incurred . sfas no.144 addresses the accounting and reporting for the impairment of long-lived assets , other than goodwill , and for long-lived assets to be disposed of . further , sfas no . 144 establishes a single accounting model for long-lived assets to be disposed of by sale . both sfas no . 143 and no . 144 are effective for
| % to $ 29.9 million in fiscal 2002 from $ 25.0 million in fiscal 2001. the increase in general and administrative expenses for fiscal 2002 is due primarily to increased royalties paid to licensees as a result of increased sales levels and to the increase in company-owned locations for which the company incurs all administrative costs . general and administrative expenses increased by approximately $ .8 million or 3.2 % to $ 25.0 million in fiscal 2001 from $ 24.3 million in fiscal 2000. the company pays royalties to its licensees based upon approximately 55 % ( 60 % for certain licensees who have longer relationships with the company ) of the gross profit of the licensee office . despite the growth in revenues , royalty expense decreased by approximately $ 1.5 million or 15.2 % to $ 8.7 million in fiscal 2001 from $ 10.2 million in fiscal 2000. the decrease is primarily due to the increase in corporately-owned offices as well as an increase in the number of licensees enrolled in the company 's administrative program in which certain expenses of the licensee are paid by the company and charged against the licensee 's royalty . depreciation and amortization : depreciation and amortization expenses relating to fixed assets and intangible assets was $ 1.8 million for fiscal 2002 in comparison with $ 1.7 million in fiscal 2001. depreciation and amortization increased $ 1.0 million or 162.3 % to $ 1.7 million in fiscal 2001 from $ .7 million in fiscal 2000. this increase was mainly due to the purchase and placing into service of approximately $ 3.6 million of computer equipment in fiscal 2000 , which was necessary to build the computer infrastructure to accommodate the current and future growth of the business . interest expense , net : interest expense , net was $ 2.0 million , $ 2.3 million and $ 1.2 million in fiscal 2002 , 2001 and 2000 , respectively . interest expense decreased in fiscal 2002 because of lower prevailing interest
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pension benefits we sponsor pension plans covering all employees who met eligibility requirements as of april 30 , 2005. in february 2005 , our 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 . story_separator_special_tag remodeling of our statesville facilities . capital expenditures in fiscal year 2011 were primarily funded by long-term bank financing . capital expenditures in fiscal year 2010 included expenditures for the expansion of the company 's india operations and expansion of the statesville facilities which were funded primarily from cash generated by operating activities . fiscal year 2013 capital expenditures are anticipated to be approximately $ 1.0 million , with the majority of these expenditures for manufacturing equipment . the fiscal year 2013 expenditures are expected to be funded primarily by operating activities , supplemented as needed by borrowings under our revolving credit facility . working capital was $ 23.4 million at april 30 , 2012 , up from $ 22.1 million at april 30 , 2011 , and the ratio of current assets to current liabilities was 2.2-to-1.0 at april 30 , 2012 and 2.1-to-1.0 at april 30 , 2011. the increase in working capital for fiscal year 2012 was primarily due to cash provided by operating activities . we paid cash dividends of $ 0.40 , $ 0.40 , and $ 0.38 per share in fiscal years 2012 , 2011 , and 2010 , 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 october 2009 , the financial accounting standards board ( fasb ) fasb issued accounting standards update ( asu ) asu 2009-13 , revenue recognition ( topic 605 ) multiple-deliverable revenue arrangements a consensus of the fasb emerging issues task force. it updates the existing multiple-element revenue arrangements guidance currently included under fasb asc 605-25 , revenue recognition , multiple-element arrangements. the revised guidance primarily provides two significant changes : ( i ) eliminates the need for objective and reliable evidence of fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting , and ( ii ) eliminates the residual method to allocate the arrangement consideration . in addition , the guidance expands the disclosure requirements for revenue recognition . asu 2009-13 is effective for fiscal years beginning on or after june 15 , 2010. the company adopted this standard effective may 1 , 2011. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in january 2010 , the fasb issued asu 2010-06 , fair value measurements and disclosures ( topic 820 ) improving disclosures about fair value measurements. this update requires the following new disclosures : ( i ) the amounts of significant transfer in and out of level 1 and level 2 fair value measurements and a description of the reasons for the transfer ; and ( ii ) a reconciliation for fair value measurements using significant unobservable inputs ( level 3 ) , including separate information about purchases , sales , issuance , and settlements . the update also clarifies existing requirements about fair value measurement disclosures and disclosures about inputs and valuation techniques . the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . 12 in may 2011 , the fasb issued asu no . 2011-04 , fair value measurement ( topic 820 ) amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss. this update requires additional disclosures about the transfers between level 1 and level 2 of the fair value hierarchy , the sensitivity of unobservable inputs to the fair value measurements within level 3 of the fair value hierarchy , and disclosure of the categorization by level of the fair value hierarchy for items for which fair value disclosure is required but that are not measured at fair value in the statement of financial position . asu 2011-04 is effective for interim and annual reporting periods , beginning after december 15 , 2011. the company adopted this standard effective february 1 , 2012. the adoption of this standard did not a have a significant impact of the company 's consolidated financial position or results of operations . in june 2011 , the fasb issued asu 2011-05 , comprehensive income ( topic 220 ) presentation of comprehensive income. this update requires an entity to present the total of comprehensive income , the components of net income , and the components of other comprehensive income in either a single continuous statement or two separate but consecutive statements . this guidance does not change the items that must be reported in other comprehensive income . subsequently , in december 2011 , the fasb issued asu 2011-12 which deferred some aspects of the june guidance that relate to the presentation of reclassification adjustments . asu 2011-05 is effective for fiscal years and interim periods within those years , beginning after story_separator_special_tag pension benefits we sponsor pension plans covering all employees who met eligibility requirements as of april 30 , 2005. in february 2005 , our 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 . story_separator_special_tag remodeling of our statesville facilities . capital expenditures in fiscal year 2011 were primarily funded by long-term bank financing . capital expenditures in fiscal year 2010 included expenditures for the expansion of the company 's india operations and expansion of the statesville facilities which were funded primarily from cash generated by operating activities . fiscal year 2013 capital expenditures are anticipated to be approximately $ 1.0 million , with the majority of these expenditures for manufacturing equipment . the fiscal year 2013 expenditures are expected to be funded primarily by operating activities , supplemented as needed by borrowings under our revolving credit facility . working capital was $ 23.4 million at april 30 , 2012 , up from $ 22.1 million at april 30 , 2011 , and the ratio of current assets to current liabilities was 2.2-to-1.0 at april 30 , 2012 and 2.1-to-1.0 at april 30 , 2011. the increase in working capital for fiscal year 2012 was primarily due to cash provided by operating activities . we paid cash dividends of $ 0.40 , $ 0.40 , and $ 0.38 per share in fiscal years 2012 , 2011 , and 2010 , 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 october 2009 , the financial accounting standards board ( fasb ) fasb issued accounting standards update ( asu ) asu 2009-13 , revenue recognition ( topic 605 ) multiple-deliverable revenue arrangements a consensus of the fasb emerging issues task force. it updates the existing multiple-element revenue arrangements guidance currently included under fasb asc 605-25 , revenue recognition , multiple-element arrangements. the revised guidance primarily provides two significant changes : ( i ) eliminates the need for objective and reliable evidence of fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting , and ( ii ) eliminates the residual method to allocate the arrangement consideration . in addition , the guidance expands the disclosure requirements for revenue recognition . asu 2009-13 is effective for fiscal years beginning on or after june 15 , 2010. the company adopted this standard effective may 1 , 2011. the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . in january 2010 , the fasb issued asu 2010-06 , fair value measurements and disclosures ( topic 820 ) improving disclosures about fair value measurements. this update requires the following new disclosures : ( i ) the amounts of significant transfer in and out of level 1 and level 2 fair value measurements and a description of the reasons for the transfer ; and ( ii ) a reconciliation for fair value measurements using significant unobservable inputs ( level 3 ) , including separate information about purchases , sales , issuance , and settlements . the update also clarifies existing requirements about fair value measurement disclosures and disclosures about inputs and valuation techniques . the adoption of this standard did not have a significant impact on the company 's consolidated financial position or results of operations . 12 in may 2011 , the fasb issued asu no . 2011-04 , fair value measurement ( topic 820 ) amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrss. this update requires additional disclosures about the transfers between level 1 and level 2 of the fair value hierarchy , the sensitivity of unobservable inputs to the fair value measurements within level 3 of the fair value hierarchy , and disclosure of the categorization by level of the fair value hierarchy for items for which fair value disclosure is required but that are not measured at fair value in the statement of financial position . asu 2011-04 is effective for interim and annual reporting periods , beginning after december 15 , 2011. the company adopted this standard effective february 1 , 2012. the adoption of this standard did not a have a significant impact of the company 's consolidated financial position or results of operations . in june 2011 , the fasb issued asu 2011-05 , comprehensive income ( topic 220 ) presentation of comprehensive income. this update requires an entity to present the total of comprehensive income , the components of net income , and the components of other comprehensive income in either a single continuous statement or two separate but consecutive statements . this guidance does not change the items that must be reported in other comprehensive income . subsequently , in december 2011 , the fasb issued asu 2011-12 which deferred some aspects of the june guidance that relate to the presentation of reclassification adjustments . asu 2011-05 is effective for fiscal years and interim periods within those years , beginning after
| the increase in operating expenses in fiscal year 2012 as compared to fiscal year 2011 resulted primarily from an increase in operating expenses of $ 378,000 attributable to the growth in international operations and an increase in depreciation expense of $ 147,000. these increases were partially offset by a decrease of $ 148,000 in pension expense and a decrease of $ 100,000 in sales and marketing expenses . the increase in operating expenses in fiscal year 2011 as compared to fiscal year 2010 resulted primarily from an increase in operating expenses of $ 433,000 for expanded international operations , an increase of $ 189,000 in sales and marketing expenses , an increase of $ 129,000 in depreciation expense , and an increase of $ 104,000 in stock option expense . these increases were partially offset by a decrease in pension expense of $ 251,000 and a decrease in bad debt expense of $ 101,000. other income was $ 271,000 , $ 4,000 , and $ 1,000 in fiscal years 2012 , 2011 and 2010 , respectively . the increase in other income in fiscal year 2012 was primarily due to a property insurance settlement in the amount of $ 156,000. interest expense was $ 445,000 , $ 199,000 , and $ 157,000 in fiscal years 2012 , 2011 , and 2010 , respectively . the increase in interest expense for fiscal year 2012 was primarily due to higher levels of bank borrowings . income tax expense was $ 739,000 , $ 864,000 , and $ 1,921,000 in fiscal years 2012 , 2011 , and 2010 , respectively , or 29.1 % , 29.2 % , and 33.9 % of pretax earnings , respectively . the effective tax rate for each of these years is lower than the statutory rate due to the favorable impact of tax rates for the company 's international subsidiaries and the impact of state and federal tax credits . net earnings attributable to the noncontrolling interest related to our two subsidiaries that are not 100 % owned by the company were $ 769,000 , $
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we believe that the most important of these measures and ratios include average daily sales , gross margin , operating margin , net income , non-gaap income before income taxes , non-gaap net income , net income per common share , non-gaap net income per diluted share , ebitda , adjusted ebitda , adjusted ebitda margin , free cash flow , return on working capital , cash and cash equivalents , net working capital , cash conversion cycle ( defined to be days of sales outstanding in accounts receivable plus days of supply in inventory minus days of purchases outstanding in accounts payable , based on a rolling three-month average ) , debt levels including available credit and leverage ratios , sales per coworker and coworker turnover . these measures and ratios are compared to standards or objectives set by management , so that actions can be taken , as necessary , in order to achieve the standards and objectives . in this form 10-k , we discuss non-gaap income before income taxes , non-gaap net income , non-gaap net income per diluted share , ebitda , adjusted ebitda and adjusted ebitda margin which are non-gaap financial measures . we believe these measures provide analysts , investors and management with helpful information regarding the underlying operating performance of our business , as they remove the impact of items that management believes are not reflective of underlying operating performance . management uses these measures to evaluate period-over-period performance as management believes they provide a more comparable measure of the underlying business . additionally , adjusted ebitda is a measure in the credit agreement governing our senior secured term loan facility ( the `` term loan '' ) used to evaluate our ability to make certain investments , incur additional debt , and make restricted payments , such as dividends and share repurchases , as well as whether we are required to make additional principal prepayments on the term loan beyond the quarterly amortization payments . for further details regarding the term loan , see long-term debt and financing arrangements within management 's discussion and analysis of financial condition and results of operations and note 9 ( long-term debt ) to the accompanying consolidated financial statements . for the definitions of non-gaap income before income taxes , non-gaap net income and adjusted ebitda and reconciliations to net income , see `` results of operations . '' 28 the results of certain key business metrics are as follows : replace_table_token_6_th ( 1 ) amounts for 2017 and 2016 have been adjusted to reflect the adoption of topic 606 . ( 2 ) there were 254 selling days for each of the years ended december 31 , 2018 , 2017 and 2016 . ( 3 ) defined as total debt minus cash and cash equivalents . ( 4 ) cash conversion cycle is defined as days of sales outstanding in accounts receivable and certain receivables due from vendors plus days of supply in merchandise inventory minus days of purchases outstanding in accounts payable and accounts payable-inventory financing , based on a rolling three-month average . 29 story_separator_special_tag style= '' line-height:120 % ; font-size:10pt ; padding-left:0px ; '' > ( 2 ) segment operating income includes the segment 's direct operating income , allocations for certain headquarters costs , allocations for income and expenses from logistics services , certain inventory adjustments and volume rebates and cooperative advertising from vendors . ( 3 ) includes the financial results for our other operating segments , cdw uk and cdw canada , which do not meet the reportable segment quantitative thresholds . ( 4 ) includes headquarters function costs that are not allocated to the segments . operating income was $ 987 million for the year ended december 31 , 2018 , an increase of $ 120 million , or 13.9 % , compared to $ 867 million for the year ended december 31 , 2017 . operating income increased primarily due to higher gross profit dollars , partially offset by higher sales payroll expenses and higher coworker costs due to higher attainment on performance-based compensation . total operating margin percentage increased 30 basis points to 6.1 % for the year ended december 31 , 2018 , from 5.8 % for the year ended december 31 , 2017 . the increase was primarily due to gross profit margin expansion driven by a higher mix into revenue recognized on a net basis , as well as improved product margin . lower intangible asset amortization and equity-based compensation expense and the associated payroll taxes as a percentage of net sales , which do not trend in line with sales movement , also had a favorable impact on the operating margin percentage . this was partially offset by higher attainment on performance-based compensation expense as a percentage of net sales . corporate segment operating income was $ 537 million for the year ended december 31 , 2018 , an increase of $ 49 million , or 10.0 % , compared to $ 488 million for the year ended december 31 , 2017 . corporate segment operating income increased primarily due to higher gross profit dollars driven by higher sales , partially offset by higher sales payroll expenses . corporate segment operating margin percentage decreased 10 basis points to 7.8 % for the year ended december 31 , 2018 , from 7.9 % for the year ended december 31 , 2017 . the decrease was driven by higher attainment on performance-based compensation expense as a percentage of net sales . small business segment operating income was $ 96 million for the year ended december 31 , 2018 , an increase of $ 22 million , or 28.8 % , compared to $ 74 million for the year ended december 31 , 2017 . small business segment operating income increased primarily due to higher gross profit dollars . small business segment operating margin percentage increased 90 basis points to 7.0 % for the year ended december 31 , 2018 , from 6.1 % for the year ended december 31 , 2017 . story_separator_special_tag this increase in operating margin percentage was primarily driven by a higher mix into revenue recognized on a net basis and the benefit of lower sales payroll expenses as a percentage of net sales . this was partially offset by higher attainment on performance-based compensation expense as a percentage of net sales . public segment operating income was $ 411 million for the year ended december 31 , 2018 , an increase of $ 37 million , or 9.7 % , compared to $ 374 million for the year ended december 31 , 2017 . public segment operating income increased primarily due to higher gross profit dollars , partially offset by higher sales payroll expenses . public segment operating margin percentage increased 40 basis points to 6.7 % for the year ended december 31 , 2018 , from 6.3 % for the year ended december 31 , 2017 . this 32 increase in operating margin percentage was primarily driven by a higher mix into revenue recognized on a net basis , partially offset by higher performance-based compensation expense as a percentage of net sales . other operating income was $ 82 million for the year ended december 31 , 2018 , an increase of $ 25 million , or 43.9 % , compared to $ 57 million for the year ended december 31 , 2017 . other operating income increased primarily due to higher gross profit dollars , partially offset by higher sales payroll expenses . foreign exchange translation also had a favorable impact on operating income . other operating margin percentage increased 70 basis points to 4.4 % for the year ended december 31 , 2018 , from 3.7 % for the year ended december 31 , 2017 . this increase was primarily due to lower sales payroll expenses and lower intangible asset amortization as a percentage of net sales , which does not trend in line with sales movement . net loss on extinguishments of long-term debt for information regarding our debt , see note 9 ( long-term debt ) to the accompanying consolidated financial statements . during 2017 , we recorded a net loss on extinguishments of long-term debt of $ 57 million . net loss on extinguishments of long-term debt are as follows : replace_table_token_10_th ( 1 ) we repaid all of the remaining aggregate principal amount outstanding . the loss recognized represents the difference between the aggregate principal amount and the net carrying amount of the purchased debt , adjusted for the remaining unamortized deferred financing fees and premium . income tax expense on december 22 , 2017 , the tax cuts and jobs act was enacted into law . the tax cuts and jobs act changed several aspects of us federal tax law including : reducing the us corporate income tax rate from 35.0 % to 21.0 % beginning on january 1 , 2018 ; applying a one-time tax on the deemed mandatory repatriation of the company 's unremitted foreign earnings which have not been subject to us tax ; imposing a minimum us tax on foreign earnings ; providing for the immediate expensing of certain qualified property ; and changing the tax treatment of performance-based executive compensation and certain employee fringe benefits . the sec issued staff accounting bulletin 118 allowing for provisional amounts to be recorded during a measurement period not to exceed one year . during the year ended december 31 , 2017 , the company recorded provisional amounts for the impact of revaluing deferred tax assets and liabilities , the deemed mandatory repatriation tax on the company 's unremitted foreign earnings and the state income tax effects from the changes in federal tax law . the company adjusted the us federal and state provisional amounts during 2018 , recording a net tax benefit of $ 2 million . the adjustment was primarily driven by the rate differential on adjustments to temporary book-tax differences made in finalizing the 2017 federal income tax return and finalizing the deemed mandatory repatriation tax on the company 's unremitted foreign earnings . income tax expense was $ 198 million in 2018 , compared to $ 138 million in 2017 . the effective income tax rate , expressed by calculating income tax expense as a percentage of income before income taxes , was 23.5 % and 20.8 % for 2018 and 2017 , respectively . for 2018 , the effective tax rate differed from the us federal statutory rate primarily due to state income taxes , partially offset by excess tax benefits on equity compensation . for 2017 , the effective tax rate differed from the us federal statutory rate primarily due to a one-time benefit of $ 96 million to reflect the revaluation of deferred tax assets and liabilities , excess tax benefits on equity compensation and lower corporate tax rates on our international income , partially offset by state income taxes and a one-time charge of $ 20 million for the mandatory repatriation tax . the 2018 effective tax rate was higher than 2017 primarily due to the benefits recorded in 2017 for the tax cuts and jobs act and excess tax benefits , which exceeded the benefit in 2018 from the lower federal income rate in 2018 and partially offset by a higher state income taxes . 33 non-gaap financial measure reconciliations we have included reconciliations of non-gaap income before income taxes , non-gaap net income , ebitda , adjusted ebitda , adjusted ebitda margin and consolidated net sales growth on a constant currency basis for the years ended december 31 , 2018 and 2017 below . non-gaap income before income taxes and non-gaap net income exclude , among other things , charges related to the amortization of acquisition-related intangible assets , equity-based compensation and the associated tax benefits , integration expenses , and gains and losses from the extinguishment of long-term debt . ebitda is defined as consolidated net income before interest expense , net , income tax expense , depreciation and amortization .
| public segment net sales for the year ended december 31 , 2018 increased $ 248 million , or 4.2 % , compared to the year ended december 31 , 2017 . education net sales increased 6.5 % , primarily driven by continued success addressing client device and networking needs for both k-12 and higher education customers . net sales in healthcare increased 7.3 % , primarily driven by performance in client devices and video as customers moved forward on refresh projects . net sales to government customers were flat compared to the prior year . federal net sales were lower due to the prior year success of meeting the department of defense mandate to move to new client devices with stronger security features . federal net sales were nearly fully offset by the success of executing against contracts to state and local government customers , including meeting public safety needs . net sales in other , which is comprised of results from our uk and canadian operations , for the year ended december 31 , 2018 increased $ 351 million , or 22.9 % , compared to the year ended december 31 , 2017 . both operations had strong growth in local currency as we continued to take share in the local markets . in addition , uk growth was driven in part by increased sales from referrals for us-based customers . the impact of foreign currency exchange increased other sales growth by approximately 270 basis points , primarily due to the favorable translation of the british pound to us dollar . gross profit gross profit increased $ 257 million , or 10.5 % , to $ 2,707 million for the year ended december 31 , 2018 , compared to $ 2,450 million for the year ended december 31 , 2017 . as a percentage of net sales , gross profit margin increased 20 basis points to 16.7 % for the year ended december 31 , 2018 . gross profit margin was impacted by an increase in the mix of revenue recognized on a net basis , such as software as a service and warranties , as
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while foreign currency markets remain volatile , we continue to see opportunities to drive future growth and profitability , and remain committed to effectively managing our business to achieve our financial goals over the long-term by executing against the operational strategies outlined above . results of operations replace_table_token_3_th 22 story_separator_special_tag replace_table_token_5_th ( 1 ) reported futures have been restated using prior year exchange rates for the comparative period to enhance the visibility of the underlying business trends , excluding the impact of foreign currency exchange rate fluctuations . the reported futures orders growth is not necessarily indicative of our expectation of revenue growth during this period . this is due to year-over-year changes in shipment timing , changes in the mix of orders between futures and at-once orders , and because the fulfillment of certain orders may fall outside of the schedule noted above . in addition , exchange rate fluctuations as well as differing levels of order cancellations , discounts and returns can cause differences in the comparisons between futures orders and actual revenues . moreover , a portion of our revenue is not derived from futures orders , including sales of at-once and closeout nike brand footwear and apparel , all sales of nike brand equipment , the difference between retail sales and internal orders from our dtc in-line stores and e-commerce operations , and sales from converse , nike golf and hurley . gross margin replace_table_token_6_th fiscal 2016 compared to fiscal 2015 for fiscal 2016 , our consolidated gross margin was 20 basis points higher than fiscal 2015 , primarily attributable to the following factors : higher nike brand full-price asp ( increasing gross margin approximately 190 basis points ) aligned with our strategy to deliver innovative , premium products with higher prices and , to a lesser extent , due to price increases reflecting inflationary conditions in certain territories ; growth in our higher-margin dtc business ( increasing gross margin approximately 20 basis points ) ; higher nike brand product costs ( decreasing gross margin approximately 70 basis points ) as shifts in mix to higher-cost products and labor input cost inflation were only partially offset by lower material input costs ; higher off-price mix ( decreasing gross margin approximately 30 basis points ) , primarily reflecting the impacts from clearing excess inventory in north america ; unfavorable changes in foreign currency exchange rates , net of hedges ( decreasing gross margin approximately 40 basis points ) ; higher other costs ( decreasing gross margin approximately 20 basis points ) , primarily due to higher product design and development costs ; and lower gross margin from converse ( decreasing gross margin approximately 20 basis points ) , primarily resulting from shifts in mix to lower-margin products . fiscal 2015 compared to fiscal 2014 for fiscal 2015 , our consolidated gross margin was 120 basis points higher than fiscal 2014 , primarily driven by the following factors : higher nike brand full-price asp ( increasing gross margin approximately 250 basis points ) primarily attributable to shifts in mix to higher-priced products and , to a lesser extent , price increases in response to inflationary conditions in certain territories ; 25 higher nike brand product costs ( decreasing gross margin approximately 190 basis points ) largely due to shifts in mix to higher-cost products , labor input cost inflation and higher air freight costs , in part to mitigate the negative impacts from product delays due to the west coast port congestion in the united states ; growth in our higher-margin dtc business ( increasing gross margin approximately 40 basis points ) ; and changes in foreign currency exchange rates ( including gains and losses on hedge transactions ) increased gross margin approximately 20 basis points . total selling and administrative expense replace_table_token_7_th ( 1 ) demand creation expense consists of advertising and promotion costs , including costs of endorsement contracts , television , digital and print advertising , brand events and retail brand presentation . fiscal 2016 compared to fiscal 2015 demand creation expense increased 2 % for fiscal 2016 compared to fiscal 2015 , primarily due to investments in digital brand marketing , including for our dtc business , as well as support for key brand events and initiatives , and sports marketing investments , partially offset by lower advertising expense . for fiscal 2016 , changes in foreign currency exchange rates decreased growth in demand creation expense by approximately 6 percentage points . operating overhead expense increased 8 % compared to fiscal 2015 , primarily as a result of continued investments in our dtc business , including new store openings and higher variable expenses , as well as targeted investments in operational infrastructure and consumer-focused digital capabilities , partially offset by lower performance-based compensation . changes in foreign currency exchange rates decreased growth in operating overhead expense by approximately 4 percentage points for fiscal 2016. fiscal 2015 compared to fiscal 2014 demand creation expense increased 6 % for fiscal 2015 compared to the prior year , primarily due to support for key brand and consumer events , including the world cup in early fiscal 2015 , increased digital brand marketing , investments in dtc marketing and higher sports marketing expense . changes in foreign currency exchange rates decreased growth in demand creation expense by approximately 4 percentage points for fiscal 2015. operating overhead expense increased 16 % compared to the prior year , primarily driven by investments in our rapidly growing dtc business , including new store openings and higher variable expenses , investments in operational infrastructure and consumer-focused digital capabilities and higher performance-based compensation . for fiscal 2015 , changes in foreign currency exchange rates decreased growth in operating overhead expense by approximately 3 percentage points . other ( income ) expense , net replace_table_token_8_th other ( income ) expense , net comprises foreign currency conversion gains and losses from the re-measurement of monetary assets and liabilities denominated in non-functional currencies and the impact of certain foreign currency derivative instruments , as well as unusual or non-operating transactions that are outside the normal course of business . story_separator_special_tag fiscal 2016 compared to fiscal 2015 other ( income ) expense , net increased from $ 58 million of other income , net for fiscal 2015 to $ 140 million of other income , net for fiscal 2016 , driven by a $ 26 million net change in foreign currency conversion gains and losses , a favorable settlement of a legal judgment related to a bankruptcy case in western europe and net gains from other non-operating items . we estimate the combination of the translation of foreign currency-denominated profits from our international business and the year-over-year change in foreign currency-related gains and losses included in other ( income ) expense , net had an unfavorable impact on our income before income taxes of $ 423 million for fiscal 2016. fiscal 2015 compared to fiscal 2014 other ( income ) expense , net shifted from $ 103 million of other expense , net for fiscal 2014 to $ 58 million of other income , net for fiscal 2015 , primarily driven by a $ 147 million net change in foreign currency conversion gains and losses , primarily due to significant hedge gains from available-for-sale investments , as well as an adverse legal judgment in the prior year related to a long outstanding bankruptcy case for a former customer in western europe . we estimate the combination of the translation of foreign currency-denominated profits from our international business and the year-over-year change in foreign currency-related gains and losses included in other ( income ) expense , net had an unfavorable impact on our income before income taxes of $ 73 million for fiscal 2015 . 26 income taxes replace_table_token_9_th fiscal 2016 compared to fiscal 2015 the 350 basis point decrease in our effective tax rate for the fiscal year was primarily due to an increase in the proportion of earnings from operations outside the united states , which are generally subject to a lower tax rate . fiscal 2015 compared to fiscal 2014 the 180 basis point decrease in our effective tax rate for the fiscal year was primarily due to the favorable resolution of audits in several jurisdictions . operating segments our operating segments are evidence of the structure of the company 's internal organization . the nike brand segments are defined by geographic regions for operations participating in nike brand sales activity . each nike brand geographic segment operates predominantly in one industry : the design , development , marketing and selling of athletic footwear , apparel and equipment . the company 's reportable operating segments for the nike brand are : north america , western europe , central & eastern europe , greater china , japan and emerging markets , and include results for the nike , jordan and hurley brands . the company 's nike brand dtc operations are managed within each geographic operating segment . converse is also a reportable segment for the company and operates in one industry : the design , marketing , licensing and selling of casual sneakers , apparel and accessories . as part of our centrally managed foreign exchange risk management program , standard foreign currency rates are assigned twice per year to each nike brand entity in our geographic operating segments and converse . these rates are set approximately nine and twelve months in advance of the future selling seasons to which they relate ( specifically , for each currency , one standard rate applies to the fall and holiday selling seasons and one standard rate applies to the spring and summer selling seasons ) based on average market spot rates in the calendar month preceding the date they are established . inventories and cost of sales for geographic operating segments and converse reflect use of these standard rates to record non-functional currency product purchases into the entity 's functional currency . differences between assigned standard foreign currency rates and actual market rates are included in corporate together with foreign currency hedge gains and losses generated from our centrally managed foreign exchange risk management program and other conversion gains and losses . the breakdown of revenues is as follows : replace_table_token_10_th ( 1 ) certain prior year amounts have been reclassified to conform to fiscal 2016 presentation . these changes had no impact on previously reported results of operations or shareholders ' equity . ( 2 ) results have been restated using actual exchange rates in use during the comparative prior year period to enhance the visibility of the underlying business trends by excluding the impact of translation arising from foreign currency exchange rate fluctuations . ( 3 ) global brand divisions revenues are primarily attributable to nike brand licensing businesses that are not part of a geographic operating segment . ( 4 ) corporate revenues primarily consist of foreign currency hedge gains and losses related to revenues generated by entities within the nike brand geographic operating segments and converse , but managed through our central foreign exchange risk management program . the primary financial measure used by the company to evaluate performance of individual operating segments is earnings before interest and taxes ( commonly referred to as “ ebit ” ) , which represents net income before interest expense ( income ) , net and income tax expense in the consolidated statements of income . as discussed in note 17 — operating segments and related information in the accompanying notes to the consolidated financial statements , certain corporate costs are not included in ebit of our operating segments . 27 the breakdown of earnings before interest and taxes is as follows : replace_table_token_11_th ( 1 ) certain prior year amounts have been reclassified to conform to fiscal 2016 presentation . these changes had no impact on previously reported results of operations or shareholders ' equity . north america replace_table_token_12_th fiscal 2016 compared to fiscal 2015 excluding changes in foreign currency exchange rates , north america revenues increased 8 % primarily due to growth in our sportswear , jordan brand and running categories .
| every nike brand geography grew revenues for fiscal 2016 as our category offense continued to deliver innovative products , deep brand connections and compelling retail experiences to consumers online and at nike-owned and retail partner stores , driving strong demand for nike brand products . north america contributed approximately 4 percentage points of the increase in nike , inc. revenues , while greater china and western europe each contributed approximately 3 percentage points , emerging markets contributed approximately 2 percentage points and central & eastern europe contributed approximately 1 percentage point . excluding the effects of changes in currency exchange rates , nike brand footwear and apparel revenues increased 15 % and 11 % , respectively , for fiscal 2016 , while nike brand equipment revenues decreased 2 % . the increase in nike brand footwear revenues for fiscal 2016 was driven by growth in nearly every key category , including strong growth in sportswear , the jordan brand and running . footwear unit sales for fiscal 2016 increased 9 % , with higher average selling price ( asp ) per pair contributing approximately 6 percentage points of footwear revenue growth . higher asp per pair was driven by higher full-price asp , and to a lesser extent , the favorable impact of an increase in the proportion of revenues from our higher-priced dtc business . the constant-currency increase in nike brand apparel revenues for fiscal 2016 was attributable to growth in most key categories , led by sportswear , men 's training , running , women 's training and football ( soccer ) . apparel unit sales for fiscal 2016 increased 7 % . higher asp per unit contributed approximately 4 percentage points of apparel revenue growth , primarily due to higher full-price asp and growth in our higher-priced dtc business . while wholesale revenues remain the largest component of overall nike brand revenues , we continue to expand our dtc businesses in each of our geographies . nike brand dtc operations include nike-owned in-line and factory stores , as well as online sales through nike-owned websites . for fiscal 2016 , dtc revenues represented approximately 26 % of our
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consolidated new awards in 2015 were $ 4.6 billion compared to $ 5.4 billion in 2014 and $ 5.5 billion in 2013 . the building segment was the major contributor of new awards during 2015. new awards in 2014 were generally balanced across all three segments , with the building segment contributing a modestly higher volume . the civil segment was the dominant contributor of new awards during 2013. consolidated backlog was $ 7.5 billion , $ 7.8 billion and $ 7.0 billion as of december 31 , 2015 , 2014 and 2013 , respectively . the strong backlog at the end of 2015 was primarily due to significant new awards in the building segment , partially offset by the work off of backlog outpacing new awards in the civil and specialty contractors segments . as of december 31 , 2015 , the mix of backlog by segment was approximately 37 % , 37 % and 26 % for the civil , building and specialty contractors segments , respectively . the increased backlog at the end of 2014 was the result of significant new awards that outpaced revenue across all segments . projects in the civil segment 's backlog typically convert to revenue over a period of three to five years , whereas projects for the building and specialty contractors segments typically convert to revenue over a period of one to three years . we estimate that approximately $ 4.4 billion , or 59 % of our backlog as of december 31 , 2015 will be recognized as revenue in 2016. replace_table_token_15_th ( a ) new award s consist of the original contract price of projects added to our backlog plus or minus subsequent changes to the estimated total contract price of existing contracts . in addition to our existing backlog , as of december 31 , 2015 , we had approximately $ 3.6 billion of pending contract awards , including up to $ 1.5 billion in total construction value to be managed for various future phases of the hudson yards project , $ 663 million for a large mass-transit project in new york ( that was subsequently awarded in january 2016 ) , approximately $ 845 million for seven building projects in california and approximately $ 300 million for two building projects in florida ( one of which was also subsequently awarded in january 2016 ) . we expect to be awarded many of these projects in 2016. the outlook is favorable for our company 's growth over the next several years . in addition to our large volume of backlog and pending awards , we expect significant new award activity based on long-term capital spending plans by various state , local and federal customers , favorable budget trends and typically bipartisan support for infrastructure investments . for example , the recently enacted $ 305-billion fixing america 's surface transportation ( fast ) act , the first long-term transportation funding bill in the past 10 years , is expected to provide state and local agencies with federal funding for numerous highway , bridge and mass-transit projects for 2016 through 2020. in addition , several very large , long-duration civil infrastructure programs with which we are already involved are progressing , such as california 's high-speed rail system and the new york metropolitan transportation authority 's east side access project . planning and early projects are also underway related to amtrak 's northeast corridor improvements , including the gateway program , which will eventually bring new rail tunnels beneath the hudson river to connect service between new jersey and new york 's penn station . finally , sustained low interest rates and capital costs are expected to drive high demand and continued spending by private and public customers on building infrastructure projects . for a more detailed discussion of operating performance of each business segment , corporate general and administrative expense and other items , see “ results of segment operations ” and “ corporate , tax and other matters ” below . 19 non- gaap measures our consolidated financial statements are presented based on gaap . we sometimes use non-gaap measures of income from operations , net income , eps and other measures that we believe are appropriate to enhance an overall understanding of our historical financial performance and future prospects . we are providing the below non-gaap measures to disclose additional information to facilitate the comparison of past and present operations , as they are among the indicators that management uses as a basis for evaluating the company 's financial performance , as well as for forecasting future periods . as such , management believes that these non-gaap measures can be useful in measuring operating performance and should be considered by investors , prospective investors and others . these non-gaap measures are not intended to replace the presentation of our financial results in accordance with u. s. gaap , and they should be considered in addition to , and not in lieu of , our gaap results . the non-gaap measures that we provide may not be comparable to other similarly titled measures of other companies . the following table presents a reconciliation of reported income from construction operations under gaap to adjusted income from construction operations for the year ended december 31 , 2015 . replace_table_token_16_th ( a ) the company recorded a non-cash , pre-tax charge of $ 23.9 million ( $ 13.8 million after tax ) for an adverse appellate court decision related to a long-standing litigation matter for which the company , as part of an acquisition in 2011 , assumed liability as a minority partner in a joint venture for a project that had already been completed . ( for further information , refer to the brightwater matter discussion in note 7 of the notes to consolidated financial statements . ) the following table presents a reconciliation of reported net income and reported diluted eps under gaap to adjusted net income and adjusted diluted eps for the year ended december 31 , 2015 . story_separator_special_tag ( in thousands , except per share data ) year ended december 31 , 2015 net income , as reported $ 45,292 litigation-related charge , net of tax , as mentioned above 13,757 adjusted net income $ 59,049 diluted earnings per common share , as reported $ 0.91 litigation-related charge , net of tax , as mentioned above 0.28 adjusted diluted earnings per common share $ 1.19 there were no non-gaap adjustments for the years ended december 31 , 2014 and 2013 . 20 story_separator_special_tag inline ; color : # 000000 ; '' > $ 3.5 billion as of december 31 , 2013 . civil segment backlog is expected to grow in early 2016 , primarily the result of a new award in january 2016 for a $ 663 million mass-transit project in new york . the segment continues to experience strong demand reflected in a large pipeline of prospective projects and supported by favorable budget trends , agencies ' long-term spending plans and the recently enacted , five-year , $ 305-billion fast act . in particular , there are a number of large prospective civil projects expected to be bid beginning in the middle of 2016 , with subsequent awards anticipated in the second half of the year or early 2017. the civil segment is well positioned to capture its share of these prospective projects . however , the segment faces continued strong competition from various other firms , including occasional aggressive bids from foreign competitors . 21 building segment revenue and income from construction operations for the building segment are summarized as follows : replace_table_token_18_th revenue for 2015 increased 20 % compared to 2014 , primarily driven by increased activity on various commercial office , technology , government , education and retail building projects in california . revenue for 2014 decreased 3 % compared to 2013 , principally driven by decreased activity on hospitality and gaming projects in california , arizona , nevada , louisiana , and pennsylvania , health care projects in california , and a containerized housing project in iraq . this decrease was partially offset by increased activity on certain mixed-use facility projects in new york ( including hudson yards ) , california , and louisiana , and an industrial project in california . income from construction operations declined 105 % in 2015 compared to 2014 , primarily due to unfavorable adjustments totaling $ 24.3 million to the estimated cost to complete an office building project in new york and favorable adjustments in 2014 totaling $ 11.4 million for a large hospitality and gaming project . income from construction operations was stable in 2014 compared to 2013 . there were also favorable adjustments in 2013 totaling $ 13.8 million for the same large hospitality and gaming project . operating margin was -0.1 % in 2015 , compared to 1.6 % in 2014 and 1.6 % in 2013 . the margin decline in 2015 was principally due to the factors discussed above that caused the significant decline in income from construction operations . excluding the impact of the above-mentioned unfavorable adjustments for the office building project , operating margin in 2015 was 1.3 % . the higher operating margins in 2014 and 2013 were primarily driven by relatively stable revenue in both years , as well as the favorable adjustments mentioned above in both years . excluding these favorable adjustments , operating margins in 2014 and 2013 were 0.9 % and 0.7 % , respectively . new awards in the building segment totaled $ 2.4 billion in 2015 , $ 1.9 billion in 2014 and $ 1.2 billion in 2013 . new awards in 2015 included a technology research and development office facility project valued at $ 800 million and $ 230 million of incremental funding for a biotechnology facility project , both in california , and a hospitality building project in pennsylvania worth $ 239 million . new awards in 2014 included a multi-unit residential tower project in florida worth $ 255 million , two hospitality and gaming projects in mississippi and california collectively valued at $ 225 million and a health care facility project in california valued at $ 211 million . new awards in 2013 included a concrete package for an office tower valued at $ 143 million and a bus station redevelopment project worth $ 100 million , both in new york . backlog for the building segment was $ 2.8 billion as of december 31 , 2015 , compared to $ 2.2 billion as of december 31 , 2014 and $ 1.8 billion as of december 31 , 2013 . the strong backlog growth in 2015 was due to the large volume of new awards , especially for projects in california . the building segment has a large volume of pending awards for projects in california and florida , as well as a large pipeline of prospective projects . strong demand is expected due to continued customer spending supported by sustained low interest rates . the building segment is well positioned to capture its share of prospective projects based on strong customer relationships and a long-term reputation for excellence in delivering high-quality projects on time and within budget . the company expects the building segment to experience strong revenue growth and return to profitability in 2016. the increased backlog in 2014 was due to a large volume of new awards primarily in california and florida . specialty contractors segment revenue and income from construction operations for the specialty contractors segment are summarized as follows : replace_table_token_19_th revenue for 2015 decreased 6 % compared to 2014 , primarily due to decreased activity on various smaller electrical projects in the southern united states that have been impacted by the low price of oil , electrical projects at the world trade center and mechanic projects at the united nations in new york . this decrease was partially offset by increased activity on various electrical projects at hudson yards , two large mass-transit projects and various other electrical , mechanical and concrete placement projects , all in new york .
| this decline was partially offset by increased activity , as well as favorable adjustments totaling $ 13.7 million on a runway reconstruction project in new york . income from construction operations increased 24 % in 2014 compared to 2013 . the increase was primarily due to the revenue increase discussed above for 2014 and the net favorable adjustments in 2014 mentioned above to anticipated recoveries associated with two legal rulings . this increase was partially offset by reduced activity on certain higher-margin projects . operating margin was 7.7 % in 2015 , compared to 13.1 % in 2014 and 12.3 % in 2013 . the margin decline in 2015 and margin increase in 2014 were due to the reasons discussed above regarding changes in revenue and income from construction operations . excluding the brightwater litigation-related charge and favorable adjustments for the runway project in new york , operating margin in 2015 was 8.2 % . excluding the net favorable adjustments mentioned above , operating margin was 12.2 % in 2014. the higher operating margins in the 12 % range in 2013 and 2014 were primarily driven by significant work performed on certain higher-margin projects . new awards in the civil segment totaled $ 1.1 billion in 2015 , $ 1.7 billion in 2014 and $ 3.0 billion in 2013 . new awards in 2015 included a mass-transit project in new york valued at $ 80 million , highway projects in delaware , maryland and pennsylvania valued at $ 70 million , $ 60 million and $ 58 million , respectively , and a tunnel extension project in new york worth $ 56 million . new awards in 2014 included two mass-transit projects in new york collectively valued at $ 844 million , a runway reconstruction project in new york valued at $ 243 million and three bridge projects in wisconsin and minnesota collectively valued at $ 181 million . new awards in 2013 included a mass-transit project valued at $
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vixarelimab is a fully-human monoclonal antibody that simultaneously inhibits the signaling of the cytokines interleukin 31 and oncostatin m by targeting their common receptor subunit , oncostatin m receptor beta . we believe vixarelimab is the only monoclonal antibody in development that simultaneously targets both pathways . we licensed vixarelimab from biogen ma , inc. , or biogen , in 2016 . we are evaluating vixarelimab for the potential treatment of prurigo nodularis , a chronic inflammatory skin condition with an estimated u.s. prevalence of approximately 300,000 patients . we received breakthrough therapy designation for vixarelimab for the treatment of pruritus associated with prurigo nodularis in 2020. in april 2020 , we reported results from our randomized , double-blind , placebo-controlled phase 2a trial of vixarelimab in prurigo nodularis . the phase 2a trial met its primary efficacy endpoint , as there was a statistically significant reduction in weekly-average worst-itch numeric rating scale , or wi-nrs , from baseline at week 8 in vixarelimab recipients compared to placebo recipients . in addition , the majority of vixarelimab recipients showed a clinically meaningful greater-than-or-equal-to 4-point weekly-average wi-nrs reduction at week 8 and a statistically significant percentage of vixarelimab recipients achieved a prurigo nodularis-investigator 's global assessment score of 0/1 at week 8 compared to placebo recipients . we are conducting a randomized , double-blind , placebo-controlled phase 2b dose ranging study designed to investigate the efficacy , safety , and pharmacokinetics of vixarelimab in patients with prurigo nodularis . kpl-404 is a humanized monoclonal antibody that is designed to inhibit the cd40-cd40 ligand , or cd40l , interaction , a central control node of t-cell-dependent , b-cell-mediated humoral adaptive immunity . we believe that disrupting the cd40-cd40l interaction is an attractive approach for multiple autoimmune disease pathologies such as rheumatoid arthritis , sjogren 's syndrome , graves ' disease , systemic lupus erythematosus and solid organ transplant graft rejection . we acquired all of the outstanding securities of primatope therapeutics , inc. , or primatope , the company that owned or controlled the intellectual property related to kpl-404 in 2019 . we are conducting a randomized , double-blind , placebo-controlled single-ascending-dose phase 1 clinical trial of kpl-404 in healthy volunteers to evaluate the safety and tolerability of kpl-404 as well as to pharmacokinetics , cd40 receptor occupancy , the immune response to the novel test antigen keyhole limpet hemocyanin , or klh , in clinically relevant dose cohorts , and t-cell dependent antibody response , or tdar , in these subjects . the study is 127 divided into two parts : a single dose of kpl-404 0.03 mg/kg , 0.3 mg/kg , 1 mg/kg , 3 mg/kg or 10 mg/kg intravenously , or iv , and a single dose of kpl-404 1 mg/kg or 5 mg/kg subcutaneously , or sc . in november 2020 , we reported preliminary data from the phase 1 trial . all dose escalations occurred as per protocol with no dose limiting safety findings . all 6 subjects dosed with kpl-404 3 mg/kg iv showed full receptor occupancy through day 29 , which corresponded with complete suppression of tdar to klh through day 29. consistent dose relatedness was shown in the lower dose level cohorts , including 0.03 mg/kg , 0.3 mg/kg , 1 mg/kg iv and 1 mg/kg sc . we believe that these data support subsequent study in patients , including potential iv or sc monthly administration . further , we expect final data and safety follow-up from all cohorts of the phase 1 trial in the first half of 2021. our future success is dependent on our ability to develop , obtain regulatory approval for and successfully commercialize one or more of our product candidates . the fda accepted the sbla for rilonacept in recurrent pericarditis with priority review and assigned a pdufa goal date of march 21 , 2021. upon approval from the fda , if any , of the commercial marketing of rilonacept in the united states for recurrent pericarditis , we will assume the sales and distribution of rilonacept for the approved indications in the united states and would evenly split profits on sales with regeneron , after deducting certain commercialization expenses subject to specified limits . however , we have not yet demonstrated our ability to successfully obtain regulatory approvals , manufacture a commercial scale drug , or conduct sales and marketing activities . we currently generate no revenue from sales of any products , and we may never be able to develop or commercialize a marketable product . on february 4 , 2019 , we completed a follow-on offering of 2,654,984 class a common shares and concurrent private placement of 2,000,000 class a1 common shares , both at $ 18.26 per share for aggregate gross proceeds of $ 85.0 million . in addition , on march 1 , 2019 , we completed the sale of 161,126 class a common shares to the underwriters of the follow-on offering following the exercise in part of their option to purchase additional shares at $ 18.26 per share for gross proceeds of $ 2.9 million . the aggregate net proceeds to us from the follow-on offering and concurrent private placement , inclusive of the option exercise , was $ 83.0 million after deducting underwriting discounts and commissions , placement agent fees and other offering costs . on may 18 , 2020 , we completed a follow-on offering of 2,760,000 class a common shares , inclusive of the exercise of the underwriters ' option to purchase additional shares at a public offering price of $ 18.25 and a concurrent private placement of 1,600,000 class a1 common shares at an offering price of $ 18.25 per share for aggregate gross proceeds of $ 79.6 million . the aggregate net proceeds to us from the follow-on offering and concurrent private placement , inclusive of the option exercise , was $ 74.5 million after deducting underwriting discounts and commissions , placement agent fees and other offering costs . story_separator_special_tag on july 24 , 2020 , we completed a follow-on offering of 5,952,381 class a common shares , at a public offering price of $ 21.00 and a concurrent private placement of 1,428,572 class a1 common shares at an offering price of $ 21.00 per share for aggregate gross proceeds of $ 155.0 million . the aggregate net proceeds to us from the follow-on offering and concurrent private placement was $ 146.0 million after deducting underwriting discounts and commissions , placement agent fees and other offering costs . we have incurred significant operating losses since inception . our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates . our net losses were $ 161.4 million and $ 161.9 million for the years ended december 31 , 2020 and 2019 , respectively . as of december 31 , 2020 , we had an accumulated deficit of $ 517.5 million . we expect to continue to incur significant operating losses for at least the next several years as we advance our product candidates through preclinical and clinical development , manufacture our product candidates for clinical or commercial use , and , ultimately , seek regulatory approval . in addition , if we obtain marketing approval for any of our product candidates , including rilonacept , we expect to continue to incur significant commercialization expenses related to product manufacturing , marketing , sales and distribution . we may also incur expenses in connection with the in-licensing or acquisition of additional product candidates . as a result , until such time as we can generate significant revenue from product sales , if ever , we expect to finance our operations through public or private securities offerings , debt financings or other sources , which may include licensing , collaborations or other strategic transactions or arrangements , and a lesser extent through projected revenue 128 from rilonacept if approved in recurrent pericarditis or any of our other product candidates . we may be unable to raise additional funds or enter into such other transactions or arrangements when needed on favorable terms , or at all . if we fail to raise capital or enter into such transactions or arrangements as and when needed , we may have to significantly delay , scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions . biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk . typically , it takes many years to develop one new product from the time it is discovered to when it is available for treating patients , and development may cease for a number of reasons . because of the numerous risks and uncertainties associated with product development , including any impact from the covid-19 pandemic , we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability . even if we are able to generate product sales , we may not become profitable . if we fail to become profitable or are unable to sustain profitability on a continuing basis , we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations . as of december 31 , 2020 , we had cash , cash equivalents and short-term investments of $ 323.5 million . we believe that our existing cash , cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months from the date of issuance of the consolidated financial statements included in this annual report . we have based this estimate on assumptions that may prove to be wrong , and we could exhaust our available capital resources sooner than we expect . see “ — liquidity and capital resources. ” our future viability beyond that point is dependent on our ability to raise additional capital to finance our operations . components of our results of operations revenue to date , we have not generated any revenue from any products , and may never be able to develop and commercialize a marketable product . if our development efforts for our product candidates are successful and result in regulatory approval , we may generate revenue in the future from product sales . the fda accepted the sbla for rilonacept in recurrent pericarditis with priority review and assigned a pdufa goal date of march 21 , 2021. upon approval from the fda , if any , of the sbla , we will assume the sales and distribution of rilonacept for the approved indications in the united states and would evenly split profits on sales with regeneron , after deducting certain commercialization expenses subject to specified limits . operating expenses research and development expenses research and development expenses consist primarily of costs incurred in connection with the research and development of our product candidates . we expense research and development costs as incurred . these expenses may include : ● expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval ; ● expenses incurred under agreements with contract research organizations , or cros , that are primarily engaged in the oversight and conduct of our clinical trials and contract manufacturing organizations , or cmos , that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs for our product candidates ; ● other costs related to acquiring and manufacturing preclinical and clinical trial materials , including manufacturing validation batches , as well as investigative sites and consultants that conduct our clinical trials , preclinical studies and other scientific development services ; 129 ● payments made in cash or equity securities under third-party licensing , acquisition and other similar agreements ; ● employee-related expenses , including salaries and benefits , travel and
| during the year ended december 31 , 2019 , expenses incurred related to the acquisition of all of the outstanding securities of primatope for aggregate upfront and contingent payments of $ 18.0 million , paid in a combination of cash and class a common shares ( inclusive of escrow and holdback share amounts ) in accordance with the primatope agreement , $ 10.0 million for an accrued milestone under the biogen agreement , associated with the achievement of a specified clinical milestone event , and expenses for external spend with respect to our product candidates of $ 63.2 million , including $ 34.1 million of costs related to our clinical trials and $ 19.2 million of costs related to the manufacturing of our clinical drug supply . in addition , we incurred unallocated research and development expenses of $ 43.9 million , including , $ 29.0 million of personnel costs and $ 14.8 million of other operating costs including costs associated with our laboratory and other facility costs including costs related to preclinical and discovery research . during the year ended december 31 , 2018 , the research and development expenses incurred related to external spend with respect to our product candidates of $ 60.2 million , including $ 26.7 million of costs related to our preclinical and clinical trials and $ 20.7 million of costs related to manufacturing of our clinical drug supply . in addition , we incurred unallocated research and development expenses of $ 26.4 million , including $ 15.0 million of personnel costs and $ 11.3 million of other operating costs including costs associated with the first year of operations of our laboratory and costs related to preclinical studies and discovery research . direct costs for our rilonacept program were $ 25.7 million , $ 25.7 million and $ 13.4 million for the years ended december 31 , 2020 , 2019 and 2018 , respectively . during the year ended december 31 , 2020 , expenses incurred primarily related to conducting rhapsody , our global , pivotal phase 3 clinical trial in recurrent pericarditis , including the long-term extension , a milestone payment of $ 7.5 million for the achievement of a specified regulatory milestone event under the regeneron agreement , and supply chain costs . during the year ended december 31 , 2019 , expenses incurred primarily related to our clinical research and development for rhapsody , including $ 6.6 million related to 134 purchases of drug materials under our clinical supply agreement with regeneron , as well as for our open-label phase 2 proof-of-concept clinical trial . during the year ended december 31 , 2018 , expenses incurred primarily
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( “ onyx ” ) , received accelerated approval from the u.s. food and drug administration , or fda , for kyprolis ( carfilzomib ) for injection . we received a milestone of $ 0.6 million upon approval by the fda . kyprolis is formulated with ligand 's captisol and is used for the treatment of patients with multiple myeloma who have received at least two prior therapies , including bortezomib and an immunomodulatory agent , and have demonstrated disease progression on or within 60 days of completion of the last therapy . under our agreement with onyx , we are entitled to receive milestones , tiered royalties ranging between 1.5 % and 3 % . in september 2012 , the company filed a demand for arbitration against chiva pharmaceuticals , inc. ( “ chiva ” ) with the american arbitration association . the demand asserted claims for damages resulting from chiva 's breach of the october 7 , 2011 fablyn license agreement ( “ fablyn license agreement ” ) for failure to tender a milestone payment and failure to pay certain patent prosecution expenses . in october 2012 , the company reached a settlement with chiva , whereby the parties resolved all disputes that had arisen between them , including ligand 's primary claim in arbitration relating to payments due under the fablyn license agreement . as part of the settlement , the parties executed mutual releases and ligand agreed to seek dismissal of all claims asserted in the arbitration . in return , chiva agreed to pay ligand $ 0.1 million , which has been received by the company . in october 2012 , our licensee , merck , initiated a phase iib/iii adaptive clinical trial for dinaciclib for the treatment of patients with refractory chronic lymphocytic leukemia ( cll ) . as a result , during the fourth quarter of 2012 , we recognized a $ 2 million milestone payment upon initiation of the clinical study . under our collaboration and license agreement with merck , we are entitled to receive future milestones and royalties . 24 in november 2012 , the fda approved promacta® for the treatment of thrombocytopenia ( low blood platelet counts ) in patients with chronic hepatitis c to allow them to initiate and maintain interferon-based therapy . promacta is the first supportive care treatment available to patients who are ineligible or poor candidates for interferon-based therapy due to their low blood platelet counts . promacta in combination with interferon-based therapy has been shown to improve a patient 's chance of achieving a sustained virologic response ( svr ) or viral cure . as a result of the regulatory approvals of promacta , pursuant to the terms of a license agreement with gsk , we are entitled to receive tiered royalties on annual net sales of promacta . gsk has listed a patent in the fda 's orange book for promacta with an expiration date in 2024. in march 2013 , we entered into a license agreement with spectrum pharmaceuticals , inc. ( “ spectrum ” ) . under the license agreement , we granted to spectrum an exclusive , nontransferable , worldwide license to such intellectual property rights that will enable spectrum to develop and potentially commercialize captisol-enabled® propylene glycol-free melphalan . contemporaneously with the entry into the license agreement , we entered into a supply agreement to provide captisol to spectrum . under the supply agreement , spectrum agreed to purchase its captisol requirements for the development of the compound contemplated by the license agreement , as well as any captisol required for any product that is successfully commercialized . we are entitled to receive a non-refundable license issuance fee of $ 3 million . additionally , we are entitled to milestone payments and royalties on future net sales of the captisol-enabled melphalan product . this program is currently enrolling patients in a pivotal clinical trial . metabasis contingent value rights in january 2010 , we completed our acquisition of metabasis . in addition to cash consideration , we issued four tradable contingent value rights ( “ cvrs ” ) , one cvr from each of four respective series of cvrs , for each metabasis share . the cvrs will entitle the holder to cash payments as frequently as every six months as cash is received by us from the sale or partnering of any of the metabasis drug development programs , among other triggering events . we have also committed to spend at least $ 7 million within 30 months and $ 8 million within 42 months , in new research and development funding on the metabasis programs . through december 31 , 2012 , we estimate that we have spent approximately $ 7.7 million of the committed amount . in january 2011 , we granted licenses to chiva to begin immediate development in china of two clinical-stage hepdirect programs , pradefovir for hepatitis b and mb01733 for hepatocellular carcinoma . additionally , we granted chiva a non-exclusive hepdirect technology license for the discovery , development and worldwide commercialization of new compounds in hepatitis b ( hepb ) , hepatitis c ( hepc ) and hepatocellular carcinoma ( hcc ) . under the terms of the agreement , we are entitled to milestones and royalties on potential sales . in addition , we are entitled to receive a portion of any sublicensing revenue generated from sublicensing of collaboration compounds to third parties in a major world market . we received a $ 0.5 million license payment in march 2011 , of which $ 0.1 million was remitted to cvr holders . in august 2011 , we entered into an amendment to the license agreement which required that a second $ 0.5 million licensing fee be paid in september 2011. in addition , the amendment increased royalty rates which we may receive under the license agreement to 6 % of net sales of products ( other than pradefovir ) and 9 % of net sales for pradefovir . story_separator_special_tag in addition , the amendment removed from the license agreement a provision that afforded us the potential to earn a 10 % equity position in chiva as a milestone payment . in september 2011 , chiva paid us the $ 0.5 million licensing fee called for by the amendment , of which $ 0.1 million was remitted to cvr holders . in september 2012 , we entered into an option agreement with an undisclosed partner , which required our partner to pay a $ 50,000 upfront option opening fee , 50 % of which is required to be remitted to the metabasis cvr holders pursuant to the cvr agreement . in october 2012 , we remitted $ 6,000 to the metabasis cvr holders , equivalent to the option fee less costs and expenses incurred in connection with the option agreement . story_separator_special_tag wrote-off the $ 2.8 million of acquired in-process research and development associated with the agreement during the year ended december 31 , 2010. accretion of deferred gain on sale leaseback in 2006 , we entered into an agreement for the sale of our real property located in san diego , california for a purchase price of $ 47.6 million . this property , with a net book value of $ 14.5 million , included one building totaling approximately 82,500 square feet , the land on which the building is situated , and two adjacent vacant lots . as part of the sale transaction , we agreed to lease back the building for a period of 15 years . we recognized an immediate pre-tax gain on the sale transaction of $ 3.1 million in 2006 and deferred a gain of $ 29.5 million on the sale of the building . the deferred gain was being recognized as an offset to operating expense on a straight-line basis over the 15 year term of the lease at a rate of approximately $ 2.0 million per year . in 2009 , we entered into a lease termination agreement for this building . as a result , we recognized an additional $ 20.4 million of accretion of deferred gain during the quarter ended september 30 , 2009 , and recognized the remaining balance of the deferred gain of $ 3.1 million through the term of our new building lease , which expired in december 2011. the amount of the deferred gain recognized for the years ended december 31 , 2011 and 2010 was $ 1.7 million , respectively . the deferred gain was fully amortized as of december 31 , 2011 , thus no gain was recognized for the year ended december 31 , 2012 . 27 interest income ( expense ) , net interest expense was $ 3.3 million for the year ended december 31 , 2012 compared to $ 2.5 million in 2011 and interest income of $ 0.4 million in 2010. the increase in interest expense of $ 0.8 million for the year ended december 31 , 2012 compared with 2011 was due to the increase in the outstanding balance of notes payable at december 31 , 2012 compared to december 31 , 2011. additionally , the $ 20 million loan obtained to acquire cydex in january 2011 was outstanding for a partial period for the year ended december 31 , 2011. the interest income in 2010 of $ 0.4 million is the result of interest earned on investments which were liquidated in january 2011 and used to acquire cydex . change in contingent liabilities we recorded an increase in contingent liabilities of $ 1.7 million for the year ended december 31 , 2012 compared to $ 1.0 million for 2011 , and a decrease of $ 9.1 million for 2010. the change relates to our liability for amounts potentially due to holders of cvrs and other former license holders associated with our cydex , metabasis , and neurogen acquisitions . the metabasis cvr liability is marked-to-market at each reporting period based upon the quoted market prices of the underlying cvr . the fair value of the cydex and neurogen contingent liabilities were determined based upon the income approach for the years ended december 31 , 2012 and 2011. the carrying amount of the liability may fluctuate significantly based upon quoted market prices and actual amounts paid under the agreements may be materially different than the carrying amount of the liability . other , net we recorded other income of $ 0.5 million for the year ended december 31 , 2012 , compared to $ 0.6 million for 2011 and $ 4.4 million for 2010. other income for 2012 is primarily due to decreases in liabilities assumed in acquisitions . other income for 2011 primarily relates to income related to the gain on the sale of property and equipment and decreases in liabilities assumed in acquisitions . other income for 2010 primarily relates to grants totaling $ 2.0 million in response to applications submitted for qualified investments in a qualifying therapeutic discovery project under section 48d of the internal revenue code , $ 1.5 million in realized gains on investments , $ 0.5 million reduction in warrant liability and $ 0.4 million of gain on the sale of property and equipment . income taxes we recorded an income tax benefit from continuing operations of $ 1.2 million for the year ended december 31 , 2012 compared to a income tax benefit of $ 13.3 million in 2011. the income tax benefit in 2011 was principally the result of net deferred tax liabilities recorded in connection with our acquisition of cydex . the net deferred tax liabilities assumed in the cydex acquisition became a future source of income to support the realization of deferred tax assets and resulted in the release of a portion of our valuation allowance against deferred tax assets . the income tax benefit in 2012 is principally due to a requirement under asc740-20-45-7 that a company to consider all sources of income in order to determine the tax benefit resulting from a loss from continuing operations .
| the decrease in collaborative research and development and other revenue of $ 7.6 million for the year ended december 31 , 2011 , compared to 2010 is primarily due to the termination of the research funded stage of a majority of the company 's then-existing collaboration agreements . research and development expenses research and development expenses for 2012 were $ 10.8 million compared to $ 10.3 million in 2011 and $ 22.1 million in 2010. the increase in research and development expenses of $ 0.5 million for the year ended december 31 , 2012 is primarily due to an increase in costs associated with internal programs . the decrease of $ 11.8 million for the year ended december 31 , 2011 , compared with 2010 was primarily due to $ 8.7 million of costs associated with collaboration agreements that were terminated as well as $ 3.1 million of other costs associated with internal research programs . as summarized in the table below , we are developing several proprietary products for a variety of indications . our programs are not limited to the following , but are representative of a range of future licensing opportunities to expand our partnered asset portfolio . program disease/indication development phase selective androgen receptor modulator various phase ii-ready captisol-enabled topiramate epilepsy phasei/ii glucagon receptor antagonist diabetes pre-ind hepdirect liver diseases preclinical oral human granulocyte colony stimulating factor neutropenia preclinical oral erythropoietin anemia preclinical we do not provide forward-looking estimates of costs and time to complete our ongoing research and development projects as such estimates would involve a high degree of uncertainty . uncertainties include our inability to predict the outcome of complex research , our inability to predict the results of clinical studies , regulatory requirements placed upon us by regulatory authorities such as the fda and ema , our inability to predict the decisions of our collaborative partners , our ability to fund research and development programs , competition from other entities of which we may become aware in future
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strategic footprint we review our manufacturing footprint in the normal course to , among other considerations , provide a competitive landed cost to our customers . in november 2015 , the company announced a restructuring and cost reduction plan , which is expected to lower operating costs by $ 8 million to $ 12 million annually when fully implemented at the end of 2017. we have achieved approximately 50 percent of planned cost savings as of december 31 , 2016. at the time of the november 2015 announcement of facility restructuring actions , the company estimated pre-tax costs of $ 11 million to $ 16 million . this range of pre-tax restructuring costs has been lowered to $ 8 million to $ 11 million . pre-tax expenditures associated with the restructuring actions announced in november 2015 were approximately $ 1 million in the year ended december 31 , 2015 , approximately $ 4 million in the year ended december 31 , 2016 and are expected to be $ 3 million to $ 6 million for year ended december 31 , 2017. the majority of these costs are employee-related separation costs and other costs associated with the transfer of production and subsequent closure of facilities . recently issued accounting pronouncements recently issued accounting pronouncements described in note 2 of the “ notes to consolidated financial statements ” is incorporated in this section by reference . consolidated results of operations the table below sets forth certain operating data expressed as a percentage of revenues for the periods indicated ( dollars are in thousands ) : replace_table_token_7_th 33 year ended december 31 , 2016 compared to year ended december 31 , 2015 c onsolidated r esults revenues . on a consolidated basis , revenues decreased $ 163.2 million , or 19.8 % , to $ 662.1 million for the year ended december 31 , 2016 compared to $ 825.3 million for the year ended december 31 , 2015 . the decrease in revenues primarily resulted from decreased heavy-duty truck production volumes in north america , decreased sales volume in global construction markets and unfavorable foreign currency exchange translation . specifically , the decrease resulted from : a $ 132.0 million , or 32 % , decrease in oem md/hd truck revenues ; a $ 19.1 million , or 14 % , decrease in aftermarket revenues ; a $ 16.6 million , or 11 % , decrease in construction equipment revenues ; and a $ 4.5 million , or 3 % , increase in other revenues . 2016 revenues were adversely impacted by foreign currency exchange translation of $ 8.6 million , which is reflected in the change in revenue above . gross profit . gross profit decreased $ 23.6 million , or 21.3 % , to $ 87.2 million for the year ended december 31 , 2016 from $ 110.8 million for the year ended december 31 , 2015 . included in gross profit is cost of revenues which consists primarily of raw materials and purchased components for our products , wages and benefits for our employees and overhead expenses such as manufacturing supplies , facility rent and utilities costs related to our operations . cost of revenues decreased $ 139.6 million , or 19.5 % , resulting from a decrease in raw material and purchased component costs of $ 107.1 million , wages and benefits of $ 10.3 million and overhead expenses of $ 22.2 million . the decrease in gross profit primarily resulted from the decrease in sales volume . additionally , 2016 results included $ 3.4 million in charges relating to facility restructuring costs compared to $ 2.1 million in the prior year period . as a percentage of revenues , gross profit decreased to 13.2 % for the year ended december 31 , 2016 from 13.4 % for the year ended december 31 , 2015 . selling , general and administrative expenses . selling , general and administrative expenses consist primarily of wages and benefits and other overhead expenses such as marketing , travel , legal , audit , rent and utilities costs , which are not directly or indirectly associated with the manufacturing of our products . selling , general and administrative expense decreased $ 10.9 million , or 15.3 % , to $ 60.5 million for the year ended december 31 , 2016 from $ 71.5 million for the year ended december 31 , 2015 . the net decrease in selling , general and administrative expenses was primarily a result of a reduction in force and executive realignment of approximately $ 6.0 million in overhead and employee-related expenditures , a reduction in outside services and other cost-cutting measures of $ 3.0 million driven by a decline in volume and favorable foreign currency exchange translation of $ 0.7 million . additionally , 2016 results included $ 0.6 million in charges relating to impairment of an asset held for sale . other ( income ) expense . other ( income ) expense increased $ 0.6 million , or 405.9 % , to $ 0.8 million for the year ended december 31 , 2016 from $ 0.2 million for the year ended december 31 , 2015. the increase in other ( income ) expense is due to proceeds to be received on an insurance settlement . interest expense . interest , associated with our long-term debt , and other expense was approximately $ 19.3 million and $ 21.4 million in the years ended december 31 , 2016 and 2015 , respectively . the decline reflects a reduction in interest expense as a result of the redemption of $ 15.0 million of our outstanding notes in the fourth quarter of 2015. provision for income taxes . our provision for income taxes decreased by $ 9.7 million to $ 49 thousand for the year ended december 31 , 2016 compared to $ 9.8 million for the year ended december 31 , 2015 . story_separator_special_tag this decrease primarily resulted from a change in the mix of income from our u.s. to non-u.s. locations and tax valuation allowances released in china and india during 2016. for additional information regarding the income tax provision refer to note 8 of our consolidated financial statements in item 8 in this annual report on form 10-k. net income attributable to cvg stockholders . net income attributable to cvg stockholders was $ 6.8 million for the year ended december 31 , 2016 compared to net income of $ 7.1 million in the prior year period . s egment r esults global truck and bus segment results the table below sets forth certain gtb segment operating data expressed as a percentage of revenues for the periods indicated ( dollars are in thousands ) : 34 replace_table_token_8_th revenues . gtb segment revenues decreased $ 149.0 million , or 26.4 % , to $ 416.3 million for the year ended december 31 , 2016 from $ 565.3 million for the year ended december 31 , 2015 . the decrease in gtb segment revenues is primarily a result of : a $ 134.6 million , or 34 % , decrease in oem md/hd truck revenues ; a $ 10.0 million , or 12 % , decrease in aftermarket revenues ; and a $ 4.4 million , or 5 % , decrease in revenues from other markets . gtb segment 2016 revenues were adversely impacted by foreign currency exchange translation of $ 0.6 million , which is reflected in the changes in revenue above . gross profit . gtb segment gross profit decreased $ 31.0 million , or 36.2 % , to $ 54.7 million for the year ended december 31 , 2016 from $ 85.7 million for the year ended december 31 , 2015 . cost of revenues decreased $ 117.9 million , or 24.6 % , as a result of a decrease in raw material and purchased component costs of $ 91.4 million , wages and benefits of $ 8.8 million and overhead expenses of $ 17.7 million . the decrease in gross profit was primarily the result of the decrease in sales volume . additionally , 2016 results included $ 2.7 million in charges relating to facility restructuring costs compared to $ 1.8 million in prior year period , $ 1.5 million of which pertains to tigard restructuring in 2015. as a percentage of revenues , gross profit for the year ended december 31 , 2016 decreased to 13.1 % from 15.2 % for the year ended december 31 , 2015 reflecting primarily the decline in sales volume . selling , general and administrative expenses . gtb segment selling , general and administrative expenses decreased $ 2.7 million , or 10.7 % , to $ 22.6 million for the year ended december 31 , 2016 from 25.3 million for the year ended december 31 , 2015 reflecting a focus on cost discipline . global construction and agriculture segment results the table below sets forth certain gca segment operating data expressed as a percentage of revenues for the periods indicated ( dollars are in thousands ) : replace_table_token_9_th revenues . gca segment revenues decreased $ 17.6 million , or 6.5 % , to $ 254.0 million for the year ended december 31 , 2016 from $ 271.6 million for the year ended december 31 , 2015 . the decrease in gca segment revenue is primarily a result of : a $ 13.2 million , or 10 % , decrease in oem construction equipment revenues ; a $ 9.2 million , or 19 % , decrease in aftermarket revenues ; and a $ 4.8 million , or 5 % , increase in revenues from other markets . gca segment 2016 revenues were adversely impacted by foreign currency exchange translation of $ 8.6 million , which is reflected in the changes in revenue above . gross profit . gca segment gross profit increased $ 5.4 million , or 19.0 % , to $ 34.1 million for the year ended december 31 , 2016 from $ 28.6 million for year ended december 31 , 2015 . cost of revenues decreased $ 23.0 million , or 9.5 % , as a result of an decrease in raw material and purchased component costs of $ 17.1 million , wages and benefits of $ 1.4 million and overhead expenses of $ 4.5 million . the increase in gross profit , notwithstanding the decline in sales volume , was primarily a result of our cost reduction and restructuring actions for the year ended december 31 , 2016. additionally , 2016 results included $ 0.7 million in charges relating to facility restructuring costs compared to $ 0.3 million in the prior year period . as a percentage of revenues , gross profit improved to 13.4 % for the year ended december 31 , 2016 from 10.5 % for the year ended december 31 , 2015. selling , general and administrative expenses . gca segment selling , general and administrative expenses decreased $ 2.2 million , or 10.8 % , to $ 18.2 million in the year ended december 31 , 2016 from $ 20.4 million for the year ended december 31 , 2015 reflecting a focus on cost discipline . 35 year ended december 31 , 2015 compared to year ended december 31 , 2014 consolidated results revenues . on a consolidated basis , revenue decreased $ 14.4 million , or 1.7 % , to $ 825.3 million for the year ended december 31 , 2015 compared to $ 839.7 million for the year ended december 31 , 2014 . the decrease in revenues primarily resulted from foreign currency exchange translation and decreased sales in global construction markets , offset by increased north american md/hd truck production volumes . specifically , the $ 14.4 million revenue decrease story_separator_special_tag of our norwalk , ohio facility . as a percentage of revenues , gross profit of 15.2 % for the year ended december 31 , 2015 was unchanged from the year ended december 31 , 2014. selling , general and administrative expenses .
| selling , general and administrative expense decreased $ 1.0 million , or 1.4 % , to $ 71.5 million for the year ended december 31 , 2015 from $ 72.5 million for the year ended december 31 , 2014 . the net decrease in selling , general and administrative expenses was primarily a result of favorable foreign currency exchange translation and a focus on cost discipline while selectively investing in value accretive activities . this was slightly offset by $ 0.2 million of employee separation charges as a part of our fourth quarter 2015 restructuring plan . interest expense . interest expense increased $ 0.7 million to $ 21.4 million for the year ended december 31 , 2015 from $ 20.7 million for the year ended december 31 , 2014 as a result of costs incurred in the fourth quarter of 2015 for the partial redemption of the 7.875 % notes . on october 15 , 2015 , the company elected to call for the redemption of $ 15 million of its $ 250 million then outstanding 7.875 % notes . the redemption price for the 7.875 % notes was equal to 103.938 % of the principal amount of the 7.875 % notes , plus accrued and unpaid interest to , but not including , the redemption date . the redemption date was november 14 , 2015. upon the partial redemption by the company of the 7.875 % notes , $ 235 million of the 7.875 % notes remain outstanding . provision for income taxes . our provision for income taxes increased by $ 4.7 million to $ 9.8 million for the year ended december 31 , 2015 compared to an income tax provision of $ 5.1 million for the year ended december 31 , 2014 . this primarily resulted from the mix of income between our u.s. and non-u.s. locations , tax valuation allowances established in china during 2015 and partially offset by valuation allowances released in belgium and a partial release in luxembourg during 2015. in addition , tax benefits are not recognized in the u.k. , china , luxembourg ,
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these key performance measures include the following : gaming revenue measures : slot handle , which means the dollar amount wagered in slot machines , and table game drop , which means the total amount of cash deposited in table games drop boxes , plus the sum of markers issued at all table games . slot handle and table game drop are measures of volume and or market share . slot win and table game hold , which mean the difference between customer wagers and customer winnings on slot machines and table games , respectively . slot win and table game hold percentages represent the relationship between slot handle and table game drop to gaming wins and losses . food and beverage revenue measures : average guest check , which means the average amount spent per customer visit and is a measure of volume and product offerings ; number of guests served ( `` food covers '' ) is an indicator of volume ; and the cost per guest served is a measure of operating margin . room revenue measures : hotel occupancy rate , which measures the utilization of our available rooms ; and average daily rate ( `` adr '' ) , which is a price measure . 32 results of operations overview replace_table_token_6_th net revenues net revenues decreased approximately $ 193.1 million , or 6.7 % , for 2014 as compared to 2013 due primarily to the deconsolidation of borgata as of september 30 , 2014 , resulting in a $ 157.1 million decrease in net revenues compared to the prior year . in addition , there were decreases of $ 32.7 million and $ 26.4 million in net revenues in the midwest and south segment and the peninsula segment , respectively . these decreases were due primarily to a decrease in slot volume in both segments , and , to a lesser extent , a decrease in slot hold percentage in the midwest and south segment . partially offsetting the revenue declines was the addition of $ 20.6 million of revenues , reported during the period prior to its deconsolidation , from borgata 's real-money online gaming website , launched in fourth quarter 2013. in 2013 , net revenues increased approximately $ 411.6 million , or 16.6 % , over the prior year due to the $ 463.4 million of incremental revenues contributed by peninsula , which was acquired in november 2012 ( the `` peninsula acquisition '' ) . partially offsetting this increase was a $ 60.0 million decline in revenues from the midwest and south segment due primarily to a decrease in slot volume . operating income ( loss ) in 2014 , our operating income decreased $ 26.8 million from the operating income reporting for 2013. the decrease is due to approximately $ 50.4 million increase in impairment charges in 2014 compared to in the prior year , includin g $ 20.4 million and $ 18.0 million related to par-a-dice and blue chip gaming licenses , respectively , and $ 12.1 million related to the deconsolidation of borgata . partially offsetting the impairment charges were improved operating margins , reflecting our continuing emphasis on controlling our costs . in 2013 , our operating income increased $ 1.13 billion over the operating loss reported for 2012 , reflecting the impact of the 2012 impairment charges and the contribution of $ 64.8 million in incremental operating income from peninsula . in 2012 , there were $ 1.05 billion of non-recurring , non-cash impairment charges recorded , which included $ 993.9 million related to the echelon project and $ 17.5 million related to the write-down of the sam 's town shreveport gaming license . net loss attributable to boyd gaming corporation the variations in the net loss attributable to boyd gaming corporation over the reporting periods are also primarily due to the fluctuations in the impairment charges each period . also contributing to the variations are the impact on the net loss of our income tax provision , and increases in interest expense due to the incremental debt incurred to fund the 2012 acquisition of peninsula . these items are discussed further below . operating revenues we derive the majority of our gross revenues from our gaming operations , which generated approximately 74 % of gross revenues for 2014 and 2013 , and 72 % of gross revenues in 2012 . food and beverage gross revenues represent our next most significant revenue source , generating approximately 13 % of gross revenues for 2014 and 2013 , and 14 % of gross revenues in 2012 . room revenues and other revenues separately contributed less than 10 % of gross revenues during each year . the shift in the mix of our revenues is primarily due to the fourth quarter 2012 acquisition of peninsula , whose properties generally offer fewer amenities than our other properties and , in particular , do not have hotels . 33 replace_table_token_7_th for the year ended december 31 , 2014 , boyd gaming consolidated the financial results of borgata for the first nine months of the period , and recorded the results by applying the equity method for the last three months of the year . for the years ended december 31 , 2013 and 2012 , boyd gaming consolidated the financial results of borgata . gaming gaming revenues are comprised primarily of the net win from our slot machine operations and to a lesser extent from table games win . gross gaming revenues decreased by $ 171.4 million , or 6.9 % , during 2014 as compared to the prior year largely due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 143.7 million decrease in the company 's consolidated gross gaming revenues . additionally , the midwest and south segment and peninsula segment experienced decreases of $ 30.9 million and $ 26.8 million , respectively , primarily related to 5.09 % and 5.91 % decreases in slot handle , respectively . story_separator_special_tag our overall slot handle and slot hold decreased 4.5 % and 3.61 % , respectively , from 2013 to 2014 , while gaming margin remained relatively unchanged . gaming revenues increased by 17.7 % during 2013 as compared to 2012 primarily due to the $ 431.4 million increase in gaming revenues contributed by peninsula . partially offsetting the increase was a $ 63.2 million decrease in gaming revenues in our midwest and south segment . excluding peninsula , our overall slot handle decreased 4.0 % , while slot hold remained relatively unchanged in 2013 compared to 2012. gaming margin increased by 0.6 percentage points due to our continuing focus on cost containment measures . food and beverage food and beverage revenues decreased $ 38.1 million , or 8.5 % , during 2014 as compared to 2013 primarily due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 32.1 million decrease in the company 's consolidated food and beverage revenues . additionally , food and beverage revenues further decreased due to related to a 3.1 % decrease in number of food covers , which was partially offset by a 3.3 % increase in average guest check . the deconsolidation of borgata as of september 30 , 2014 , accounted for $ 16.6 million of the $ 17.7 million decrease in food and beverage expense from prior period . food and beverage revenues increased $ 29.2 million , or 7.0 % , during 2013 as compared to 2012 due to the $ 35.2 million increase in food and beverage revenues contributed by peninsula , which was offset by a $ 5.2 million decline in the midwest and south segment . excluding peninsula , the number of food covers decreased 7.1 % , while the average guest check increased 2.7 % . the $ 20.6 million increase in food and beverage expense is due to the inclusion of a full year of expense for peninsula . 34 room room revenues decreased by $ 17.1 million , or 6.5 % , in 2014 compared to 2013 largely due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 26.0 million decrease in the company 's consolidated room revenues in the fourth quarter of 2014. the decline was offset by a $ 7.2 million increase due primarily to a 2.0 % hotel occupancy increase in the midwest and south segment , and a 5.7 % and 3.4 % increase in adr in the las vegas and downtown segments , respectively . room revenues increased by $ 0.5 million in 2013 compared to 2012. room revenues were unaffected by the peninsula acquisition , since the peninsula properties do not offer hotels . adr and hotel occupancy decreased 1.5 % and 0.5 % , respectively , largely driven by a decrease in leisure travel . room margins improved by 0.5 % due to our focus on cost containment measures . other other revenues decreased by $ 11.0 million , or 6.7 % , during 2014 as compared to the prior year largely due to the deconsolidation of borgata as of september 30 , 2014 , which resulted in a $ 9.0 million decrease in the company 's consolidated other revenues . other operating margin improved 0.8 percentage points due to our cost containment measures . other revenues increased by $ 20.0 million , or 13.8 % , of which peninsula contributed $ 16.2 million in incremental revenues during 2013 compared to 2012. other expenses increased by $ 10.6 million primarily due to the incremental expenses from peninsula . other operating margin improved 2.8 percentage points due to our cost containment measures . revenues by reportable segment the following table presents our net revenues by reportable segment : replace_table_token_8_th ( 1 ) the 2014 borgata net revenues only include amounts through september 30 , 2014 , due to the deconsolidation that occurred on that date . las vegas locals net revenues for our las vegas locals segment in 2014 increased $ 1.2 million compared to the prior year . increases of 9.6 % in room revenues and 2.4 % in food and beverage revenues were offset by a 1.2 % decrease in gaming revenues and a 2.9 % increase in promotional allowances . the increase in room revenues reflects a 5.7 % increase in adr . the average guest check increased 7.4 % , while the number of covers decreased 3.7 % . the decrease in gaming revenues resulted primarily from a 2.8 % decline in slot drop . net revenues for our las vegas locals segment in 2013 were essentially flat as compared to the prior year . declines of 1.0 % in gaming revenues and food and beverage revenues were offset by a 3.8 % increase in room revenues and a 3.8 % reduction in promotional allowances . the decline in gross gaming revenues reflects a 4.1 % decline in slot drop , partially offset by a 1.3 % increase in table drop . downtown las vegas net revenues increased by 0.7 % in 2014 as compared to the prior year due to 2.5 % increases in both room and other revenues . room revenues increased due to a 3.4 % increase in adr . other revenue increases were related to amenity offerings at the casinos and revenues generated by the travel agency we operate . net revenues decreased by 0.7 % in 2013 as compared to the prior year due to a 1.0 % decline in gaming revenues , which was primarily due to a decline in slot drop . 35 midwest and south net revenues decreased $ 32.8 million during 2014 as compared to 2013. this decrease was primarily due to a $ 30.9 million , or 4 % , decrease in gaming revenues . slot handle and slot win decreased 5.1 % and 3.7 % , respectively , as compared to prior year , and table game drop decreased 4.9 % over the same period .
| in 2014 and 2013 , our net cash outflows for financing activities totaled $ 175.4 million and $ 366.2 million , respectively , as we used cash generated from operations to extinguish outstanding debt in both years . in 2013 , we also used cash generated from an equity offering and asset dispositions to extinguish outstanding debt . in 2012 , financing activities provided us with net cash inflows of $ 1.3 billion , as we borrowed additional funds to support the acquisitions completed in that period . cash flows from discontinued operations as a result of the sale of the dania jai-alai business in may 2013 , we have presented the results of the dania jai-alai business as discontinued operations through the date of sale . the net cash inflow of $ 54.6 million in 2013 reflects the net cash received upon the sale of dania , net of cash used in operations prior to the sale of $ 2.1 million . the results for 2012 reflect primarily the net cash used to fund dania jai-alai 's operations in that period . indebtedness the balances of long-term debt for each of the businesses , and the changes in those balances are as follows : replace_table_token_13_th the amount of current maturities includes certain non-extending balances scheduled to be repaid within the next twelve months under the bank credit facilities . 41 boyd gaming corporation debt bank credit facility on august 14 , 2013 , we entered into a third amended and restated credit agreement ( the `` boyd gaming credit facility '' ) , among the company , certain financial institutions , bank of america , n.a. , as administrative agent and letter of credit issuer , and wells fargo bank , national association , as swing line lender . the boyd gaming credit facility replaced the second amended and restated credit agreement ( the `` prior credit facility '' ) dated as of december 17 , 2010. the boyd gaming credit facility provides for : ( i ) a $ 600.0 million senior secured revolving credit facility including a $ 100.0 million
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since mac and csa entered into the current dry-lease agreements in 2015 , they have periodically entered into amendments to the agreements with fedex that have adjusted the administrative fees payable under these agreements . these adjustments , which have generally been made on an annual basis , have resulted in annual period-to-period volatility in mac and csa 's profitability . mac and csa have entered into such an amendment effective as of june 1 , 2017 , which positively affected mac and csa 's profitability for the fiscal year ended march 31 , 2018 compared to the fiscal year ended march 31 , 2017 . 19 on june 1 , 2016 , the current dry-lease agreements were amended to extend the expiration date to may 31 , 2020. the dry-lease agreements may be terminated by fedex or mac and csa , respectively , at any time upon 90 days ' written notice and fedex may at any time terminate the lease of any particular aircraft thereunder upon 10 days ' written notice . in addition , each of the dry-lease agreements provides that fedex may terminate the agreement upon written notice if 60 % or more of mac or csa 's revenue ( excluding revenues arising from reimbursement payments under the dry-lease agreement ) is derived from the services performed by it pursuant to the respective dry-lease agreement , fedex becomes mac or csa 's only customer , or mac or csa employs less than six employees . as of the date of this report , fedex would be permitted to terminate each of the dry-lease agreements under this provision . the company believes that the short-term nature of its agreements with fedex is standard within the airfreight contract delivery service industry , where performance is measured on a daily basis . fedex has been a customer of the company since 1980. loss of its contracts with fedex would have a material adverse effect on the company . pass-through costs under the dry-lease agreements with fedex totaled $ 23,380,000 and $ 23,379,000 for the years ended march 31 , 2018 and 2017 , respectively . as of march 31 , 2018 , mac and csa had an aggregate of 79 aircraft under its dry-lease agreements with fedex . included within the 79 aircraft are 4 cessna caravan aircraft that are considered soft-parked . soft-parked aircraft remain covered under our agreements with fedex although at a reduced administrative fee compared to aircraft that are in operation . mac and csa continue to perform maintenance on soft-parked aircraft , but they are not crewed and do not operate on scheduled routes . ggs manufactures , sells and services aircraft deicers and other specialized equipment on a worldwide basis . ggs manufactures five basic models of mobile deicing equipment with capacities ranging from 700 to 2,800 gallons . ggs also offers fixed-pedestal-mounted deicers . each model can be customized as requested by the customer , including single operator configuration , fire suppressant equipment , open basket or enclosed cab design , a patented forced-air deicing nozzle and on-board glycol blending system to substantially reduce glycol usage , color and style of the exterior finish . ggs also manufactures five models of scissor-lift equipment , for catering , cabin service and maintenance service of aircraft , and has developed a line of decontamination equipment , flight-line tow tractors , glycol recovery vehicles and other special purpose mobile equipment . ggs competes primarily on the basis of the quality , performance and reliability of its products , prompt delivery , customer service and price . in july 2009 , ggs was awarded a new contract to supply deicing trucks to the usaf , which expired in july 2014. on may 15 , 2014 , ggs was awarded a new contract to supply deicing trucks to the usaf . the initial contract award was for two years through july 13 , 2016 with four additional one-year extension options that may be exercised by the usaf , the first two of which was exercised , extending the contract term to july 13 , 2018. in september 2010 , ggs was awarded a contract to supply flight-line tow tractors to the usaf . the contract award was for one year commencing september 28 , 2010 with four additional one-year extension options exercisable by the usaf . all option periods under the contract have been exercised and the contract expired in september 2015 , though it continues to govern orders placed under the contract prior to its expiration . sales of flight-line tow tractors under this contract have been at very low margins . for the fiscal year ended march 31 , 2017 , ggs revenues included $ 3,174,000 of flight-line tow tractors sales to usaf under this contract . this contract was completed in march 2017. at march 31 , 2018 , ggs 's backlog of orders was $ 13.3 million , compared to a backlog of $ 2.8 million at march 31 , 2017 . 20 gas provides aircraft ground support equipment , fleet , and facility maintenance services . at march 31 , 2018 , gas was providing ground support equipment , fleet , and facility maintenance services to more than 114 customers at 84 north american airports . during the quarter ended march 31 , 2017 , gas entered into new agreements with its principal customer which replaced certain fixed price agreements covering certain locations that had been unprofitable . gas anticipates the terms of these new agreements will permit it to operate with improved profitability at those locations . in addition , in december 2016 , gas was awarded a five-year contract to provide a major airline customer with ground support equipment services at 28 locations . in the contract award , which was part of a periodic request-for-bid process , gas retained 21 of its 22 incumbent locations with the customer covered by the rfp process and added seven new locations . on october 31 , 2016 , gas acquired , effective as of october 1 , 2016 , substantially all of the assets of d & d gse support , inc. story_separator_special_tag ( “ d & d ” ) which was in the business of marketing , selling and providing aviation repair , equipment , parts , and maintenance sales services and products at the fort lauderdale airport . the total amount paid at closing in connection with this acquisition was $ 400,000 , with an additional $ 100,000 paid 30 days after closing and an additional $ 100,000 payable in equal monthly installments of $ 16,667 commencing on november 1 , 2016. earn-out payments of up to $ 100,000 may also be payable based on specified performance for the twelve-month period ending september 30 , 2017. based on actual revenue earned by d & d through september 30 , 2017 , the earn-out payment under the purchase agreement was $ 100,000 , which was paid in october 2017. as described in note 10 of the accompanying notes to consolidated financial statements , we determined that for accounting purposes we had obtained control over delphax in conjunction with the acquisition of the equity and debt interests on november 24 , 2015 , and we have consolidated delphax in air t 's consolidated financial statements beginning on november 24 , 2015. delphax 's business has included the design , manufacture and sale of advanced digital print production equipment ( including high-speed , high-volume cut-sheet and continuous roll-fed printers ) , maintenance contracts , spare parts , supplies and consumable items for these systems . the equipment , spare parts , supplies and consumable items have been manufactured , and maintenance and services have been provided by delphax canada and such products and services have been sold through delphax , delphax canada and delphax subsidiaries located in canada , the united kingdom and france . a significant portion of delphax 's net sales has historically been related to service and support provided after the sale , including the sale of consumable items for installed printing systems . delphax 's legacy consumables production business had been expected to generate cash flow while delphax rolled-out its next generation elan ® commercial inkjet printer . as described in note 10 of the accompanying notes to consolidated financial statements , adverse business developments at delphax during the quarter ended june 30 , 2016 and the significantly deteriorated outlook for future orders of delphax legacy and elan ® product caused the company to reevaluate the recoverability of delphax 's assets , both tangible and intangible . based on this reevaluation , the company concluded that a significant increase to inventory reserves was necessary . in addition , the company concluded that delphax related intangible assets , both amortizable assets and goodwill , should be fully impaired . the company also recorded a partial impairment of delphax related long-lived tangible assets . furthermore , there was an assessment regarding whether , at june 30 , 2016 , future severance actions under existing delphax employee benefit plans were both probable and estimable . this assessment led to the company establishing an estimated accrual for future severance actions . the effects of these various adjustments , which aggregated to approximately $ 5,610,000 , were reflected in the operating results of delphax for the quarter ended june 30 , 2016 and the fiscal year ended march 31 , 2017. during the quarter ended june 30 , 2016 and the fiscal year ended march 31 , 2017 , the company recognized an impairment charge of $ 1.4 million which resulted in the remaining net book value of delphax intangible assets being fully written off . on january 6 , 2017 , the company acquired all rights , and assumed all obligations , of a third-party lender under a senior credit agreement ( the “ delphax senior credit agreement ” ) with delphax and delphax canada providing for a $ 7.0 million revolving senior secured credit facility , subject to a borrowing base of north american accounts receivable and inventory , including obligations , if any , to fund future borrowings under the delphax senior credit agreement . in connection with this transaction , the company , delphax and delphax canada entered into an amendment to the delphax senior credit agreement to , among other things , reduce the maximum amount of borrowings permitted to be outstanding under the delphax senior credit agreement from $ 7.0 million to $ 2.5 million and to revise the borrowing base to include in the borrowing base 100 % of purchase orders from customers for products up to $ 500,000. on january 6 , 2017 , the company notified delphax and delphax canada of certain “ events of default ” ( as defined under the delphax senior credit agreement ) existing under the delphax senior credit agreement . 21 notwithstanding the existence of events of default under the delphax senior credit agreement , during the first six calendar months of 2017 , the company permitted additional borrowings under the delphax senior credit agreement to , among other things , fund a final production run by delphax canada of consumable products for delphax 's legacy printing systems , which production run was primarily completed over the first six months of calendar 2017. in light of continuing events of default under the delphax senior credit agreement and the conclusion of final production run by delphax canada of consumable products for delphax 's legacy printing systems , on july 13 , 2017 , the company delivered a demand for payment and notice of intention to enforce security to delphax canada . on august 10 , 2017 , the company foreclosed on all personal property and rights to undertakings of delphax canada . the company foreclosed as a secured creditor with respect to amounts owed to it by delphax canada under the delphax senior credit agreement .
| the segment 's fiscal year 2018 operating loss , $ 165,000 , was an improvement of $ 336,000 ( 67 % ) compared to the 2017 loss of $ 501,000 principally due to the impact of increased revenues . revenue increased with growth in services for both new and existing customers and new contracts . the commercial jet engines and parts segment contributed $ 29,507,000 of revenues , net of intercompany eliminations , for the year ended march 31 , 2018 , while operating income , net of intercompany eliminations , was $ 609,000. the segment was formed through the acquisitions of the businesses of contrail aviation , airco and jet yard . in the prior fiscal year , the commercial jet engines and parts segment consisted only of contrail aviation and jet yard which contributed revenues of $ 7,456,000 and operating income of $ 532,000. the increase in revenue is directly attributable to new customers compared to the prior fiscal year and the acquisition of airco . further , contrail , which was acquired in july 2016 , contributed a full year of revenue in fiscal year 2018 compared to nine months in fiscal year 2017. revenues for the printing equipment and maintenance segment , net of intercompany eliminations , totaled approximately $ 6,144,000 representing a $ 2,875,000 ( 32 % ) decrease from the prior fiscal year . the segment 's net operating income for the fiscal year 2018 was approximately $ 550,000 compared to an operating loss of $ 6,104,000 representing an increase of approximately $ 6,654,000. the decrease in revenues and the increase in operating income are directly related to lost customers stemming from the events outlined in note 10 of the accompanying notes to consolidated financial statements and further described below related to the bankruptcy of delphax canada . 24 in light of continuing events of default under the delphax senior credit agreement and the conclusion of final production run by delphax canada of consumable products for delphax 's legacy printing systems , on july 13 , 2017 , the company delivered a demand for payment and notice of intention to enforce security to delphax canada . on august
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as a result , some of the budget reductions and program cancellations may negatively impact programs in which we participate . we expect to benefit from increased funding levels on c4isr , electronic warfare , unmanned systems , and communications programs within our aerospace defense market . as a leading supplier of commercial off-the-shelf ( cots ) and cots+ solutions , we continue to demonstrate that electronics technology will enhance our ability to design and develop future generations of advanced systems and products for high performance applications , while also meeting the military 's size , weight and power ( swap ) considerations . in our naval defense market , we expect continued solid funding for the u.s. shipbuilding program , particularly as it relates to production on the ford class aircraft carrier and virginia class submarine programs . in our ground defense market , u.s. growth is expected to slowly recover , while international demand should remain solid , particularly for our turret drive stabilization systems . commercial aerospace as a part of our diversified portfolio , we derive revenue from the global commercial aerospace market , including the commercial jet , regional jet , and commercial helicopter markets . our primary focus in this market is oem products and services for commercial jets where we provide a combination of flight control and utility actuation systems , sensors , and other sophisticated electronics , as well as shot and laser peening services , to our primary customers , boeing and airbus . shot and laser peening are also utilized on highly stressed components of turbine engine fan blades , landing gear , and aircraft structures . nearly all of our revenues service the oem market . 21 the largest driver of our commercial aerospace business is oem parts , which is highly dependent on new aircraft production . industry data supports an increase in commercial aircraft deliveries over the next few years , as 2011 marked the first year in a multi-year production up-cycle for the commercial aerospace market . in the current cycle , oem-oriented companies are expected to perform well , due to planned increases in production by boeing and airbus , on both legacy and new aircraft , with record-high backlogs on the latter . in addition , according to the international air transport association ( iata ) , air travel continues to be robust and is likely to reach almost 3.5 billion passenger miles or 7.0 % growth in 2015 , which is well-above the 5.5 % growth trend of the past two decades . the late 2014 decline in oil prices is expected to be a key contributor to the increased passenger growth in 2015 , as the fall in the price of fuel is expected to lead to cheaper airfares for consumers . as such , following a solid performance in the commercial jet market over the past four years , the industry is expected to continue its growth in 2015. industry experts also expect a modest growth outlook for both regional and business jets . power generation as a part of our product offering , we derive revenue from the commercial nuclear power generation market , where we supply a variety of highly engineered products and services , including reactor coolant pumps , control rod drive mechanisms , valves , motors , spent fuel management , containment doors , bolting solutions , and enterprise resource planning and plant process controls . according to the nuclear regulatory commission ( nrc ) , nuclear power comprises approximately 20 % of all the electric power produced in the united states , with approximately 100 reactors operating across 62 nuclear power plants in 31 states . our growth is driven by the u.s. plant recertification process , as nearly all of the operating u.s. nuclear power plants have applied for or will be applying for 20-year plant life extensions as they reach the end of their current 40-year operating lives . as of december 31 , 2014 , 74 reactors have received plant life extensions , applications from 19 additional reactors have been submitted and are pending approval , and letters of intent to apply have been submitted from 5 more reactors with expected application submittal dates from 2015 through 2021. additionally , as assessments and analysis from the events at fukushima continue to drive safety and reliability improvements , we have seen and continue to expect increased opportunities worldwide for our vast portfolio of advanced nuclear technologies , and we also expect increased opportunities as the nuclear industry complies with other regulatory requirements on existing plants , particularly the tier 1 regulations proposed by the nrc . in addition to plant re-certifications , there are several factors that are expected to drive an expansion in global commercial nuclear power demand over the next several years . the energy information administration ( eia ) forecasts that worldwide total energy consumption is expected to increase at an average annual rate of 0.4 % between 2012 and 2040. continued growth in global demand for electricity , especially in developing countries with limited supply such as china and india , will require increased capacity . in addition , the continued supply constraints and environmental concerns attributed to the current dependence on fossil fuels have led to a greater appreciation of the value of nuclear technology as the most efficient and environmentally friendly source of energy available today . as a result , we expect growth opportunities in this market both domestically and internationally , although the timing of orders remains uncertain . domestically , four new build reactors are under construction utilizing the westinghouse ap1000 reactor design , for which we are the sole supplier of reactor coolant pumps . applications for an additional 24 new reactors at 16 power plants have been submitted to the nrc , with the ap1000 design having been selected for 10 of the potential new reactors . internationally , new nuclear plant construction is active . story_separator_special_tag currently , there are approximately 70 new plants under construction in 14 countries , with approximately 183 planned and 311 proposed over the next several decades . in particular , china intends to expand its nuclear power capabilities significantly through the construction of new nuclear power plants , including two ap1000 plants currently under construction that are expected to be the first generation iii design in operation . as a result , we are positioned for solid expected new order activity and increased sales for our vast array of nuclear technologies due to ongoing maintenance and upgrade requirements on operating nuclear plants , a renewed interest in products to aid safety and extend the reliability of existing reactors , and the continued emphasis on global nuclear power construction . general industrial revenue derived from our diversified offering to the general industrial market consists of industrial sensors and control systems , critical-function valves and valve systems , as well as surface treatment services . we supply our products and services to oems and aftermarket industrial customers , including the transportation , commercial trucking , off-road equipment , construction , automotive , chemical , oil and gas , and medical industries . our performance in these markets is typically sensitive 22 to the performance of the u.s. and global economies , with increases in global gdp and industrial production leading to higher sales , particularly for our surface treatment services . a key driver within our general industrial markets is our sensors and controls systems products , most notably for electronic throttle controls , shift controls , and traction control systems , serving on- and off-highway and specialty vehicles . increased demand for electronic control systems and sensors has been driven by the need for improved operational efficiency , safety , repeatability , reduced emissions , enhanced functionality , and greater fuel efficiencies to customers worldwide . key to our future growth is expanding the human-machine interface technology portfolio and providing a complete system solution to our customers . existing and emergent trends in commercial vehicle safety , emissions control , and improved driver efficiency are propelling commercial vehicle oems toward higher performance subsystems . these trends are accelerating the evolution from discrete human machine interface components towards a more integrated vehicle interface architecture . meanwhile , our surface treatment services , including shot and laser peening , engineered coatings , and analytical services , have benefited from rising demand from commercial aerospace and general industrial customers . looking ahead , based on expectations for steadily improving global economic conditions , these businesses are likely to experience continued modest growth based on higher sales volumes and new international emissions regulations affecting several industries in which we participate . we also service the chemical and oil and gas industries through numerous industrial valve products . we maintain a significant global maintenance , repair and overhaul ( mro ) business for our pressure-relief valve technologies as refineries opportunistically service or upgrade equipment that has been operating at full capacity in recent years . we also produce severe service , operation-critical valves for the power and process industries . we have experienced increased demand driven by new exploration and expansion of sub-segments , including offshore drilling and shale gas , which is expected to boost end-user demand . we also have seen an industrial renaissance in the u.s. chemical industry due to plentiful , affordable natural gas which has led to further adoption of severe service valve technology . looking ahead , we believe improved economic conditions and continued global expansion will be key drivers for future growth of our severe service and operationally critical valves . results of operations 23 replace_table_token_9_th nm- not meaningful sales sales increased $ 125 million , or 6 % , in 2014 , as compared with 2013 . the increase in sales in 2014 is primarily due to an increase in sales in our commercial/industrial and energy segments of $ 124 million and $ 31 million , respectively . the increase in sales in our commercial/industrial segment was primarily due to the incremental impact of acquisitions of $ 63 million and increased organic sales to the commercial aerospace and oil and gas markets . sales increased in the energy segment primarily due to higher global demand for severe-service industrial valves and pressure relief valves . sales increased $ 295 million , or 16 % , in 2013 , as compared with 2012. the increase in sales was primarily due to our commercial/industrial segment of $ 273 million , which was primarily due to the impact of acquisitions , which contributed $ 241 million , or 25 % , of incremental sales . sales increased in the energy segment primarily due to higher global demand for severe-service industrial valves and pressure relief valves . net sales by end market 24 replace_table_token_10_th components of sales and operating income growth ( decrease ) : replace_table_token_11_th year ended december 31 , 2014 compared to year ended december 31 , 2013 sales defense sales increased $ 19 million , or 3 % , as compared to the prior year period , primarily due to an increase in sales in the aerospace defense and naval defense markets partially offset by lower sales in the ground defense markets . our parvus acquisition contributed $ 17 million of incremental sales , primarily to the aerospace and ground defense markets . the increase in sales in the aerospace defense market is primarily due to increased demand for sensors and embedded computing products . sales in the naval defense market increased primarily due to higher production levels on the virginia class submarine . in the ground defense market , sales decreased primarily due to lower sales of our turret drive stabilization systems on international ground defense platforms .
| year ended december 31 , 2013 compared to year ended december 31 , 2012 sales sales increased $ 273 million , or 40 % , to $ 951 million , as compared to the prior year period , primarily due to the incremental impact of our acquisitions , which contributed $ 241 million of incremental sales . the increase in sales in the general industrial market is mainly due to the acquisitions of williams , pg drives , and arens . in the oil and gas market , the increase in sales is primarily due to the acquisition of phönix . in the commercial aerospace market the increase in sales is due to both increased sales of our flight control products on boeing aircraft and emergent and specialty production support on boeing 's 787 aircraft . in addition , strong demand for sensor and control products serving the regional jet and commercial helicopter markets contributed to increased commercial aerospace sales . the decrease in sales in the defense market was primarily due to lower sales in the defense aerospace market due to lower production work on the v-22 osprey program . operating income operating income increased $ 39 million , or 58 % , to $ 105 million and operating margin increased 130 basis points to 11.1 % . acquisitions contributed $ 8 million of operating income ; however they were 260 basis points dilutive to current period results . operating income increased due to increased profitability from our 2012 acquisitions , increased sales of our surface technologies services , and improved profitability resulting from our ongoing margin improvement initiatives . current year results were favorably impacted by a nonrecurring restructuring charge of $ 12 million from the prior year , a curtailment gain as a result of a change in our u.k. pension plans , and certain licensing agreements that were entered into during the year . backlog and new orders backlog increased $ 88 million to $ 486 million as compared to the prior year period .
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in addition , other written or oral statements , which constitute forward-looking statements , may be made by or on behalf of the company . words such as expects , anticipates , intends , plans , believes , seeks , estimates , variations of such words and similar expressions are intended to identify such forward-looking statements . these statements are not guarantees of future performance , and involve certain risks , uncertainties and assumptions , which are difficult to predict . ( see item 1a : risk factors above . ) therefore , actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements . the company undertakes no obligation to update publicly any forward-looking statements , whether as a result of new information , future events or otherwise . 17 company overview strategic overview igi is engaged in the formulation , development , manufacture and packaging of topical semi-solid and liquid products for pharmaceutical , cosmeceutical and cosmetic customers . the company 's strategic plan is to build upon this foundation by expanding into the prescription pharmaceutical arena . this strategy will be based upon three initiatives : increasing the current contract manufacturing services business , developing a generic portfolio of formulations in topical dosage forms , and creating unique opportunities around the company 's licensed novasome® technology and novel dosage forms . the company has structured a new management team to implement this plan . the team brings a wealth of experience in the generic pharmaceutical industry to igi . igi 's facilities and manufacturing equipment have been designed to produce topical and liquid products and support the company 's target prescription dosage forms . contract manufacturing services will continue to be crucial to igi 's success . the customer base for these services is pharmaceutical companies as well as cosmetic , cosmeceutical , and otc product marketers who require product development/manufacturing support . this is a highly-competitive market with a number of larger , greater-resourced companies offering similar services . igi looks to create niche opportunities for itself by providing high quality , customer-oriented service . igi plans to build a prescription pharmaceutical portfolio in the specialty areas of topical dosage forms . this will be accomplished through in-house formulation and development , and submission of andas to the fda . the entire approval process can take 3-5 years before a product is approved , of which the fda approval portion is approximately 18 - 36 months . the company plans to submit multiple andas each year . to date , igi has submitted five andas . we filed one application in september 2010 , january 2011 and december 2011 , and we filed two applications in november 2011. all of the submissions are for generic topical prescription drugs . igi has exclusive rights for the use of novasome® technology in topical formulations and intends to pursue collaboration opportunities with established pharmaceutical companies seeking to develop topical products with unique properties . in addition , the company will explore line extension opportunities through innovative packaging or alternate dosage forms of existing pharmaceutical molecules . story_separator_special_tag width= '' 128 '' > income taxes $ 226 $ 217 $ 9 4 % the tax benefit of $ 226,000 in 2011 and $ 217,000 in 2010 was the result of a sale of a portion of the company 's state tax operating loss carry forwards to a third party , pursuant to a program run by the state of new jersey . there can be no assurance of continuation . 19 replace_table_token_4_th the decrease in net loss attributable to common stockholders for the year ended december 31 , 2011 as compared to the same period in 2010 is due to the preferred stock dividends of $ 1,284,000 in 2010 , which did not occur in 2011 offset by the increase in revenues and the increase in costs and expenses and interest expense noted above . liquidity and capital resources the company 's business operations have been primarily funded over the past three years through private placements of our capital stock . as described more fully in notes 6 , 8 , 9 and 10 to our consolidated financial statements , we raised an aggregate of $ 7,213,000 through private placements of equity with accredited investors in 2010 and $ 5,304,000 in 2009 principally from private equity investors . in 2010 , we also entered into a $ 3,000,000 line of credit . the company may require additional funding and this funding will depend , in part , on the timing and structure of potential business arrangements . if necessary , the company may continue to seek to raise additional capital through the sale of its equity or through a strategic alliance with a third party . there may also be additional acquisition and growth opportunities that may require external financing . there can be no assurance that such financing will be available on terms acceptable to the company , or at all . we believe that our existing capital resources including the recently completed line of credit and private placement detailed below will be sufficient to support our current business plan beyond march 2013. on december 21 , 2010 , we entered into a credit agreement with amzak capital management , llc pursuant to which amzak has agreed to extend a $ 3,000,000 credit facility to the company . story_separator_special_tag the company had no amounts outstanding under the facility at december 31 , 2010. the company drew down $ 500,000 in principal amount in march 2011. to secure payment of the amounts financed under the credit agreement , the company has granted to the lender a security interest in and against , generally , all of its tangible and intangible assets , except intellectual property , pursuant to that certain pledge and security agreement with the lender dated december 21 , 2010. in addition , the company has pledged to the lender its equity interests in igen , inc. , one of the company 's wholly-owned subsidiaries . on december 8 , 2010 , we completed the sale of 5,909,087 shares of the company 's common stock , $ 0.01 par value per share , to several accredited investors , as defined in rule 501 of regulation d under the securities act of 1933 , as amended at a price of $ 1.10 per share , or an aggregate of approximately $ 6,500,000. the company paid placement agent fees of $ 650,000 and issued warrants to purchase 354,546 shares of common stock at $ 1.21 per share . the common stock and the warrants were issued in reliance upon the exemption from registration provided by section 4 ( 2 ) of the securities act and rule 506 promulgated thereunder . on march 29 , 2010 , the company completed a $ 1,550,000 private placement with certain investors , including investment funds affiliated with signet healthcare partners , g.p . and jane e. hager , which we refer to as the series c offering . as part of the series c offering , the company issued 1,550 shares of series c convertible preferred stock . the series c convertible preferred stock has a par value of $ 0.01 per share and the holders are entitled to quarterly dividends at an annual rate of 5 % , when and if declared by the board of directors . furthermore , each share of series c preferred stock is convertible into shares of common stock equal to ( i ) 1,000 plus any accrued and unpaid dividends , divided by ( ii ) $ 0.69 ( the closing price of the company 's common stock on the date of issuance of the series c convertible preferred stock ) . the company 's operating activities used $ 2,394,000 of cash during the year ended december 31 , 2011 compared to $ 3,013,000 used in the comparable period of 2010. the use of cash for the year ended december 31 , 2011 and for the same period of 2010 was substantially a result of the net loss for the period offset by non-cash expense items . the company 's investing activities used $ 350,000 of cash in the year ended december 31 , 2011 compared to $ 195,000 of cash used in investing activities in the comparable period of 2010. the funds used for the year ended december 31 , 2011 were for additional equipment and related services for the analytical and production area , and the funds used for the year ended december 31 , 2010 were for additional equipment and related services for the analytical area . the company 's financing activities provided $ 542,000 of cash in the year ended december 31 , 2011 compared to $ 7,200,000 provided in the year ended december 31 , 2010. the cash provided for the year ended december 31 , 2011 was mainly the proceeds from the drawdown of the note payable related party as more fully described in note 6 to our consolidated financial statements . the cash provided for the year ended december 31 , 2010 was primarily the proceeds of the sale of the company 's common stock as more fully described in note 10 to our consolidated financial statements and the series c convertible preferred stock financing as more fully described in note 9 to the our consolidated financial statements . 20 the company 's principal sources of liquidity are cash and cash equivalents of approximately $ 2,914,000 at december 31 , 2011 , the $ 2,500,000 available on the $ 3,000,000 credit facility detailed in note 6 and future cash from operations . the company had working capital of $ 4,370,000 at december 31 , 2011. recent pronouncements there were no new accounting pronouncements for the twelve months ended december 31 , 2011 that have a material impact on the company 's consolidated financial statements . critical accounting policies and estimates the sec defines critical accounting policies as those that require application of management 's most difficult , subjective or complex judgments , often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods . our significant accounting policies are described in note 1 to our consolidated financial statements . not all of these significant accounting policies require management to make difficult , subjective or complex judgments or estimates . however , the following policies could be deemed to be critical within the sec definition . environmental remediation liability on march 2 , 2001 , the company became aware of environmental contamination resulting from an unknown heating oil leak at its companion pet products manufacturing facility . the company immediately notified the new jersey dep and the local authorities , and hired a contractor to assess the exposure and required clean up costs .
| we also had a decrease of approximately $ 179,000 in the reserves for products that the company is no longer producing and obsolete and expired inventory for the year ended december 31 , 2011. cost of sales as a percentage of product sales was 82 % for the year ended december 31 , 2011 as compared to 97 % for the year ended december 31 , 2010. we expect cost of sales as a percentage of revenue to decline over time . replace_table_token_2_th selling , general and administrative expenses for the year ended december 31 , 2011 decreased as compared to the same period in 2010 due to a decrease of $ 120,000 in salaries and related costs , a decrease of $ 69,000 in employees ' compensation payable in stock , a decrease of $ 115,000 in professional fees , a decrease in travel related expenses of $ 97,000 and a decrease of $ 21,000 in listing fees , offset by an increase in consulting fees of $ 173,000 , an increase of $ 30,000 in recruiting fees , an increase of $ 23,000 in the expense from the issuance of stock options and an increase of $ 23,000 in board fees . as we continue to increase our development activities and prepare to market our own products , we would expect operating expenses to increase over time . as the company created its pharmaceutical foundation , transitioning from a contract manufacturer to a generic topical pharmaceutical company , product development and research expenses for the year ended december 31 , 2011 increased as compared to the same period for 2010 as follows . consistent with our strategy to create our pharmaceutical foundation , we increased spending on clinical studies , outside testing and supplies by $ 458,000 , increased the headcount in the quality analytical department , which resulted in an increase of $ 171,000 in salaries and related costs and increased consulting fees by $ 100,000. these increases were partially offset by a decrease in a decrease in compensation payable in stock of $ 84,000 and a decrease in professional fees of $
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the financial results of this business , which were previously reported as our distribution business , have been classified as discontinued operations in our consolidated statements of operations for all periods presented . the assets and liabilities of this business are reflected as assets and liabilities of discontinued operations in the consolidated balance sheets for all periods presented . see note 2 to our consolidated financial statements for additional information regarding discontinued operations . trends and factors affecting our business product release schedule . our financial results are affected by the timing of our product releases and the commercial success of those titles . our grand theft auto products in particular have historically accounted for a substantial portion of our revenue . sales of grand theft auto products generated approximately 13.8 % of the company 's net revenue for the fiscal year ended march 31 , 2012. the timing of our grand theft auto releases varies significantly , which in turn may affect our financial performance on a quarterly and annual basis . economic environment and retailer performance . we continue to monitor economic conditions that may unfavorably affect our businesses , such as deteriorating consumer demand , pricing pressure on our products , credit quality of our receivables , and foreign currency exchange rates . our business is dependent upon a limited number of customers who account for a significant portion of our revenue . our five largest customers accounted for 43.9 % , 43.8 % , 59.8 % , 55.7 % , and 56.4 % of net revenue during the fiscal years ended march 31 , 2012 , 2011 and 2010 , five months ended march 31 , 2010 and fiscal year ended october 31 , 2009 , respectively . as of march 31 , 2012 and 2011 , the five largest customers accounted for 61.3 % and 54.2 % of our gross accounts receivable , respectively . customers that individually accounted for 28 more than 10 % of our gross accounts receivable balance comprised 40.6 % and 38.2 % of such balances at march 31 , 2012 and 2011 , respectively . the economic environment has affected our customers in the past , and may do so in the future . bankruptcies or consolidations of our large retail customers could seriously hurt our business , due to uncollectible accounts receivables and the concentration of purchasing power among the remaining large retailers . certain of our large customers sell used copies of our games , which may negatively affect our business by reducing demand for new copies of our games . while the downloadable episodes that we now offer for certain of our titles may serve to reduce used game sales , we expect used game sales to continue to affect our business . hardware platforms . the majority of our products are made for the hardware platforms developed by three companiessony , microsoft and nintendo . note 16 to our consolidated financial statements , `` segment and geographic information , '' discloses that sony , microsoft and nintendo hardware platforms comprised approximately 89.4 % of the company 's net revenue by product platform for the fiscal year ended march 31 , 2012. the success of our business is dependent upon the consumer acceptance of these platforms and the continued growth in the installed base of these platforms . when new hardware platforms are introduced , demand for software based on older platforms declines , which may negatively affect our business . additionally , our development costs are generally higher for titles based on new platforms , and we have limited ability to predict the consumer acceptance of the new platforms , which may affect our sales and profitability . as a result , we believe it is important to focus our development efforts on a select number of titles , which is consistent with our strategy . online content and digital distribution . the interactive entertainment software industry is delivering a growing amount of content through digital online delivery methods . we provide a variety of online delivered products and services . a number of our titles that are available through retailers as packaged goods products are also available through direct digital download through the internet ( from websites we own and others owned by third-parties ) . we also offer downloadable add-on content to our packaged goods titles . in addition , in july 2011 , we launched our first social gaming experience , sid meier 's civilization world , for facebook , and we have several initiatives underway to develop online games primarily for asian markets . we expect online delivery of games and game services to become an increasing part of our business over the long-term . product releases we released the following key titles in fiscal year 2012 : replace_table_token_5_th 29 product pipeline we have announced expected release dates for the following key titles ( this list does not represent all titles currently in development ) : replace_table_token_6_th fiscal 2012 financial summary our fiscal year ended march 31 , 2012 net revenue was led by titles from a variety of our top franchises , including l.a. noire , nba 2k12 , grand theft auto products , duke nukem forever and red dead redemption . our net revenue decreased to $ 825.8 million , a decrease of $ 311.1 million or 27.4 % from the fiscal year ended march 31 , 2011. for the fiscal year ended march 31 , 2012 , our net loss was $ 108.8 million , as compared to net income of $ 48.5 million in the prior year . story_separator_special_tag net loss per share for the fiscal year ended march 31 , 2012 was $ 1.31 , as compared to earnings per share for the fiscal year ended march 31 , 2011 of $ 0.56. our net loss for the fiscal year ended march 31 , 2012 as compared to our net income for the fiscal year ended march 31 , 2011 was primarily as a result of ( 1 ) a decrease of $ 311.1 million in net revenue , ( 2 ) a decrease of 3 points in our gross profit as a percent of net revenue , ( 3 ) an increase of 14 points in our operating expenses as a percent of net revenue , ( 4 ) an increase of $ 6.1 million in interest and other , net , expense and ( 5 ) a decrease of $ 4.2 million in our loss from discontinued operations , for the fiscal year ended march 31 , 2012. at march 31 , 2012 we had $ 420.3 million of cash and cash equivalents , compared to $ 280.4 million at march 31 , 2011. our increase in cash and cash equivalents from march 31 , 2011 was primarily a result of cash provided by financing activities partially offset by cash used in operating activities , cash used in investing activities and the effect of exchange rates . cash provided by financing activities was generated from the net proceeds from the issuance of $ 250.0 million of 1.75 % convertible notes in november 2011. cash used in operating activities was primarily due to our net loss of $ 108.8 million . cash used in investing activities was primarily due to purchases of fixed assets of $ 10.8 million and we paid contingent consideration of $ 4.1 million for our prior year acquisitions . cash and cash equivalents were negatively affected by $ 4.3 million as a result of foreign currency exchange rate movements . critical accounting policies and estimates the preparation of financial statements in conformity with u.s. generally accepted accounting principles ( `` u.s. gaap '' ) requires management to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net revenues and expenses during the reporting periods . we base our estimates , assumptions and judgments on historical 30 experience , current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared . on a regular basis , management reviews the accounting policies , assumptions , estimates and judgments to ensure that our financial statements are fairly presented in accordance with u.s. gaap . however , because future events and their effects can not be determined with certainty , actual amounts could differ significantly from these estimates . we have identified the policies below as critical to our business operations and the understanding of our financial results and they require management 's most difficult , subjective or complex judgments , resulting from the need to make estimates about the effect of matters that are inherently uncertain . the affect and any associated risks related to these policies on our business operations is discussed throughout management 's discussion and analysis of financial condition and results of operations where such policies affect our reported and expected financial results . for a detailed discussion on the application of these and other accounting policies , see note 1 to the consolidated financial statements included in item 8. management has reviewed these critical accounting estimates and related disclosures with the audit committee of our board of directors . revenue recognition we recognize revenue upon the transfer of title and risk of loss to our customers . accordingly , we recognize revenue for software titles when there is ( 1 ) persuasive evidence that an arrangement with the customer exists , which is generally based on a customer purchase order , ( 2 ) the product is delivered , ( 3 ) the selling price is fixed or determinable and ( 4 ) collection of the customer receivable is deemed probable . certain products are sold to customers with a street date ( i.e. , the earliest date these products may be sold by retailers ) . for these products we recognize revenue on the later of the street date or the sale date . our payment arrangements with customers typically provide net 30 and 60 day terms . advances received for licensing and exclusivity arrangements are reported on our consolidated balance sheets as deferred revenue until we meet our performance obligations , at which point we recognize the revenue . some of our software products provide limited online functionality at no additional cost to the consumer . generally , we consider such features to be incidental to the overall product offering and an inconsequential deliverable . accordingly , we do not defer revenue related to products containing such online features . we determine whether our products contain substantial online functionality by evaluating the significance of the development effort and the nature of the online features , the extent of anticipated marketing focus on the online features , the significance of the online features to the customers ' anticipated overall gameplay experience , and the significance of our post sale obligations to customers . overall , online play functionality is still an emerging area for us , and we continue to monitor this developing functionality and its significance to our products . in addition , some of our software products are sold exclusively as downloads of digital content for which the consumer takes possession of the digital content for a fee . revenue from product downloads is generally recognized when the download is made available ( assuming all other recognition criteria are met ) . certain of our software products include in-game advertising for third-party products .
| handheld sales accounted for 4.3 % of our total net revenue for the fiscal year ended march 31 , 2012 , which is in line with 4.6 % for the prior year . gross profit as a percentage of net revenue decreased for the fiscal year ended march 31 , 2012 , as compared to the prior year . product costs increased as a percentage of net revenue as a result of a greater share of net revenue being generated from a product mix with lower selling price points . software development costs and royalties increased as a percentage of net revenue for the fiscal year ended march 31 , 2012 as we incurred higher royalty costs primarily associated with the may 2011 release of l.a. noire , the june 2011 release of duke nukem forever and the february 2012 release of the darkness ii , all of which were externally developed . partially offsetting the decrease in gross profit as a percentage of net revenue is lower internal royalty expense , which was primarily due to higher income generated in the prior year from the release of red dead redemption in may 2010. net revenue earned outside of the united states accounted for 45.6 % of our total net revenue for the fiscal year ended march 31 , 2012 , which was in line with 45.5 % for the prior year . foreign currency exchange rates increased net revenue and gross profit by approximately $ 20.3 million and $ 3.2 million , respectively , for the fiscal year ended march 31 , 2012 as compared to the prior year . 38 operating expenses replace_table_token_9_th ( 1 ) includes stock-based compensation expense , as follows : 2012 2011 selling and marketing $ 5,042 $ 4,659 general and administrative $ 19,963 $ 9,781 research and development $ 3,345 $ 3,630 foreign currency exchange rates increased total operating expenses by approximately $ 7.7 million in the fiscal year ended march 31 , 2012 as compared to the prior year . selling and marketing selling and marketing expenses increased $ 7.5 million for
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year ended december 31 , 2014 our total revenue , net income available to common shareholders and ffoaa per diluted share for the year ended december 31 , 2014 were favorably impacted by the results of investment spending in 2013 and 2014 , a $ 5.0 million prepayment fee , lower financing rates and lower bad debt expense . our total revenue , net income available to common shareholders and ffoaa per diluted share for the year ended december 31 , 2014 were unfavorably impacted by the sale of four public charter schools in april 2014 and and the payoff of various mortgage notes due from peak in december 2014. our net income available to common shareholders for the year ended december 31 , 2014 was favorably impacted by a $ 3.4 million reversal of a liability that was established related to the acquisition of toronto dundas square ( now sold ) , as well as gains from property dispositions of $ 1.4 million , and was unfavorably impacted by a $ 3.8 million provision for loan loss . our net income available to common shareholders and ffoaa per diluted share for the year ended december 31 , 2014 were unfavorably impacted by higher general and administrative costs , as well as higher income tax expense related to our canadian operations . our per share results for the year ended december 31 , 2014 were also unfavorably impacted by lower average leverage ( measured by debt to gross assets ) than in the prior year . ffoaa is a non-gaap financial measure . for the definitions and further details on the calculations of ffoaa and certain other non-gaap financial measures , see the section below titled `` funds from operations ( ffo ) , funds from operations as adjusted ( ffoaa ) and adjusted funds from operations ( affo ) . '' 44 investment spending overview during 2015 , our total investment spending of $ 632.0 million was a slight increase over our investment spending in 2014 with increases coming in our education and recreation segments , and offset by a decrease in our entertainment segment . during 2015 , our investment spending in our entertainment segment was $ 106.1 million compared to $ 170.8 million in the prior year . the prior year included an acquisition of an 11 theatre portfolio for approximately $ 118 million . we continued to have build-to-suit opportunities available for megaplex theatres at attractive terms with both existing and new tenants . additionally , many megaplex theatre operators are expanding their food and beverage options and are now including in-theatre dining options , luxury seating and alcohol availability . this trend is expected to continue to provide build-to-suit opportunities for us in the future as well . in addition , we continue to diversify our tenant base in the entertainment segment . over the last five years , revenue from our largest tenant , american multi-cinema , inc. , have decreased from 36 % of our total revenue to 20 % of our total revenue . during 2015 , our investment spending in our education segment was $ 272.9 million compared to $ 225.0 million in the prior year , and included build-to-suit public charter schools , early childhood education centers and private schools . we continued to establish our position as a leading owner of public charter school real estate and expect this momentum to continue into 2016. we continued to diversify our tenant base , and as of year-end , we had 39 different public charter school operators and we expect to continue to expand this number in 2016. in addition , over the last five years , revenue from imagine schools , inc. have decreased from 8 % of our total revenue to 5 % of our total revenue . during 2015 , we increased our investments in early childhood education centers and private schools and expect to continue to do so in the future . due to demand for quality education facilities , education was our fastest growing segment in 2015 and we expect that demand to continue . during 2015 , our investment spending in our recreation segment was $ 241.2 million compared to $ 212.2 million in the prior year , and primarily related to golf entertainment complexes as well as the funding of the waterpark hotel at camelback mountain ski resort , additional improvements at our kansas city , kansas waterpark and the acquisition of one ski resort located in wintergreen , virginia . we plan to continue to seek attractive investments and new opportunities in this segment in 2016. during 2015 , our investment spending in our other segment was $ 11.8 million and related to the adelaar casino and resort project in sullivan county , new york . this project is further discussed below under “ recent developments '' . capitalization strategies our property acquisitions and financing commitments are financed by cash from operations , borrowings under our combined unsecured revolving credit and term loan facility , long-term mortgage debt , the sale of debt and equity securities and the periodic sale of properties . during the past several years , we have taken significant steps to implement our strategy of migrating to an unsecured debt structure and maintaining significant liquidity by issuing $ 1.2 billion of unsecured notes and paying off secured debt . during 2015 , we amended , restated and combined our unsecured revolving credit and term loan facilities . these amendments increased the capacity of this facility to a combined $ 1.0 billion with a $ 1.0 billion accordion feature that increases the maximum borrowing amount , subject to lender approval , from $ 1.0 billion to $ 2.0 billion , as well as allowing for reductions in interest rate spread and facility fee pricing . having enhanced our liquidity position , strengthened our balance sheet and continued our access to the unsecured debt markets , we believe we are better positioned to aggressively pursue investments , acquisitions and financing opportunities that may become available to us from time to time . story_separator_special_tag we expect to maintain our debt to total gross assets ratio between 35 % and 45 % . depending on our capital needs , we will seek both debt and equity capital and will consider issuing additional shares under the direct share purchase component of our dividend reinvestment and direct share purchase plan . we may also issue equity securities in connection with acquisitions . while equity issuances and maintaining lower leverage mitigate the growth in per share results , we believe lower leverage and an emphasis on liquidity are prudent during the current economic environment . 45 critical accounting policies the preparation of financial statements in conformity with accounting principles generally accepted in the united states ( “ gaap ” ) requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related notes . in preparing these financial statements , management has made its best estimates and assumptions that affect the reported assets and liabilities . the most significant assumptions and estimates relate to consolidation , revenue recognition , depreciable lives of the real estate , the valuation of real estate , accounting for real estate acquisitions , estimating reserves for uncollectible receivables and the accounting for mortgage and other notes receivable . application of these assumptions requires the exercise of judgment as to future uncertainties and , as a result , actual results could differ from these estimates . consolidation we consolidate certain entities if we are deemed to be the primary beneficiary in a variable interest entity ( `` vie '' ) , as defined in financial accounting standards board ( `` fasb '' ) accounting standards codification ( `` asc '' ) topic on consolidation . the topic on consolidation requires the consolidation of vies in which an enterprise has a controlling financial interest . a controlling financial interest will have both of the following characteristics : the power to direct the activities of a vie that most significantly impact the vie 's economic performance and the obligation to absorb losses of the vie that could potentially be significant to the vie or the right to receive benefits from the vie that could potentially be significant to the vie . this topic requires an ongoing reassessment . the equity method of accounting is applied to entities in which we are not the primary beneficiary as defined in the consolidation topic of the fasb asc , or do not have effective control , but can exercise influence over the entity with respect to its operations and major decisions . revenue recognition rents that are fixed and determinable are recognized on a straight-line basis over the expected terms of the leases . base rent escalation in other leases is dependent upon increases in the consumer price index ( “ cpi ” ) and accordingly , management does not include any future base rent escalation amounts on these leases in current revenue . most of our leases provide for percentage rents based upon the level of sales achieved by the tenant . these percentage rents are recognized once the required sales level is achieved . lease termination fees are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants . direct financing lease income is recognized on the effective interest method to produce a level yield on funds not yet recovered . estimated unguaranteed residual values at the date of lease inception represent management 's initial estimates of fair value of the leased assets at the expiration of the lease , not to exceed original cost . significant assumptions used in estimating residual values include estimated net cash flows over the remaining lease term and expected future real estate values . the estimated unguaranteed residual value is reviewed on an annual basis or more frequently if necessary . we evaluate the collectibility of our direct financing lease receivable to determine whether it is impaired . a direct financing lease receivable is considered to be impaired when , based on current information and events , it is probable that we will be unable to collect all amounts due according to the existing contractual terms . when a direct financing lease receivable is considered to be impaired , the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the direct financing lease receivable 's effective interest rate or to the value of the underlying collateral , less costs to sell , if such receivable is collateralized . real estate useful lives we are required to make subjective assessments as to the useful lives of our properties for the purpose of determining the amount of depreciation to reflect on an annual basis with respect to those properties . these assessments have a direct impact on our net income . depreciation and amortization are provided on the straight-line method over the useful lives of the assets , as follows : buildings 30 to 40 years tenant improvements base term of lease or useful life , whichever is shorter furniture , fixtures and equipment 3 to 25 years 46 impairment of real estate values we are required to make subjective assessments as to whether there are impairments in the value of our rental properties . these estimates of impairment may have a direct impact on our consolidated financial statements . we assess the carrying value of our rental properties whenever events or changes in circumstances indicate that the carrying amount of a property may not be recoverable . certain factors that may occur and indicate that impairments may exist include , but are not limited to : underperformance relative to projected future operating results , tenant difficulties and significant adverse industry or market economic trends . if an indicator of possible impairment exists , a property that is held and used by the company is evaluated for impairment by comparing the carrying amount of the property to the estimated undiscounted future cash flows expected to be generated by the property .
| the $ 2.6 million increase was due to an increase of $ 1.7 million in income recognized upon settlement of foreign currency swap contracts as well as $ 1.0 million recognized in fee income during the year ended december 31 , 2015. mortgage and other financing income for the year ended december 31 , 2015 was $ 70.2 million compared to $ 79.7 million for the year ended year ended december 31 , 2014 . the $ 9.5 million decrease was due primarily to a $ 5.0 million prepayment fee we received on december 2 , 2014 in conjunction with the full and partial repayment of four mortgage notes receivable and the sale of four public charter school properties in april of 2014 which were classified as a direct financing lease . this amount was partially offset by increased real estate lending activities . additionally , we recognized participating interest income of $ 1.5 million and $ 2.2 million for the years ended december 31 , 2015 and 2014 , respectively . our property operating expense totaled $ 23.4 million for the year ended december 31 , 2015 compared to $ 24.9 million for the year ended december 31 , 2014 . these property operating expenses arise from the operations of our retail centers and other specialty properties . the $ 1.5 million decrease resulted primarily from the impact of a weaker canadian dollar exchange rate and a decrease in other non-recoverable expenses at these properties . this amount was partially offset by an increase in bad debt expense . our general and administrative expense totaled $ 31.0 million for the year ended december 31 , 2015 compared to $ 27.6 million for the year ended december 31 , 2014 . the increase of $ 3.4 million is primarily due to an increase in payroll and benefits costs , as well as certain professional fees . retirement severance expense was $ 18.6 million for the year ended december 31 , 2015 and related to the
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under the 1940 act , we have the ability to borrow funds and issue debt securities or preferred stock that are referred to as senior securities , subject to certain restrictions including an overall limitation on the amount of outstanding debt , or leverage , relative to equity of 1:1. because of the nature and size of our portfolio investments , we periodically borrow funds to make qualifying investments in order to maintain our qualification as a ric . during 2014 and 2013 , we borrowed such funds by accessing a margin account with a securities brokerage firm . we invest the proceeds of these margin loans in high-quality securities such as u.s. treasury securities until they are repaid . we refer to these high-quality investments as “ restricted assets ” because they are not generally available for investment in portfolio companies under the terms of borrowing . if , in the future , we can not borrow funds to make such qualifying investments at the end of any future quarter , we may not qualify as a ric and would become subject to corporate-level income tax on our net investment income and realized capital gains , if any . in addition , our distributions to stockholders would be taxable as ordinary dividends to the extent paid from earnings and profits . see “ federal income tax considerations. ” distributions . on march 24 , 2009 , we announced that we suspended our managed distribution policy and payment of quarterly distributions for an indefinite period , following the distribution of the first quarter dividend to be paid on march 30 , 2009. as originally implemented , the policy provided for quarterly dividends at an annualized rate equal to 10 % of the fund 's market value per share as at the end of the preceding calendar year . we will continue to pay out net investment income and or realized capital gains , if any , on an annual basis as required under the 1940 act . possible share repurchase . as a closed-end bdc , our shares of common stock are not redeemable at the option of stockholders , and our shares currently trade at a discount to their net asset value . our board has determined that it would be in the best interests of our stockholders to reduce or eliminate this market value discount . accordingly , we have been authorized to , and may from time to time , repurchase shares of our outstanding common stock ( including by means of tender offers or privately negotiated transactions ) in an effort to reduce or eliminate this market discount or to increase the net asset value of our shares . we are not required to undertake any such share repurchases , nor do we anticipate taking such action in 2015. critical accounting policies we follow the accounting and reporting guidance in fasb accounting standards codification 946. our financial statements are based on the selection and application of significant accounting policies , which require management to make significant estimates and assumptions . we believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations . valuation of investments — portfolio investments are carried at fair value with the net change in unrealized appreciation or depreciation included in the determination of net assets . valuations of portfolio securities are performed in accordance with gaap and the financial reporting policies of the securities and exchange commission ( “ sec ” ) . the applicable methods prescribed by such principles and policies are described below : publicly-traded portfolio securities —investments in companies whose securities are publicly traded are generally valued at their quoted market price at the close of business on the valuation date . 21 privately-held portfolio securities —the fair value of investments for which no market exists is determined on the basis of procedures established in good faith by our board of directors . as a general principle , the current “ fair value ” of an investment would be the amount we might reasonably expect to receive for it upon its current sale , in an orderly manner . appraisal valuations are necessarily subjective and the estimated values arrived at by the fund may differ materially from amounts actually received upon the disposition of portfolio securities . thinly traded and over-the-counter securities —generally , we value securities that are traded in the over-the-counter market or on a stock exchange at the average of the prevailing bid and ask prices on the date of the relevant period end . however , we may apply a discount to the market value of restricted or thinly traded public securities to reflect the impact that these restrictions have on the value of these securities . we review factors , including the trading volume , total securities outstanding and our percentage ownership of securities to determine whether the trading levels are active ( level 1 ) or inactive ( level 2 ) or unobservable ( level 3 ) . as of december 31 , 2014 , these securities , consisting of our holdings in the opg notes , represented 5.3 % of our investments in portfolio securities . we utilized independent pricing services with certain of our fair value estimates . to corroborate “ bid/ask ” quotes from independent pricing services , we perform a market-yield approach to validate prices obtained or obtain other evidence . during the first twelve months after an investment is made , we rely on the original investment amount to determine the fair value unless significant developments have occurred during this 12 month period which would indicate a material effect on the portfolio company ( such as results of operations or changes in general market conditions ) . after the 12 month period , or if material events have occurred within the twelve month period , we consider a two-step process when appraising investments of privately held companies . the first step involves determining the enterprise value of the portfolio company . story_separator_special_tag during this step , we consider three different valuation approaches : a market approach , an income approach , and an asset approach . the particular facts and circumstances of each portfolio company determine which approach , or combination of approaches , will be utilized . the second step when appraising equity investments of privately held companies involves allocating value to the various debt and equity securities of the company . we allocate value to these securities based on their relative priorities . for equity securities such as warrants , we may also incorporate alternative methodologies including the black-scholes option pricing model . market approach – the market approach typically employed by management calculates the enterprise value of a company as a multiple of earnings before interest , taxes , depreciation and amortization ( “ ebitda ” ) generated by the company for the trailing twelve month period . adjustments to the company 's ebitda , including those for non-recurring items , may be considered . multiples are estimated based on current market conditions and past experience in the private company marketplace and are subjective in nature . we will apply liquidity and other discounts we deem appropriate to equity valuations where applicable . we may also use , when available , third-party transactions in a portfolio company 's securities as the basis of valuation ( the “ private market method ” ) . the private market method will be used only with respect to completed transactions or firm offers made by sophisticated , independent investors . income approach – the income approach typically utilized by management calculates the enterprise value of a company utilizing a discounted cash flow model incorporating projected future cash flows of the company . projected future cash flows consider the historical performance of the company as well as current and projected market participant performance . discount rates are estimated based on current market conditions and past experience in the private company marketplace and are subjective in nature . we will apply liquidity and other discounts we deem appropriate to equity valuations where applicable . asset approach – we consider the asset approach to determine the fair value of significantly deteriorated investments demonstrating circumstances indicative of a liquidation analysis . this situation may arise when a portfolio company : 1 ) can not generate adequate cash flow to meet the principal and interest payments on its indebtedness ; 2 ) is not successful in refinancing its debt upon maturity ; 3 ) we believe the credit quality of a loan has deteriorated due to changes in the business and underlying asset or market conditions may result in the company 's inability to meet future obligations ; or 4 ) the portfolio company 's reorganization or bankruptcy . consideration is also given as to whether a liquidation event would be orderly or forced . our general intent is to hold our loans to maturity when appraising our privately held debt investments . as such , we believe that the fair value will not exceed the cost of the investment . however , in addition to the previously described analysis involving allocation of value to the debt instrument , we perform a yield analysis to determine if a debt security has been impaired . certificates of deposit purchased by the fund generally will be valued at their face value , plus interest accrued to the date of valuation . the audit committee of the board of directors may engage independent , third-party valuation firms to conduct independent appraisals and review management 's preliminary valuations of each privately-held investment that the fund ( a ) has held for more than one year and ( b ) holds on its books at a fair value of at least $ 2.0 million in order to make their own independent assessment . any third-party valuation data would be considered as one of many factors in a fair value determination . the audit committee then would recommend the fair values for all privately-held securities based on all relevant factors to the board of directors for final approval . 22 because of the inherent uncertainty of the valuation of portfolio securities which do not have readily ascertainable market values , amounting to $ 15.7 million and $ 13.3 million as of december 31 , 2014 and 2013 , respectively , our fair value determinations may materially differ from the values that would have been used had a ready market existed for the securities . as of december 31 , 2014 , one of our portfolio investments , 404,968 common shares of mvc was publicly listed on the nyse and our holding of 1,200,790 [ $ 1.5 million ] in opg notes was publicly listed on the luxembourg stock exchange . as of december 31 , 2013 , the 73,666 ordinary shares of opg were publicly listed on the nyse euronext paris exchange , and our holding of 1,200,790 [ $ 1.5 million ] in notes was listed on the luxembourg stock exchange . on april 3 , 2014 , we sold all of our 73,666 remaining shares of opg , wherein we received $ 61,867 in net proceeds and reported a realized loss of $ 0.06 million . we adjust our net asset value for the changes in the value of our publicly held securities , if applicable , and material changes in the value of private securities , generally determined on a quarterly basis or as announced in a press release , and report those amounts to lipper analytical services , inc. our net asset value appears in various publications , including barron 's and the wall street journal . federal income taxes we intend to comply with the requirements of the code necessary for us to qualify as a ric . so long as we comply with these requirements , we generally will not be subject to corporate-level federal income taxes on otherwise taxable income ( including net realized capital gains ) distributed to stockholders . therefore , we did not record a provision for federal income taxes in our financial statements .
| the following table includes significant investment activity during the year ended december 31 , 2013 ( in thousands ) : investment activity new investments existing investments portfolio company cash non-cash follow-on pik total security monitor holdings , llc $ 500 $ — $ — $ — $ 500 spectrum management , llc — — 310 — 310 $ 500 $ — $ 310 $ — $ 810 year ended december 31 , 2012 during the year ended december 31 , 2012 , we received $ 6.4 million from the disposal of the fund 's 55 % fully-diluted equity interest in sovereign , together with the fund 's promissory note and all interest as accrued interest . we also received $ 5.3 million from the disposal of the fund 's 34.2 % fully equity interest in conglobal , together with the fund 's promissory note and all interest as accrued interest . we originally invested in the bonds of orco germany s.a. in april 2011. on may 7 , 2012 , holders of 72.5 % of all orco germany bonds approved a joint restructuring of certain bond debt of orco germany and its parent company , opg . pursuant to such restructuring , approximately 84.5 % of the orco germany bonds held by each bondholder were converted into obligations convertibles en actions ( “ oca ” ) on may 9 , 2012. the oca were converted into an aggregate of 26,209,613 opg shares which were delivered in two tranches . the first tranche , consisting of 18,361,540 opg shares , was delivered in may 2012 , of which we 26 received 1,102,455 opg shares . the second tranche , consisting of 7,848,073 opg shares , was delivered in october 2012 , of which we received 471,211 opg shares . also in october 2012 , the remaining 15.5 % of the orco germany bonds held by each bondholder was converted into 6-year opg notes with a face value of 20.0 million bearing cash and pik interest each at 5 % per annum . of the total amount of opg notes issued , we received opg notes in the face amount of 1,200,790. on october 15 , 2012 , we announced the sale of 1,500,000 of our 1,573,666 opg shares , where we received net cash proceeds of 3.8 million [ $ 4.9 million ] . as of december 31 , 2012 , we held 73,666 opg shares , and 1,200,790 opg notes . during the year ended december 31 , 2012 , we had investment activity of $ 7.2 million in three portfolio companies . we made a follow-on investment of $ 6.8 million in equus energy . the restructuring of the orco germany bonds noted above resulted in the capitalization of $
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natural gas and crude oil supply and demand dynamics . natural gas continues to be a critical component of energy supply and demand in the united states . recently , the price of natural gas has seen an increase with nymex natural gas futures price at $ 4.23 per mmbtu as of december 31 , 2013 compared with $ 3.35 per mmbtu as of december 31 , 2012. these marks compare with a high of $ 13.58 per mmbtu in july 2008. the increase in natural gas prices from 2012 to 2013 was primarily attributable to an unseasonably cold winter in 2013 , which resulted in higher than normal residential consumption of natural gas . as a result , the amount of natural gas in storage in the continental united states decreased to approximately 3.0 tcf as of december 27 , 2013 from approximately 3.5 tcf as of december 28 , 2012 , compared with a ten-year historical december average of 3.3 tcf . current natural gas prices continue to be lower than historical prices due in part to increased production , especially from unconventional sources , such as natural gas shale plays and the effects of the economic downturn starting in 2008. according to the u.s. energy information administration ( the `` eia '' ) , average annual natural gas production in the united states increased 19.2 % to 65.7 bcf/d in 2012 from from 55.1 bcf/d in 2008. over the same time period , natural gas consumption increased only 9.7 % to 69.8 bcf/d . in response to lower natural gas prices , the number of natural gas drilling rigs has declined from approximately 1,347 as of december 26 , 2008 to approximately 374 as of december 27 , 2013 , according to baker hughes , as a number of producers have reallocated capital from natural gas exploration and production activities to higher yielding crude oil exploration and production activities . we believe that over the short term , until the supply overhang has been reduced and the economy sees more robust growth , natural gas prices are likely to be constrained . over the long term , we believe that the prospects for continued natural gas demand are favorable and will be driven by population and economic growth , as well as the continued displacement of coal-fired electricity generation by natural gas-fired electricity generation due to the low prices of natural gas and stricter government environmental regulations on the mining and burning of coal . for example , according to the eia , coal-fired power plants generated 37 % of the electricity in the united states in 2012 , compared with 48 % in 2008. in january 2013 , the eia projected total annual domestic consumption of natural gas to increase from approximately 62.7 bcf/d in 2009 to approximately 80.7 bcf/d in 2040. consistent with the rise in consumption , the eia projects that total domestic natural gas production will continue to grow through 2040 to 90.7 bcf/d . the eia also projects the united states to be a net exporter of liquefied natural gas , or lng , by 2016 , with u.s. exports of lng projected to rise to 4.4 bcf/d in 2027. we believe that increasing consumption of natural gas will continue to drive natural gas drilling and production over the long term throughout the united states . in addition , in connection with the bison drop down , we are now affected by crude oil supply and demand dynamics . crude oil has been the focus of recent upstream activity in the united states and continues to play a significant role in the energy market . united states domestic crude oil production has increased by 49 % from 5.0 mmbbl/d in 2008 to 7.5 mmbbl/d in 2013 according to the eia . over the long term , the domestic production of crude oil will continue to increase according to the eia . the growth will continue to come from increases in shale and tight crude oil production , which will be spurred by additional technological advances and elevated oil prices . according to the eia , about 25.3 billion barrels of tight oil will be produced in the u.s. cumulatively from 2012 through 2040 and the bakken shale is expected to contribute 32 % of this production . growth in production from u.s. shale plays . over the past several years , a fundamental shift in production has emerged with the growth of natural gas production from unconventional resources ( defined by the eia as natural gas produced from shale formations and coalbeds ) . while the eia expects total domestic natural gas production to grow from 20.7 tcf in 2009 to 33.2 tcf in 2040 , it expects shale gas production to grow to 16.7 tcf in 2040 , representing 50 % of total u.s. dry gas production . most of this increase is due to the emergence of unconventional natural gas plays and advances in technology that have allowed producers to extract significant volumes of natural gas from these plays at cost-advantaged per-unit economics when compared to most conventional plays . in recent years , well-capitalized producers have leased large acreage positions in the piceance basin and the barnett , bakken and marcellus shale plays and other unconventional resource plays . to help fund their drilling program in many of these areas , a number of producers have also entered into joint venture arrangements with large international operators , industrial manufacturers and private equity sponsors . these producers and their joint venture partners have committed significant capital to the development of the piceance basin and the barnett , bakken and marcellus shale plays and other unconventional resource plays , which we believe will result in sustained drilling activity . 55 as a result of the current low natural gas price environment , some natural gas producers have cut back or suspended their drilling operations in certain dry gas regions where the economics of natural gas production are less favorable . story_separator_special_tag drilling and production activities focused in liquids-rich regions have continued and , in some cases , have increased , as the high btu content associated with liquids-rich production enhances overall drilling economics , even in a low natural gas price environment . interest rate environment . the credit markets have continued to experience near-record lows in interest rates . as the overall economy strengthens , it is likely that monetary policy will tighten , resulting in higher interest rates to counter possible inflation . this could affect our ability to access the debt capital markets to the extent we may need to in the future to fund our growth . in addition , interest rates on future credit facilities and debt offerings could be higher than current levels , causing our financing costs to increase accordingly . although this could limit our ability to raise funds in the debt capital markets , we expect to remain competitive with respect to acquisitions and capital projects , as our competitors would face similar circumstances . rising operating costs and inflation . the current high level of crude oil and natural gas exploration , development and production activities across the united states has resulted in increased competition for personnel and equipment . this is causing increases in the prices we pay for labor , supplies and property , plant and equipment . an increase in the general level of prices in the economy could have a similar effect . we attempt to recover increased costs from our customers , but there may be a delay in doing so or we may be unable to recover all of these costs . to the extent we are unable to procure necessary supplies or recover higher costs , our operating results will be negatively impacted . how we evaluate our operations we conduct our operations in the midstream sector with four operating segments . however , due to their similar characteristics and how we manage our business , we have aggregated these segments into a single reporting segment for disclosure purposes . our management uses a variety of financial and operational metrics to analyze our performance . we view these metrics as important factors in evaluating our profitability and review these measurements on a regular basis for consistency and trend analysis . these metrics include : throughput volume ; operation and maintenance expenses ; ebitda and adjusted ebitda ; and distributable cash flow . throughput volume the volume of natural gas that we gather depends on the level of production from natural gas or crude oil wells connected to our gathering systems . aggregate production volumes are impacted by the overall amount of drilling and completion activity , as production must be maintained or increased by new drilling or other activity , because the production rate of crude oil and natural gas wells decline over time . as a result , we must continually obtain new supplies of natural gas to maintain or increase the throughput volume on our systems . our ability to maintain or increase throughput volumes from existing customers and obtain new supplies of natural gas is impacted by : successful drilling activity within our areas of mutual interest ; the level of work-overs and recompletions of wells on existing pad sites to which our gathering systems are connected ; the number of new pad sites in our areas of mutual interest awaiting connections ; our ability to compete for volumes from successful new wells in the areas in which we operate outside of our existing areas of mutual interest ; and our ability to gather natural gas that has been released from commitments with our competitors . operation and maintenance expenses we seek to maximize the profitability of our operations in part by minimizing , to the extent appropriate , expenses directly tied to operating our assets . direct labor costs , compression costs , insurance costs , ad valorem and 56 property taxes , repair and non-capitalized maintenance costs , integrity management costs , utilities and contract services comprise the most significant portion of our operation and maintenance expense . other than utilities expense , these expenses are relatively stable and largely independent of volumes delivered through our gathering systems but may fluctuate depending on the activities performed during a specific period . the majority of the compressors on our dfw midstream system are electric driven and power costs are directly correlated to the run-time of these compressors , which depends directly on the volume of natural gas gathered . as part of our contracts with our dfw midstream system customers , we physically retain a percentage of throughput volumes that we subsequently sell to offset the power costs we incur . in addition , we pass along the fees associated with costs we incur on behalf of certain dfw midstream system customers to deliver pipeline quality natural gas to third-party pipelines . with respect to the mountaineer midstream , bison midstream and grand river systems , we either ( i ) consume physical gas on the system to operate our gas-fired compressors or ( ii ) charge our customers for the power costs we incur to operate our electric-drive compressors . ebitda , adjusted ebitda and distributable cash flow we define ebitda as net income , plus interest expense , income tax expense , and depreciation and amortization expense , less interest income and income tax benefit . we define adjusted ebitda as ebitda plus unit-based compensation , adjustments related to mvc shortfall payments and loss on asset sales , less gain on asset sales . we define distributable cash flow as adjusted ebitda plus cash interest income , less cash paid for interest expense and income taxes , senior notes interest expense and maintenance capital expenditures . ebitda , adjusted ebitda and distributable cash flow are used as supplemental financial measures by our management and by external users of our financial statements such as investors , commercial banks , research analysts and others .
| these incremental general and administrative expenses are not reflected in the historical consolidated financial statements prior to the ipo . overview of the years ended december 31 , 2013 , 2012 and 2011 revenues . for the year ended december 31 , 2013 , total revenues increased $ 77.3 million to $ 242.8 million from $ 165.5 million largely as a result of bison midstream 's contribution to natural gas , ngls and condensate sales and other , mountaineer midstream 's contribution to gathering services and other fees and an increase in revenues for the dfw midstream system . total revenues for the year ended december 31 , 2013 included a $ 50.7 million contribution from bison midstream and a $ 9.6 million contribution from mountaineer midstream . for the year ended december 31 , 2012 , total revenues increased primarily as a result of the october 2011 acquisition of the grand river system and increased throughput volumes on the dfw midstream system due to its continued build out . total revenues for the year ended december 31 , 2012 included a $ 72.0 million contribution from grand river gathering , compared with a $ 12.8 million contribution in 2011. costs and expenses . for the year ended december 31 , 2013 , total costs and expenses increased $ 68.8 million , or 62 % , primarily as a result of the acquisitions of bison midstream and mountaineer midstream and an increase in expenses at dfw midstream . total costs and expenses for the year ended december 31 , 2013 included a $ 53.5 million contribution from bison midstream and a $ 7.3 million contribution from mountaineer midstream . during the year ended december 31 , 2012 , total costs and expenses increased $ 48.5 million , or 78 % , largely driven by grand river gathering 's contribution to operation and maintenance expense and depreciation and amortization expense . total costs and expenses for the year ended december 31 , 2012 included a $ 54.6 million contribution from grand river , compared with
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pipeline · lymphoseek o lymphoseek was approved and indicated for use in lymphatic mapping for breast cancer and melanoma by the fda on march 13 , 2013. o submitted the lymphoseek marketing authorization application to the european medicines agency in december 2012. o reached the interim analysis point of the neo3-06 phase 3 head and neck cancer study of lymphoseek with results from the interim statistical analysis and reporting of the findings expected later in 2013. o initiated a collaboration with maimonides medical center on an investigator-initiated clinical trial utilizing lymphoseek for lymphatic mapping in colorectal cancer . o presented data from lymphoseek clinical trials at more than 15 major medical meetings , including : society of surgical oncology , european society of surgical oncology , american society of clinical oncology , society of nuclear medicine , international conference on head and neck cancer , european association of nuclear medicine , american society for radiation oncology and radiology society of north america . o published data from the lymphoseek phase 3 clinical trial for intraoperative lymphatic mapping of lymph nodes in breast cancer compared to sulfur colloid and vital blue dye in the journal of clinical oncology online ( 2012 ; e21066 ) . o published results from the lymphoseek phase 3 clinical trials in melanoma in the annals of surgical oncology ( doi 10.1245/s10434-012-2612-z ) . · nav4694 o initiated a phase 2 clinical trial of nav4694 as an aid in diagnosing ad with the goal to compare images from subjects with probable ad with similarly aged and young healthy volunteers . o presented data from the nav4694 studies six major neurological medical meetings including : human amyloid imaging meeting , alzheimer 's disease neuroimaging initiative , society of nuclear medicine and the alzheimer 's association international conference on alzheimer 's disease . · nav5001 o licensed nav5001 , an iodine-123 radiolabeled imaging agent being developed as a potential aid in the diagnosis of pd , dementia with lewy bodies and other movement disorders , thus expanding the company 's neuroimaging pipeline . · rigscan o awarded a small business innovation research grant from the national institutes of health for development of a radioimmunoguided surgery agent aimed at detecting metastatic cancer , with potential for grant money up to a total of $ 1.5 million over three years if fully funded . 46 our outlook with the u.s. approval of lymphoseek on march 13 , 2013 , the company is moving forward with preparations for commercial launch in the u.s. with our marketing partner , cardinal health , expected in the second quarter of 2013. as such , we expect to report revenue from lymphoseek in the second quarter of 2013. however , as we do not yet have experience and insight into the level of potential sales success we may achieve with lymphoseek , we do not currently expect to provide revenue guidance for 2013. excluding the results of our discontinued operations , as discussed below , our operating expenses over the last three years have been focused primarily on support of lymphoseek and nav4694 product development , and to a lesser extent , on efforts to restart active development of rigscan . in addition , during 2012 we paid $ 1.8 million in option and sublicense fees ( $ 1.1 million of which was non-cash in nature ) related to a sublicense agreement with alseres for the exclusive worldwide license of nav5001 . we spent approximately $ 16.9 million , $ 15.2 million and $ 8.9 million in total on research and development activities in the years ended december 31 , 2012 , 2011 and 2010 , respectively . following the sale of the gds business , our entire organization is focused on the development of radiopharmaceutical agents that fulfill our vision of becoming a leader in precision diagnostics . of the total amounts we have spent on research and development over the last three years , excluding costs related to our internal research and development headcount and our general and administrative staff which we do not currently allocate among the various development programs that we have underway , we incurred out-of-pocket charges by program as follows : replace_table_token_4_th due to the advancement of our efforts with lymphoseek , nav4694 , nav5001 , rigscan , and potentially other programs , we expect our total drug-related development and commercialization expenses for 2013 to increase significantly over 2012. the specific levels to which each program 's expenditures may rise will depend in part on how successful we are in commercializing lymphoseek and on the extent to which we draw on the other financial resources we have at our disposal . in general , development expenses in 2013 for lymphoseek are expected to decrease as compared to 2012 while expenses related to nav4694 , nav5001 and rigscan are all currently expected to increase in 2013 over 2012. during 2013 , we expect to incur additional development expenses related to supporting the marketing authorization application ( maa ) review of lymphoseek in the eu , our neo3-06 clinical trial and studies to support lymphoseek in a potential post-commercialization setting , and support the other product activities related to the potential marketing registration of lymphoseek in other markets . in addition , we expect to incur significant costs during 2013 to support our business development and commercialization activities surrounding lymphoseek . we can not assure you that lymphoseek will achieve regulatory approval in the eu or any other market outside the u.s. , or if approved , that it will achieve market acceptance . we also expect to incur significant expenses for nav4694 during 2013 related to ongoing additional phase 2 clinical trials and the initiation of a phase 2 clinical study in subjects with mild cognitive impairment and a pivotal phase 3 clinical trial in subjects with ad , as well as costs for manufacturing-related activities required prior to filing for regulatory clearance to market . nav4694 is currently not expected to contribute revenue to the company until 2016 at the earliest . story_separator_special_tag we can not assure you that further clinical trials for this product will be successful , that the agent will ultimately achieve regulatory approval , or if approved , the extent to which it will achieve market acceptance . 47 we expect to incur significant expenses for nav5001 during 2013 related to initiation of phase 2 and phase 3 clinical trials , as well as for manufacturing-related activities required to support clinical activities and to prepare to file for regulatory clearance to market . nav5001 is not expected to generate revenue for the company until 2016 at the earliest . we can not assure you that clinical trials for this product will be successful , that the agent will ultimate achieve regulatory approval , or if approved , the extent to which it will achieve market acceptance . we are in the process of evaluating the business , manufacturing , development and regulatory pathways forward with respect to rigscan . we believe that the time required for continued development , regulatory approval and commercialization of a rigscan product would likely be a minimum of five years before we receive any significant product-related royalties or revenues . we can not assure you that we will be able to complete satisfactory development arrangements or obtain incremental financing to fund development of the rigs technology and can not guarantee that such arrangements could be obtained on a timely basis on terms acceptable to us , or at all . we also can not assure you that further clinical development will be successful , that the fda or the european medicines agency ( ema ) will clear rigscan for marketing , or that it will be successfully introduced or achieve market acceptance . finally , if we are successful in identifying and securing additional product candidates to augment our product development pipeline , we will likely incur significant additional expenses related to furthering the development of such products . discontinued operations from our inception through august 2011 , we developed and marketed a line of medical devices , the neoprobe ® gds gamma detection systems ( the gds business ) . however , following an analysis of our strategic goals and objectives , our board of directors authorized , and our stockholders approved , the sale of the gds business to devicor medical products , inc. ( devicor ) in august 2011 ( the asset sale ) . under the terms of the asset purchase agreement ( apa ) with devicor , we sold the assets and assigned certain liabilities that were primarily related to the gds business . in exchange for the assets of the gds business , devicor made cash payments to us of $ 30.3 million , assumed certain liabilities of the company associated with the gds business , and agreed to make royalty payments to us of up to an aggregate maximum amount of $ 20 million based on the net revenue attributable to the gds business over the course of fiscal years 2012 through 2017. we did not record any royalty revenue in 2012 as devicor did not achieve the minimum sales of gamma detection devices required to trigger such payment . in december 2011 , we entered an agreement to transfer potential liability related to extended warranty contracts related to the gds business , which were outstanding as of the date of the sale of the gds business but which were not included in the august 2011 transaction . in exchange for transferring the liability related to the extended warranty contracts to devicor , we made a cash payment to devicor of $ 178,000. our consolidated statements of operations have been reclassified to discontinued operations , as required . cash flows associated with discontinued operations have been combined within operating , investing and financing cash flows , as appropriate , in our consolidated statements of cash flows . story_separator_special_tag activity costs of $ 956,000 related to lymphoseek , and ( vi ) decreased process development costs of $ 76,000 related to rigscan . the net increase in research and development expenses was also due to increased compensation of $ 914,000 due to increased headcount required for expanded development efforts and increased related expenses such as incentive-based compensation , travel and supplies . selling , general and administrative expenses . selling , general and administrative expenses increased $ 5.1 million , or 119 % , to $ 9.5 million during 2011 from $ 4.4 million in 2010. the net increase was primarily due to separation costs of $ 2.3 million related to the separation of our former president and ceo , david bupp ; increased compensation costs of $ 1.4 million related to net increased headcount and incentive-based compensation ; increased professional services and consulting costs of $ 850,000 that supported preparation for lymphoseek commercialization , listing on the nyse mkt , and various corporate governance and investor relations issues ; and increased board of directors costs of $ 217,000 due to increased meeting fees related to the number of transactions considered during 2011 and stock-based incentive compensation . the net increase in selling , general and administrative expenses was also due to increased headcount-related costs such as travel , recruiting and space costs . other income ( expense ) . other expense , net decreased $ 42.6 million to $ 943,000 in 2011 from $ 43.6 million in 2010. during 2010 , we recorded a non-cash loss on the extinguishment of debt of $ 41.7 million related to the exchange of our outstanding convertible debt for convertible preferred stock . during 2011 and 2010 , we recorded charges of $ 952,000 and $ 1.3 million , respectively , related to the increases in derivative liabilities resulting from the requirement to mark our derivative liabilities to market . interest expense decreased $ 542,000 to $ 13,000 during 2011 from $ 555,000 in 2010 , primarily due to the june 2010 exchange of our then-outstanding convertible debt agreements for convertible preferred stock .
| iii ) increased license fees and consulting costs related to potential pipeline products of $ 192,000 ; offset by ( iv ) a net decrease in nav4694 development costs of $ 1.7 million , resulting from the $ 5.0 million initial license fee incurred in 2011 , offset by increased clinical activities , technology transfer and manufacturing-related costs , project management and consulting fees in 2012 , and ( v ) decreased rigscan development costs of $ 1.0 million , primarily related to manufacturing . the net increase in research and development expenses also included an increase in headcount and related expenses required for expanded development efforts of $ 1.0 million , as well as increased costs related to travel , pharmacovigilance activities , consulting , training , recruiting , general office and other expenses of $ 737,000. selling , general and administrative expenses . selling , general and administrative expenses increased $ 1.7 million , or 17 % , to $ 11.2 million during 2012 from $ 9.5 million in 2011. the net increase was primarily due to our formation of a marketing and business development team during the second half of 2011 to prepare for the commercial launch of lymphoseek . increased marketing costs primarily related to the pending commercial launch of lymphoseek of $ 2.5 million , increased compensation costs of $ 1.2 million related to increased headcount and incentive-based compensation , and increased travel , insurance , taxes and general office expenses to support the increased headcount of $ 538,000 were offset by a decrease in separation costs of $ 2.7 million related to our former president and ceo which were recorded in 2011. other income ( expense ) . other expense , net , was $ 1.2 million during 2012 as compared to $ 943,000 in 2011. interest expense increased to $ 1.2 million during 2012 from $ 13,000 in 2011 , due to the notes payable we entered into in december 2011 and december 2012. of the
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management 's report on internal control over financial reporting our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in rule 13a-15 ( f ) under the securities exchange act of 1934 , as amended ( the “ exchange act ” ) . our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with gaap . because of its inherent limitations , internal control over financial reporting may not prevent or detect misstatements . also , the effectiveness of our controls in future periods is uncertain and subject to the risk story_separator_special_tag forward-looking statements this report contains forward-looking statements that involve risks and uncertainties . when used in this discussion , we intend the words “ anticipate , ” “ believe , ” “ plan , ” “ estimate , ” “ expect , ” “ strive , ” “ future , ” “ intend ” , “ will ” and similar expressions as they relate to us to identify such forward-looking statements . our actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain factors set forth under “ risk factors ” and “ management 's discussion and analysis of financial condition and results of operations ” and elsewhere in this form 10-k. risks and uncertainties that could cause actual results to differ include , without limitation , general economic conditions , ongoing losses , competition , loss of key personnel , pricing , brand reputation , acquisitions , new initiatives we undertake , security and information systems , legal liability for website content , failure of third parties to provide adequate service , future internet-related taxes , our founder 's control of us , litigation , fluctuations in quarterly operating results , consumer trends , the effect of government regulation and programs , the impact of the coronavirus ( covid-19 ) pandemic and our response to it , and other risks and uncertainties included in our filings with the securities and exchange commission . we caution you that no forward-looking statement is a guarantee of future performance , and you should not place undue reliance on these forward-looking statements which reflect our views only as of the date of this report . we undertake no obligation to update any forward-looking information . you should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and related notes included elsewhere in this document . this section is designed to provide information that will assist readers in understanding our consolidated financial statements , changes in certain items in those statements from year to year , the primary factors that caused those changes and how certain accounting principles , policies and estimates affect the consolidated financial statements . overview and outlook we operate a global digital video subscription service with a library of approximately 8,000 titles , with a growing selection of titles available in spanish , german and french that caters to a unique , underserved member base . our digital content is available to our members on most internet-connected devices anytime , anywhere , commercial-free . through our online gaia subscription service our members have unlimited access to a library of inspiring films , cutting edge documentaries , interviews , yoga classes , transformation related content , and more – 80 % of which is exclusively available to our members for digital streaming on most internet-connected devices . gaia 's position in the streaming video landscape is firmly supported by its wide variety of exclusive and unique content , which provides a complementary offering to other entertainment-based streaming video services . our original content is developed and produced in-house in our production studios near boulder , colorado . by offering exclusive and unique content through our streaming service , we believe we will be able to significantly expand our target member base . our available content is currently focused on yoga , transformation , alternative healing , seeking truth and conscious films . this content is specifically targeted to a unique member base that is interested in alternatives and supplements to the content provided by mainstream media . we have grown these content options both organically through our own productions and through strategic acquisitions . in addition , through our investments in our streaming video technology and our user interface , we have expanded the many ways our subscription member base can access our unique library of media titles . our core strategy is to grow our subscription business domestically and internationally by expanding our unique and exclusive content library , enhancing our user interface , extending our streaming service to new internet-connected devices as they are developed and creating a conscious community built around our content . 17 our focus for 2019 was on disciplined investment in our product , content library and member acquisition efforts to allow us to reduce the cash used in operations meaningfully over the year , with a continued focus on driving sustainable growth into the future . we reduced cash used in operations over 88 % from 2018 to 2019 and generated cash flows from operations in the fourth quarter of 2019. we continued this trend in 2020 , generating $ 11.7 million in cash flows from operations , an improvement of $ 14.3 million or 550 % from the year ago period . we also generated net income and positive net cash flows in the second half of 2020 as planned . story_separator_special_tag we are now focused on continuing to generate net income and cash while continuing to grow revenues . in march 2020 , the world health organization declared the outbreak of a novel strain of coronavirus , or covid-19 , as a pandemic , covid-19 continues to spread throughout the united states and the world . the full impact that covid-19 will have on our business will depend on a number of factors such as the duration and extent of covid-19 , the adoption and effectiveness of covid-19 vaccines , governmental actions , changes in consumer behavior , responses of our third-party business partners that offer our content through their platforms , and general economic activity , as described in part ii , item 1a “ risk factors ” in this form 10-k. commencing during the second half of march 2020 continuing through july 2020 , we saw an increase in demand for our content from both current and potential members . this created a positive trend in existing member retention , costs to acquire new members , and the corresponding revenue and cash flow impacts from these higher volumes . beginning in august 2020 , we saw the online paid media advertising market start to return to historical norms with a corresponding effect on the cost of our online advertising efforts . we reported net income of $ 0.5 million for 2020 , a significant improvement from a net loss of $ 18.2 million for 2019. we are a colorado corporation . our principal and executive office is located at 833 west south boulder road , louisville , co 80027-2452. our telephone number at that address is ( 303 ) 222-3600. story_separator_special_tag roman ; font-size:10pt ; font-weight : normal ; font-style : normal ; text-transform : none ; font-variant : normal ; '' > the value of our produced media library consists of capitalized costs incurred to produce original media content , including salary and overhead costs of our in-house production team and other third-party costs . our licensed media library is obtained through license arrangements . generally , we pay an advance against a percentage royalty or an upfront license fee in exchange for the distribution rights for a specific license window , but we may also obtain a license for a fixed fee for perpetuity . these payments are capitalized at the time of payment . certain agreements also include an ongoing royalty obligation , which entitles the licensor to a share of the revenues generated from the licensed works . these expenses are calculated and accrued on a monthly basis and included in costs of revenues . we pay these accrued royalties on a quarterly basis and therefore have included the related liability in accrued liabilities . the value of our acquired media library consists of the fair value of media assets obtained through asset acquisitions and business combinations recorded at the estimated fair value of the titles acquired , which is based on a number of factors , including the number of titles , the total hours of content , the production quality and age of the acquired media assets . we amortize our media library in cost of revenues on a straight-line basis over the shorter of the license period or the estimated useful life of the titles , which typically ranges from 12 to 90 months . the amortization period begins with the first month of availability on our service . management reviews content viewership to determine whether viewing patterns correlate with initial estimates supporting the amortization period utilized . if current estimates indicate that viewing is significantly higher in earlier periods relative to the remaining amortization period , we will begin amortizing the respective titles on an accelerated basis over the amortization period . due to our exclusive content and growing member base , viewership of our library continues to grow each month , therefore no additional amortization was recorded during 2020 or 2019. our media library is reviewed for impairment at the film group level when an event or change in circumstances indicates that the carrying amount of the film group may not be recoverable . recoverability of the film group is measured by a comparison of the carrying amount of the film group to estimated undiscounted future cash flows expected to be generated by the film group . if the carrying amount exceeds the estimated future cash flows , an impairment charge is recognized by the amount by which the carrying value exceeds the fair value . no impairment charges were recorded during 2020 or 2019. goodwill goodwill represents the excess of the purchase consideration over the estimated fair value of assets acquired less liabilities assumed in a business acquisition . we have only one reporting unit ; therefore , goodwill is assessed at the enterprise level . we review goodwill for impairment annually as of december 31. we have the option of first assessing qualitative factors to determine whether events and circumstances indicate that it is more likely than not that the estimated fair value of goodwill is less than its carrying amount . if the estimated fair value of goodwill exceeds its carrying amount , we consider the goodwill to not be impaired . if the carrying amount of goodwill exceeds its estimated fair value , we use either a comparable market approach or a traditional present value method to test for potential impairment . the process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment at many points during the analysis . application of alternative assumptions and definitions could yield significantly different results . during 2020 and 2019 , no impairment of goodwill was indicated .
| interest and other income ( expense ) , net reflect the $ 6.1 million gain from the sale of a portion of our corporate campus during the third quarter of 2020 and the corresponding reduction in interest expense as we used the proceeds in september 2020 to repay $ 13.0 million of debt that had an interest rate of 5.75 % and refinanced the remaining debt at an interest rate of 3.75 % in december 2020. net income . as a result of the above factors , net income for 2020 was $ 0.5 million , or $ 0.03 per share , compared to net loss of $ 18.2 million , or $ 1.00 per share , for 2019. net income was not significantly impacted by either changing prices or inflation . 19 quarterly and seasonal fluctuations the following tables set forth our unaudited results of operations for each of the quarters in 2020 and 2019. in our opinion , this unaudited financial information includes all adjustments , consisting solely of normal recurring accruals and adjustments , necessary for a fair presentation of the results of operations for the quarters presented . you should read this financial information in conjunction with our consolidated financial statements and related notes included elsewhere in this form 10-k. the results of operations for any quarter are not necessarily indicative of future results of operations . replace_table_token_3_th replace_table_token_4_th our member base growth reflects seasonal variations driven primarily by periods when consumers typically spend more time indoors and , as a result , tend to increase their viewing , similar to those of traditional tv and cable networks . our member growth is generally greatest during the fourth and first quarters ( october through february ) , and slowest during may through august . this drives quarterly variations in our spending on member acquisition efforts but does not drive a corresponding seasonality in net revenue . critical accounting policies we prepare our consolidated financial statements in conformity with accounting principles generally accepted in the united states , which require us to make judgments ,
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on january 12 , 2017 , the company , through a wholly-owned subsidiary of the operating partnership closed on the acquisition of 2525 mckinnon , a 111,334 square foot tower located in dallas , texas , for $ 46.8 million , exclusive of closing costs . on january 13 , 2017 , the company completed a public offering pursuant to which the company sold 5,750,000 shares of its common stock to the public at a price of $ 12.40 per share , inclusive of the overallotment option . the company raised $ 71.3 million in gross proceeds , resulting in net proceeds to us of approximately $ 68.0 million after deducting $ 3.3 million in underwriting discounts and other expenses related to the offering . on june 16 , 2017 , the company and the operating partnership entered into separate equity distribution agreements ( the sales agreements ) with each of keybanc capital markets inc. , raymond james & associates , inc. and bmo capital markets corp. ( collectively , the sales agents ) , pursuant to which the company may issue and sell from time to time up to 6,000,000 shares of its common stock , $ 0.01 par value per share , and up to 1,000,000 shares of its 6.625 % series a cumulative redeemable preferred stock , $ 0.01 par value per share ( collectively , the shares ) , through the sales agents , acting as agents or principals ( the atm program ) . in connection with the atm program , the company filed articles supplementary pursuant to which the company increased the authorized number of shares of 6.625 % series a cumulative redeemable preferred stock to 5,600,000. on september 29 , 2017 , the company , through a wholly-owned subsidiary of the operating partnership closed on the acquisition of the san diego portfolio comprised of mission city corporate center and the sorrento mesa portfolio , an approximately 669,653 square foot portfolio located in san diego , california , for $ 174.5 million , exclusive of closing costs . on october 19 , 2017 , the company , through a wholly-owned subsidiary of the operating partnership closed on the acquisition of papago tech , a 162,748 square foot two-building complex located in phoenix , arizona , for $ 33.3 million , exclusive of closing costs . on december 21 , 2017 , the company completed a public offering pursuant to which the company sold 5,750,000 shares of its common stock to the public at a price of $ 12.60 per share , inclusive of the overallotment option . the company raised $ 72.5 million in gross proceeds , resulting in net proceeds to us of approximately $ 69.0 million after deducting $ 3.5 million in underwriting discounts and other expenses related to the offering . indebtedness on january 4 , 2017 , the company closed on a $ 22.0 million loan secured by a first mortgage lien on the 5090 n 40th st property in phoenix , arizona . the loan matures in january 2027. interest is payable at a fixed rate of 3.92 % per annum . 37 on february 9 , 2017 , the company closed on a $ 35.1 million loan secured by a first mortgage lien on the santan property in phoenix , arizona . the loan matures in march 2027. interest is payable at a fixed rate of 4.56 % per annum . on march 10 , 2017 , the company closed on a $ 27.0 million loan secured by a first mortgage lien on the 2525 mckinnon property in dallas , texas . the loan matures in april 2027. interest is payable at a fixed rate of 4.24 % per annum . on may 2 , 2017 , in conjunction with the sale of the 1400 and 1600 buildings at the amberglen property in portland , oregon , the company repaid the outstanding debt secured on the property of $ 24.1 million plus closing costs and subsequently closed on a $ 20 million loan secured by a first mortgage lien on the remaining buildings . the loan matures in may 2027. interest is payable at a fixed rate of 3.69 % per annum . on september 1 , 2017 , the company exercised its option under its amended and restated credit agreement ( the secured credit facility ) to utilize the accordion feature to increase the authorized borrowing capacity under the secured credit facility from $ 100 million to $ 150 million . on october 5 , 2017 , the company closed on a $ 47 million loan secured by a first mortgage lien on the mission city property in san diego , california . the loan was used to pay down the secured credit facility drawn to initially acquire the property . the loan matures in november 2027. interest is payable at a fixed rate of 3.78 % per annum . for additional information regarding these mortgage loans and the secured credit facility , please refer to liquidity and capital resources below . revenue base as of december 31 , 2017 , we owned 22 properties comprised of 48 office buildings with a total of approximately 5.2 million square feet of net rentable area ( nra ) . as of december 31 , 2017 , our properties were approximately 87.7 % leased . office leases historically , most leases for our properties were on a full-service gross or net lease basis , and we expect to continue to use such leases in the future . a full-service gross lease generally has a base year expense stop , whereby we pay a stated amount of expenses as part of the rent payment while future increases ( above the base year stop ) in property operating expenses are billed to the tenant based on such tenant 's proportionate square footage in the property . story_separator_special_tag the property operating expenses are reflected in operating expenses ; however , only the increased property operating expenses above the base year stop recovered from tenants are reflected as tenant recoveries in our statements of operations . in a triple net lease , the tenant is typically responsible for all property taxes and operating expenses . as such , the base rent payment does not include any operating expenses , but rather all such expenses are billed to or paid by the tenant . the full amount of the expenses for this lease type is reflected in operating expenses , and the reimbursement is reflected in tenant recoveries . all tenants in the lake vista pointe , frp ingenuity drive , sorrento mesa and superior pointe properties have triple net leases . certain tenants at amberglen , frp collection , and 2525 mckinnon have leases on a triple net basis . we are also a lessor for a fee simple ground lease at the amberglen property . all of our remaining leases are full-service gross leases . factors that may influence our operating results and financial condition business and strategy we focus on owning and acquiring office properties in our target markets . our target markets generally possess what we believe are favorable economic growth trends , growing populations with above-average 38 employment growth forecasts , a large number of government offices , large international , national and regional employers across diversified industries , are generally low-cost centers for business operations , and exhibit favorable occupancy trends . we utilize our management 's market-specific knowledge and relationships as well as the expertise of local real estate operators and our investment partners to identify acquisition opportunities that we believe will offer cash flow stability and long-term value appreciation . our target markets are attractive , among other reasons , because we believe that ownership is often concentrated among local real estate operators that typically do not benefit from the same access to capital as public reits and there is a relatively low level of participation of large institutional investors . we believe that these factors result in attractive pricing levels and risk-adjusted returns . rental revenue and tenant recoveries the amount of net rental revenue generated by our properties will depend principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space that becomes available from lease terminations . the amount of rental revenue generated also depends on our ability to maintain or increase rental rates at our properties . we believe that the average rental rates for our portfolio of properties are generally in-line or slightly below the current average quoted market rates . negative trends in one or more of these factors could adversely affect our rental revenue in future periods . future economic downturns or regional downturns affecting our markets or submarkets or downturns in our tenants ' industries that impair our ability to renew or re-let space and the ability of our tenants to fulfill their lease commitments , as in the case of tenant bankruptcies , could adversely affect our ability to maintain or increase rental rates at our properties . in addition , growth in rental revenue will also partially depend on our ability to acquire additional properties that meet our investment criteria . operating expenses our operating expenses generally consist of utilities , property and ad valorem taxes , insurance and site maintenance costs . increases in these expenses over tenants ' base years ( until the base year is reset at expiration ) are generally passed along to tenants in our full-service gross leased properties and are generally paid in full by tenants in our net leased properties . conditions in our markets positive or negative changes in economic or other conditions in the markets we operate in , including state budgetary shortfalls , employment rates , natural hazards and other factors , may impact our overall performance . while we generally expect a trend of positive economic growth and increasing interest rates to continue , there is no way for us to predict whether these trends will continue , especially in light of the potential changes in tax policy , fiscal policy and monetary policy . summary of significant accounting policies basis of preparation the accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the united states ( gaap ) and include the financial position and results of operations of the company , the operating partnership and its subsidiaries . all significant intercompany transactions and balances have been eliminated on consolidation . use of estimates the company has made a number of significant estimates and assumptions relating to the reporting of assets and liabilities , the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses 39 to prepare these consolidated financial statements in conformity with gaap . significant estimates made include the recoverability of accounts receivable , allocation of property purchase price to tangible and intangible assets acquired and liabilities assumed , the determination of impairment of long-lived assets and the useful lives of long-lived assets . these estimates and assumptions are based on our best estimates and judgment . we evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors , including the current economic environment . the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions . management adjusts such estimates when facts and circumstances dictate . actual results could differ materially from those estimates . business combinations the fair value of the real estate acquired , which includes the impact of fair value adjustments for assumed mortgage debt related to property acquisitions , is allocated to the acquired tangible assets , consisting of land , building and improvements and identified intangible assets and liabilities , consisting of the value of above-market and below-market leases , other value of in-place leases and value of tenant relationships , based in each case on their fair values .
| the remaining properties ' revenues were relatively unchanged , increased a combined total of $ 0.4 million in comparison to the prior year . rental income . rental income includes net rental income and income from a ground lease . total rental income increased $ 28.7 million , or 45 % , to $ 92.4 million for the year ended december 31 , 2017 compared to $ 63.7 million for the year ended december 31 , 2016. the increase in rental income was primarily due to the acquisitions described above . the acquisitions of carillon point , frp collection , park tower , 5090 n 40th st , santan , 2525 mckinnon , mission city , sorrento mesa and papago tech contributed an additional $ 1.7 million , $ 2.0 million , $ 8.1 million , $ 4.0 million , $ 7.1 million , $ 3.4 million , $ 2.0 million , $ 3.0 million and $ 0.7 million in rental income , respectively , to the 2017 period rental income . washington group plaza also increased by $ 1.4 million due to the increased occupancy described above . corporate parkway decreased by $ 1.3 million due to the sale of the property in june 2016 and amberglen decreased by $ 0.7 million due to the sale of 2 of the buildings in may 2017. plaza 25 , 190 office center and dtc crossroads decreased $ 1.6 million , $ 0.7 million and $ 0.6 million as result of lower occupancy . expense reimbursement . total expense reimbursement increased $ 4.1 million , or 56 % , to $ 11.2 million for the year ended december 31 , 2017 compared to $ 7.1 million for the same period in 2016 , primarily due to the acquisitions of the frp collection , park tower , 5090 n 40th st , santan , 2525 mckinnon , mission city , sorrento mesa and papago tech properties described above . other . other revenue includes parking , signage and other miscellaneous income . total other revenues increased $ 1.4 million , or 83 % , to $ 3.0 million compared to
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bank owned life insurance income decreased $ 249,000 or 15.2 % due to a non-recurring death benefit of $ 511,000 received on a single policy in 2017. atm revenue increased by $ 992,000 or 15.3 % , and service charge income increased $ 515,000 or 7.4 % primarily due to increased transactions . insurance commissions increased $ 1,720,000 or 19 44.4 % compared to last year due to additional revenues from commissions and contingency income . additionally , other income decreased $ 761,000 primarily due to income tax refunds received in 2017 resulting from overpayment of taxes in 2016 by first clover leaf . non-interest expenses increased $ 15.8 million , to $ 90.0 million in 2018 compared to $ 74.2 million in 2017 , and $ 61.5 million in 2016 . the increase in 2018 was primarily due to expenses incurred to acquire and merge first bank into first mid bank of approximately $ 5 million , expenses to acquire soy capital of approximately $ 900,000 and increases in salaries and benefits , occupancy and amortization expense related to these acquisitions . the increase during 2017 was primarily due to expenses of approximately $ 2 million associated with the merger of first clover leaf into first mid bank and an increase in operating expenses from the addition of first clover leaf bank . additionally , salaries and benefits expense increased $ 7.0 million or 17.7 % compared to $ 39.8 million at the same period last year . the increase during 2016 was primarily due to expenses incurred of $ 1.3 million to acquire first clover leaf , expenses for the operation of the first clover leaf branches from acquisition in september to year-end and expense for the operation of the twelve onb branches acquired in august of 2015. in addition , 2016 salaries & benefits expense increased $ 7.4 million or 22.9 % , and occupancy and equipment expense increased $ 1.2 million or 10.3 % . following is a summary of the factors that contributed to the changes in net income ( in thousands ) : replace_table_token_2_th credit quality is an area of importance to the company . year-end total nonperforming loans were $ 39.8 million at december 31 , 2018 compared to $ 17.5 million at december 31 , 2017 , and $ 18.2 million at december 31 , 2016 . the increase in 2018 was primarily due to non performing loans acquired from first bank . repossessed assets balances totaled $ 2.6 million at december 31 , 2018 compared to $ 2.8 million at december 31 , 2017 , and $ 2 million at december 31 , 2016 . the increase in 2017 was primarily due to the addition of two 1-4 family residential borrowers and one commercial real estate borrower . the increase in 2016 was primarily due to properties acquired in the acquisition of first clover leaf bank net of properties sold during 2016. the company 's provision for loan losses was $ 8.7 million for 2018 , compared to $ 7.5 million for 2017 , and $ 2.8 million for 2016 . the increase in provision expense in 2018 and 2017 was primarily due to increases in loan balances and net charge-offs . loans secured by both commercial and residential real estate comprised 66 % , 66 % , and 67 % of the loan portfolio for 2018 , 2017 , and 2016 , respectively . the company 's capital position remains strong and the company has consistently maintained regulatory capital ratios above the “ well-capitalized ” standards . the company 's tier 1 capital ratio to risk weighted assets ratio at december 31 , 2018 , 2017 and 2016 was 12.76 % , 11.83 % , and 11.99 % , respectively . the company 's total capital to risk weighted assets ratio at december 31 , 2018 , 2017 and 2016 was 13.63 % , 12.70 % , and 12.79 % , respectively . in 2017 , the capital ratios declined in the fourth quarter due to reduced net income resulting from expense following remeasurement of deferred tax assets and liabilties , an increase in loan loss provision , strong loan growth , which drove a higher capital allocation on risk-weighted assets . in 2016 , the primary reason for the decrease in these ratios was the first clover leaf acquisition which increased risk-weighted assets by approximately $ 649 million offset by stock issued of approximately $ 65.9 million , lower preferred dividends due to the conversion of series c preferred stock , and the movement of cash from the old national branch acquisition into loans and investments that require higher capital allocation . the company 's liquidity position remains sufficient to fund operations and meet the requirements of borrowers , depositors , and creditors . the company maintains various sources of liquidity to fund its cash needs . see “ liquidity ” herein for a full listing of its sources and anticipated significant contractual obligations . the company enters into financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers . these financial instruments include lines of credit , letters of credit and other commitments to extend credit . the total outstanding commitments at december 31 , 2018 , 2017 and 2016 were $ 564.1 million , $ 415.5 million , and $ 485.1 million , respectively . see note 17 – “ commitments and contingent liabilities ” herein for further information . critical accounting policies and use of significant estimates the company has established various accounting policies that govern the application of u.s. generally accepted accounting principles in the preparation of the company 's financial statements . the significant accounting policies of the company are described in the footnotes to the consolidated financial statements . certain accounting policies involve significant judgments and assumptions by management that have a material impact on the carrying value of certain assets and liabilities ; management considers such accounting policies to be critical accounting policies . story_separator_special_tag the judgments and assumptions used by management are based on historical experience and other factors , which are believed to be reasonable under the circumstances . because of the nature of the judgments and assumptions made by management , actual results could differ from these judgments and assumptions , which could have a material impact on the carrying values of assets and liabilities and the results of operations of the company . 20 allowance for loan losses . the company believes the allowance for loan losses is the critical accounting policy that requires the most significant judgments and assumptions used in the preparation of its consolidated financial statements . an estimate of potential losses inherent in the loan portfolio are determined and an allowance for those losses is established by considering factors including historical loss rates , expected cash flows and estimated collateral values . in assessing these factors , the company uses organizational history and experience with credit decisions and related outcomes . the allowance for loan losses represents the best estimate of losses inherent in the existing loan portfolio . the allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off , net of recoveries . the company evaluates the allowance for loan losses quarterly . if the underlying assumptions later prove to be inaccurate based on subsequent loss evaluations , the allowance for loan losses is adjusted . the company estimates the appropriate level of allowance for loan losses by separately evaluating impaired and nonimpaired loans . a specific allowance is assigned to an impaired loan when expected cash flows or collateral do not justify the carrying amount of the loan . the methodology used to assign an allowance to a nonimpaired loan is more subjective . generally , the allowance assigned to nonimpaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics , adjusted for qualitative factors including the volume and severity of identified classified loans , changes in economic conditions , changes in credit policies or underwriting standards , and changes in the level of credit risk associated with specific industries and markets . because the economic and business climate in any given industry or market , and its impact on any given borrower , can change rapidly , the risk profile of the loan portfolio is continually assessed and adjusted when appropriate . notwithstanding these procedures , there still exists the possibility that the assessment could prove to be significantly incorrect and that an immediate adjustment to the allowance for loan losses would be required . other real estate owned . other real estate owned acquired through loan foreclosure is initially recorded at fair value less costs to sell when acquired , establishing a new cost basis . the adjustment at the time of foreclosure is recorded through the allowance for loan losses . due to the subjective nature of establishing the fair value when the asset is acquired , the actual fair value of the other real estate owned or foreclosed asset could differ from the original estimate . if it is determined that fair value temporarily declines subsequent to foreclosure , a valuation allowance is recorded through noninterest expense . operating costs associated with the assets after acquisition are also recorded as noninterest expense . gains and losses on the disposition of other real estate owned and foreclosed assets are netted and posted to other noninterest expense . investment in debt securities . the company classifies its investments in debt securities as either held-to-maturity or available-for-sale in accordance with statement of financial accounting standards ( sfas ) no . 115 , “ accounting for certain investments in debt and equity securities , ” which was codified into asc 320. securities classified as held-to-maturity are recorded at cost or amortized cost . available-for-sale securities are carried at fair value . fair value calculations are based on quoted market prices when such prices are available . if quoted market prices are not available , estimates of fair value are computed using a variety of techniques , including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities , fundamental analysis , or through obtaining purchase quotes . due to the subjective nature of the valuation process , it is possible that the actual fair values of these investments could differ from the estimated amounts , thereby affecting the financial position , results of operations and cash flows of the company . if the estimated value of investments is less than the cost or amortized cost , the company evaluates whether an event or change in circumstances has occurred that may have a significant adverse effect on the fair value of the investment . if such an event or change has occurred and the company determines that the impairment is other-than-temporary , a further determination is made as to the portion of impairment that is related to credit loss . the impairment of the investment that is related to the credit loss is expensed in the period in which the event or change occurred . the remainder of the impairment is recorded in other comprehensive income . deferred income tax assets/liabilities . the company 's net deferred income tax asset arises from differences in the dates that items of income and expense enter into our reported income and taxable income . deferred tax assets and liabilities are established for these items as they arise . from an accounting standpoint , deferred tax assets are reviewed to determine if they are realizable based on the historical level of taxable income , estimates of future taxable income and the reversals of deferred tax liabilities . in most cases , the realization of the deferred tax asset is based on future profitability . if the company were to experience net operating losses for tax purposes in a future period , the realization of deferred tax assets would be evaluated for a potential valuation reserve .
| results of operations net interest income the largest source of operating revenue for the company is net interest income . net interest income represents the difference between total interest income earned on earning assets and total interest expense paid on interest-bearing liabilities . the amount of interest income is dependent upon many factors , including the volume and mix of earning assets , the general level of interest rates and the dynamics of changes in interest rates . the cost of funds necessary to support earning assets varies with the volume and mix of interest-bearing liabilities and the rates paid to attract and retain such funds . 22 the company 's average balances , interest income and expense and rates earned or paid for major balance sheet categories are set forth in the following table ( dollars in thousands ) : year ended december 31 , 2018 year ended december 31 , 2017 year ended december 31 , 2016 average balance interest average rate average balance interest average rate average balance interest average rate assets interest-bearing deposits $ 27,911 $ 482 1.73 % $ 28,544 $ 291 1.02 % $ 38,359 $ 195 0.51 % federal funds sold 615 8 1.32 % 9,025 62 0.69 % 8,392 40 0.48 % certificates of deposit investments 3,013 66 2.18 % 3,317 50 1.50 % 28,777 295 1.02 % investment securities taxable 514,220 13,070 2.54 % 559,657 11,708 2.09 %
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estimates are periodically measured against actual loss experience . this evaluation is inherently subjective as it requires material estimates including , among others , exposure at default , the amount and timing of expected future cash flows on impaired loans , value of collateral , estimated losses on our commercial , construction and residential loan portfolios and historical loss experience . all of these estimates may be susceptible to significant change . while management uses the best information available to make loan loss allowance evaluations , adjustments to the allowance may be necessary based on changes in economic and other conditions or changes in accounting guidance . in addition , the pennsylvania department of banking and the fdic , as an integral part of their examination processes , periodically review our allowance for loan losses . the pennsylvania department of banking and the fdic may require the recognition of adjustments to the allowance for loan losses based on their judgment of information available to them at the time of their examinations . to the extent that actual outcomes differ from management 's estimates , additional provisions to the allowance for loan losses may be required that would adversely affect earnings in future periods . investment and mortgage-backed securities available for sale . where quoted prices are available in an active market , securities are classified within level 1 of the valuation hierarchy . if quoted market prices are not available , then fair values are estimated using quoted prices of securities with similar characteristics or discounted cash flows and are classified within level 2 of the fair value hierarchy . in certain cases where there is limited activity or less transparency around inputs to the valuation , securities are classified within level 3 of the valuation hierarchy , although there were no securities with that classification as of september 30 , 2013 or 2012 . 46 management evaluates securities for other-than-temporary impairment at least on a quarterly basis , and more frequently when economic or market concerns warrant such evaluation . the company determines whether the unrealized losses are temporary in accordance with united states generally accepted accounting principles ( “ u.s . gaap ” ) . the evaluation is based upon factors such as the creditworthiness of the issuers/guarantors , the underlying collateral , if applicable , and the continuing performance of the securities . in addition the company also considers the likelihood that the security will be required to be sold by a regulatory agency , our internal intent not to dispose of the security prior to maturity and whether the entire cost basis of the security is expected to be recovered . in determining whether the cost basis will be recovered , management evaluates other facts and circumstances that may be indicative of an other-than-temporary impairment condition . this includes , but is not limited to , an evaluation of the type of security , length of time and extent to which the fair value has been less than cost , and near-term prospects of the issuer . in addition , certain assets are measured at fair value on a non-recurring basis ; that is , the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances ( for example , when there is evidence of impairment ) . the company measures impaired loans , fhlb stock and loans or bank properties transferred into real estate owned at fair value on a non-recurring basis . valuation techniques and models utilized for measuring financial assets and liabilities are reviewed and validated by the company at least quarterly . income taxes . the company accounts for income taxes in accordance with u.s. gaap . the company records deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes . management exercises significant judgment in the evaluation of the amount and timing of the recognition of the resulting tax assets and liabilities . the judgments and estimates required for the evaluation are updated based upon changes in business factors and the tax laws . if actual results differ from the assumptions and other considerations used in estimating the amount and timing of tax recognized , there can be no assurance that additional expenses will not be required in future periods . in evaluating our ability to recover deferred tax assets , we consider all available positive and negative evidence , including our past operating results and our forecast of future taxable income . in determining future taxable income , we make assumptions for the amount of taxable income , the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies . these assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we use to manage our business . any reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred tax assets . an increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on our future earnings . u.s. gaap prescribes a minimum probability threshold that a tax position must meet before a financial statement benefit is recognized . the company recognizes , when applicable , interest and penalties related to unrecognized tax benefits in the provision for income taxes in the consolidated income statement . assessment of uncertain tax positions requires careful consideration of the technical merits of a position based on management 's analysis of tax regulations and interpretations . significant judgment may be involved in the assessment of the tax position . 47 recent accounting pronouncements information regarding recent accounting pronouncements is included in note 2 to the consolidated financial statements set forth in item 8 hereto . derivative financial instruments , contractual obligations and other off balance sheet arrangements . story_separator_special_tag derivative financial instruments include futures , forwards , interest rate swaps , option contracts , and other financial instruments with similar characteristics . we have not used derivative financial instruments in the past and do not currently have any intent to do so in the future . while we have not used derivative financial instruments , we are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers . these financial instruments include commitments to extend credit and the unused portions of lines of credit . these instruments involve , to varying degrees , elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition . commitments to extend credit generally have fixed expiration dates and may require additional collateral from the borrower if deemed necessary . commitments to extend credit are not recorded as an asset or liability by us until the instrument is exercised . commitments the following table summarizes our outstanding commitments to originate loans and to advance additional amounts pursuant to outstanding letters of credit , lines of credit and undisbursed construction loans at september 30 , 2013. replace_table_token_24_th ( 1 ) the majority of available lines of credit are for home equity loans . 48 contractual cash obligations the following table summarizes our contractual cash obligations at september 30 , 2013. replace_table_token_25_th ( 1 ) does not include interest due annually on fhlb advances . ( 2 ) funds received as part of the company ' s second-step offering . the offering closed on october 9 , 2013 and thereafter $ 74.3 million was returned to the investors that were unable to purchase common stock . 49 average balances , net interest income , and yields earned and rates paid . the following table shows for the periods indicated the total dollar amount of interest from average interest-earning assets and the resulting yields , as well as the interest expense on average interest-bearing liabilities , expressed both in dollars and rates , and the net interest margin . tax-exempt income and yields have not been adjusted to a tax-equivalent basis . all average balances are based on monthly balances . management does not believe that the monthly averages differ significantly from what the daily averages would be . replace_table_token_26_th ( 1 ) includes nonaccrual loans during the respective periods . calculated net of deferred fees and discounts , loans in process and allowance for loan losses . ( 2 ) equals net interest income divided by average interest-earning assets . 50 rate/volume analysis . the following table shows the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities affected our interest income and expense during the periods indicated . for each category of interest-earning assets and interest-bearing liabilities , information is provided on changes attributable to ( 1 ) changes in rate , which is the change in rate multiplied by prior year volume , and ( 2 ) changes in volume , which is the change in volume multiplied by prior year rate . the combined effect of changes in both rate and volume has been allocated proportionately to the change due to rate and the change due to volume . replace_table_token_27_th comparison of financial condition at september 30 , 2013 and september 30 , 2012 at september 30 , 2013 , we had total assets of $ 607.9 million , as compared to $ 490.5 million at september 30 , 2012 , an increase of 23.9 % . the primary reason for the $ 117.4 million increase in assets was the $ 77.7 million increase in cash and cash equivalents . the increase in such assets reflected the receipt of $ 145.7 million in subscription funds held in escrow at the bank at september 30 , 2013 from the second-step conversion stock offering , partially offset by a decrease of $ 28.6 million in deposits not including the funds held in escrow as a part of the stock offering . subsequent to september 30 , 2013 , we returned approximately $ 74.3 million in excess subscription funds . loans receivable increased to $ 306.5 million at september 30 , 2013 from $ 260.7 million at september 30 , 2012. this increase was funded by the proceeds from sale of investment securities and mortgage-backed securities and cash and cash equivalents on hand . a majority of the loan growth consisted of the origination of single-family residential loans within our immediate market area . total liabilities increased to $ 548.0 million at september 30 , 2013 from $ 430.7 million at september 30 , 2012. the $ 117.3 million increase in total liabilities was primarily due to the receipt of funds held in escrow for the stock offering . excluding the funds held in escrow , total deposits decreased $ 28.6 million , primarily due to our determination to let certain higher costing certificates of deposit run-off as part of our asset/liability management strategy . the deposit outflows experienced during the year were funded from cash and cash equivalents . 51 total stockholders ' equity increased by $ 81,000 to $ 59.9 million at september 30 , 2013 from $ 59.8 million at september 30 , 2012. the increase was primarily due to the recognition of $ 1.8 million in earnings during the year ended september 30 , 2013 as well as an increase of $ 901,000 in our equity associated with the company 's stock benefit plans , offset by the decline in the market value of the remaining available for sale securities in the portfolio due to changes in market rates as of september 30 , 2013. comparison of operating results for the year ended september 30 , 2013 and september 30 , 2012 story_separator_special_tag meet its current financial obligations is a function of balance sheet structure , the ability to liquidate assets and the availability of alternative sources of funds .
| the decrease in interest expense resulted primarily from a 29 basis point decrease to 1.04 % in the weighted average rate paid on interest-bearing liabilities , reflecting the continued repricing downward of interest-bearing liabilities during the fiscal year 2013 combined with a $ 15.3 million or 3.5 % decrease in the average balance of interest-bearing liabilities , primarily certificates of deposit , during the year ended september 30 , 2013 , as compared to fiscal year 2012. the decline in the weighted average rate paid reflected the continued effect of the low interest rate environment on our cost of funds as deposits re-priced downward as well as our continued implementation of our asset/liability strategies designed to reduce our use of higher costing certificates of deposit as a funding source . provision for loan losses . the company recorded a recovery of loan losses of $ 500,000 during the year ended september 30 , 2013 , while the company established a provision for loan losses of $ 725,000 for the year ended september 30 , 2012. no provisions for loan losses were deemed necessary for fiscal 2013 in part due to the recovery of previously charged off loan amounts of $ 1.1 million during the year ended september 30 , 2013. the company believes that the current provision at september 30 , 2013 is sufficient to cover all inherent and known losses associated with the loan portfolio at such date . at september 30 , 2013 , the company 's non-performing assets totaled $ 7.0 million or 1.2 % of total assets as compared to $ 16.0 million or 3.3 % of total assets at september 30 , 2012. non-performing assets at september 30 , 2013 included $ 6.6 million in non-performing loans consisting of $ 2.9 million of one-to four-family residential loans , $ 1.3 million of single-family residential investment properties and $ 2.4 million of commercial real estate loans . non-performing assets also included two one-to-four family residential real estate owned properties with an aggregate
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the major classifications of foreclosed properties are shown in the following table : replace_table_token_21_th the appraisal aging analysis of foreclosed properties , as well as the holding period , at december 31 , 2014 is shown below : replace_table_token_22_th * regulatory approval is required and has been obtained to hold these properties beyond the initial period of 5 years . additional approval may be required to continue to hold these properties should they not be liquidated during the extension period . net loan charge-offs for the year were $ 8.3 million , or 0.31 % of average loans annualized , an increase from prior year 's $ 7.8 million , or 0.30 % of average loans annualized . of the total net charge-offs , $ 4.4 million were in commercial loans , $ 1.9 million were in indirect auto loans , $ 1.2 million were in residential real estate mortgage loans , and $ 0.8 million were in direct consumer loans . our loan loss reserve as a percentage of total loans outstanding at december 31 , 2014 decreased to 1.26 % from the 1.30 % at december 31 , 2013. our reserve coverage ( allowance for loan and lease loss reserve to nonperforming loans ) was 88.4 % at december 31 , 2014 compared to 78.1 % at december 31 , 2013. contractual obligations and commitments as disclosed in the notes to the consolidated financial statements , we have certain obligations and commitments to make future payments under contracts . at december 31 , 2014 , the aggregate contractual obligations and commitments are : replace_table_token_23_th * the amounts provided as interest on advances from federal home loan bank and interest on long-term debt assume the liabilities will not be prepaid and interest is calculated to their individual maturities . the interest on $ 61.3 million in long-term debt is calculated based on the three-month libor plus 1.59 % until its maturity of june 1 , 2037. the three-month libor rate is projected using the most likely rate forecast from assumptions incorporated in the interest rate risk model and is determined two business days prior to the interest payment date . these assumptions are uncertain , and as a result , the actual payments will differ from the projection due to changes in economic conditions . replace_table_token_24_th commitments to extend credit and standby letters of credit do not necessarily represent future cash requirements in that these commitments often expire without being drawn upon . refer to note 17 to the consolidated financial statements for additional information regarding other commitments . liquidity and market risk the objective of ctbi 's asset/liability management function is to maintain consistent growth in net interest income within our policy limits . this objective is accomplished through management of our consolidated balance sheet composition , liquidity , and interest rate risk exposures arising from changing economic conditions , interest rates , and customer preferences . the goal of liquidity management is to provide adequate funds to meet changes in loan and lease demand or deposit withdrawals . this is accomplished by maintaining liquid assets in the form of cash and cash equivalents and investment securities , sufficient unused borrowing capacity , and growth in core deposits . as of december 31 , 2014 , we had approximately $ 105.5 million in cash and cash equivalents and approximately $ 640.2 million in securities valued at estimated fair value designated as available-for-sale and available to meet liquidity needs on a continuing basis compared to $ 106.6 million and $ 609.4 million at december 31 , 2013. additional asset-driven liquidity is provided by the remainder of the securities portfolio and the repayment of loans . in addition to core deposit funding , we also have a variety of other short-term and long-term funding sources available . we also rely on federal home loan bank advances for both liquidity and management of our asset/liability position . federal home loan bank advances were $ 61.2 million at december 31 , 2014 compared to $ 1.3 million at december 31 , 2013. as of december 31 , 2014 , we had a $ 312.3 million available borrowing position with the federal home loan bank compared to $ 342.6 million at december 31 , 2013. we generally rely upon net inflows of cash from financing activities , supplemented by net inflows of cash from operating activities , to provide cash for our investing activities . as is typical of many financial institutions , significant financing activities include deposit gathering , use of short-term borrowing facilities such as repurchase agreements and federal funds purchased , and issuance of long-term debt . at december 31 , 2014 and december 31 , 2013 , we had $ 44 million in lines of credit with various correspondent banks available to meet any future cash needs . our primary investing activities include purchases of securities and loan originations . we do not rely on any one source of liquidity and manage availability in response to changing consolidated balance sheet needs . at december 31 , 2014 , federal funds sold were $ 4.9 million compared to $ 8.6 million at december 31 , 2013 , and deposits with the federal reserve were $ 40.9 million compared to $ 28.5 million at december 31 , 2013. additionally , we project cash flows from our investment portfolio to generate additional liquidity over the next 90 days . the investment portfolio consists of investment grade short-term issues suitable for bank investments . the majority of the investment portfolio is in u.s. government and government sponsored agency issuances . the average life of the portfolio is 3.71 years . at the end of 2014 , available-for-sale ( `` afs '' ) securities comprised approximately 99.7 % of the total investment portfolio , and the afs portfolio was approximately 143 % of equity capital . ninety-one percent of the pledge eligible portfolio was pledged . interest rate risk we consider interest rate risk one of our most significant market risks . interest rate risk is the exposure to adverse changes in net interest income due to changes in interest rates . story_separator_special_tag consistency of our net interest revenue is largely dependent upon the effective management of interest rate risk . we employ a variety of measurement techniques to identify and manage our interest rate risk including the use of an earnings simulation model to analyze net interest income sensitivity to changing interest rates . the model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the effect of changing interest rates on the prepayment rates of certain assets and liabilities . assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model . these assumptions are inherently uncertain , and as a result , the model can not precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income . actual results will differ from simulated results due to timing , magnitude , and frequency of interest rate changes as well as changes in market conditions and management strategies . ctbi 's asset/liability management committee ( alco ) , which includes executive and senior management representatives and reports to the board of directors , monitors and manages interest rate risk within board-approved policy limits . our current exposure to interest rate risks is determined by measuring the anticipated change in net interest income spread evenly over the twelve-month period . the following table shows our estimated earnings sensitivity profile as of december 31 , 2014 : change in interest rates ( basis points ) percentage change in net interest income ( 12 months ) +400 2.42 % +300 1.79 % +200 1.11 % +100 0.51 % -25 ( 0.14 ) % the following table shows our estimated earnings sensitivity profile as of december 31 , 2013 : change in interest rates ( basis points ) percentage change in net interest income ( 12 months ) +400 2.27 % +300 1.39 % +200 0.66 % +100 0.28 % -25 ( 0.26 ) % the simulation model used the yield curve spread evenly over a twelve-month period . the measurement at december 31 , 2014 estimates that our net interest income in an up-rate environment would increase by 2.42 % at a 400 basis point change , 1.79 % increase at a 300 basis point change , 1.11 % increase at a 200 basis point change , and a 0.51 % increase at a 100 basis point change . in a down-rate environment , a 25 basis point decrease in interest rates would decrease net interest income by 0.14 % over one year . in order to reduce the exposure to interest rate fluctuations and to manage liquidity , we have developed sale procedures for several types of interest-sensitive assets . virtually all long-term , fixed rate single family residential mortgage loans underwritten according to federal home loan mortgage corporation guidelines are sold for cash upon origination or originated under terms where they could be sold . periodically , additional assets such as commercial loans are also sold . in 2014 and 2013 , $ 51.2 million and $ 134.7 million , respectively , was realized on the sale of fixed rate residential mortgages . we focus our efforts on consistent net interest revenue and net interest margin growth through each of the retail and wholesale business lines . we do not currently engage in trading activities . the preceding analysis was prepared using a rate ramp analysis which attempts to spread changes evenly over a specified time period as opposed to a rate shock which measures the impact of an immediate change . had these measurements been prepared using the rate shock method , the results would vary . our static repricing gap as of december 31 , 2014 is presented below . in the 12 month repricing gap , rate sensitive liabilities ( `` rsl '' ) exceeded rate sensitive assets ( `` rsa '' ) by $ 216.5 million . replace_table_token_25_th capital resources we continue to grow our shareholders ' equity while also providing an annual dividend yield for the year 2014 of 3.23 % to shareholders . shareholders ' equity increased 8.6 % from december 31 , 2013 to $ 447.9 million at december 31 , 2014. our primary source of capital growth is the retention of earnings . cash dividends were $ 1.181 per share for 2014 and $ 1.154 per share for 2013. we retained 52.8 % of our earnings in 2014 compared to 56.1 % in 2013. regulatory guidelines require bank holding companies , commercial banks , and savings banks to maintain certain minimum capital ratios and define companies as `` well-capitalized '' that sufficiently exceed the minimum ratios . the banking regulators may alter minimum capital requirements as a result of revising their internal policies and their ratings of individual institutions . to be `` well-capitalized '' banks and bank holding companies must maintain a tier 1 leverage ratio of no less than 5 % , a tier 1 risk based ratio of no less than 6 % , and a total risk based ratio of no less than 10 % . our ratios as of december 31 , 2014 were 12.04 % , 16.51 % , and 17.76 % , respectively , all exceeding the threshold for meeting the definition of `` well-capitalized . '' see note 20 to the consolidated financial statements for further information . as of december 31 , 2014 , we are not aware of any current recommendations by banking regulatory authorities which , if they were to be implemented , would have , or are reasonably likely to have , a material adverse impact on our liquidity , capital resources , or operations , except as provided for in the dodd-frank act which is discussed in the supervision and regulation section of item 1. business and the basel iii proposal which is discussed below . basel iii on july 2 , 2013 , the federal reserve approved final rules that substantially amend the regulatory risk-based capital rules applicable to ctbi and ctb .
| the decrease from prior year is a result of the accrual booked in the fourth quarter 2013 related to the federal reserve determination regarding an error in the manner in which we processed certain non-pin based point-of-sale transactions . the matter was resolved in the 2014 , and a favorable adjustment in the accrual of $ 0.8 million was booked based on actual customer refunds . v our loan portfolio increased $ 118.5 million from december 31 , 2013. v our investment portfolio increased $ 30.8 million from december 31 , 2013. v deposits , including repurchase agreements , increased $ 46.3 million from december 31 , 2013. v our tangible common equity/tangible assets ratio increased to 10.44 % at december 31 , 2014. income statement review replace_table_token_19_th net interest income net interest income for the year ended december 31 , 2014 decreased $ 2.6 million , or 1.9 % , from prior year . our yield on average earning assets decreased 17 basis points from prior year . our cost of interest bearing funds decreased 6 basis points from prior year . average loans to deposits , including repurchase agreements , for the year ended december 31 , 2014 were 84.4 % compared to 82.5 % for the year ended december 31 , 2013. net interest income for the year ended december 31 , 2013 increased 1.9 % from the year ended december 31 , 2012 with average earning assets increasing 0.8 % and our net interest margin increasing 4 basis points . our yield on average earning assets decreased 20 basis points from 2012 to 2013. loans represented 76.2 % of our average earning assets for the year ended december 31 , 2013 , compared to 75.9 % for the year ended december 31 , 2012. our cost of interest bearing funds decreased 31 basis points from 2012 to 2013. provision for loan losses the provision for loan losses that was added to the allowance for 2014 of $ 8.8 million was a $ 0.2 million increase
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our funeral operating revenue has increased from $ 124.1 million in 2008 to $ 146.4 million in 2012 ( compound annual increase of 4.2 % ) . the increases are primarily a result of businesses we have acquired in the last five years and our ability to increase the 22 average revenue per funeral through expanded service offerings and packages . additional funeral revenue from preneed commissions and preneed funeral trust earnings has remained flat at $ 7.7 million in 2008 to 2012 . we experienced a 2.6 % decline in volumes in comparing the year ended december 31 , 2012 to the year ended december 31 , 2011 on a same store basis , while the average revenue per contract for the year ended december 31 , 2012 increased 0.7 % compared to the year ended december 31 , 2011 , on a same store basis . the percentage of funeral services involving cremations has increased from 38.2 % for the year ended 2008 to 46.0 % for the year ended 2012 . a significant portion of that change is the result of acquiring businesses in high cremation areas . on a same store basis , the cremation rate has risen to 44.5 % for the year ended december 31 , 2012 , up from 42.7 % for the comparable period in 2011 and 38.2 % in 2008. cemetery operating results are affected by the size and success of our sales organization . approximately 50 % of our 2011 cemetery revenues related to preneed sales of interment rights and related merchandise and services . for the year ended december 31 , 2012 those preneed sales were approximately 47 % of cemetery operating revenues . we believe that changes in the economy and consumer confidence affect the amount of preneed cemetery operating revenues . cemetery revenues from investment earnings on trust funds grew from $ 2.3 million in 2008 to $ 8.5 million in 2012 . changes in the capital markets and interest rates affect this component of our cemetery revenues . our cemetery financial performance from 2008 through 2012 was characterized by fluctuating operating revenues yet increasing field level cemetery profit margins . cemetery operating revenue increased from $ 38.0 million in 2008 to $ 40.1 million in 2012 and increased 5.0 % over 2011 . our goal is to build broader and deeper teams of sales leaders and counselors in our larger and more strategically located cemeteries in order to focus on growth of our preneed property sales . additionally , a portion of our capital expenditures in 2013 is designed to expand our cemetery product offerings . financial revenue we market funeral and cemetery services and products on a preneed basis . preneed funeral or cemetery contracts enable families to establish , in advance , the type of service to be performed , the products to be used and the cost of such products and services . preneed contracts permit families to eliminate issues of making death care plans at the time of need and allow input from other family members before the death occurs . we guarantee the price and performance of the preneed contracts to the customer . preneed funeral contracts are usually paid on an installment basis . the performance of preneed funeral contracts is usually secured by placing the funds collected in trust for the benefit of the customer or by the purchase of a life insurance policy , the proceeds of which will pay for such services at the time of need . insurance policies , intended to fund preneed funeral contracts , cover the original contract price and generally include an element of growth ( earnings ) designed to offset future inflationary cost increases . revenue from preneed funeral contracts , along with accumulated earnings , is not recognized until the time the funeral service is performed . the accumulated earnings from the trust investments and insurance policies are intended to offset the inflation in funeral prices . additionally , we generally earn a commission from the insurance company from the sale of insurance-funded policies reflected as preneed insurance commission . the commission income is recognized as revenue when the period of refund expires ( generally one year ) , which helps us defray the costs we incur to originate the preneed contract ( primarily commissions we pay to our sales counselors ) . preneed sales of cemetery interment rights are usually financed through interest-bearing installment sales contracts , generally with terms of up to five years with such earnings reflected as preneed cemetery finance charges . in substantially all cases , we receive an initial down payment at the time the contract is signed . occasionally , we have offered zero percent interest financing to promote sales for limited-time offers . in most states , regulations require a portion ( generally 10 % ) of the sale amount of cemetery property and memorials to be placed in a perpetual care trust . we have established a variety of trusts in connection with funeral home and cemetery operations as required under applicable state laws . such trusts include ( i ) preneed funeral trusts ; ( ii ) preneed cemetery merchandise and service trusts ; and ( iii ) perpetual care trusts . these trusts are typically administered by independent financial institutions selected by us . investment management and advisory services are provided either by our wholly-owned registered investment advisor ( csv ria ) or independent financial advisors . as of december 31 , 2012 , csv ria provides these services to one institution , which has custody of 68 % of our trust assets , for a fee based on the market value of trust assets . under state trust laws , we are allowed to charge the trust a fee for advising on the investment of the trust assets and these fees are recognized as income as the advisory services are provided . the investment advisors establish an investment policy that gives guidance on asset allocation , investment requirements , investment manager selection and performance monitoring . story_separator_special_tag the investment objectives are toward generating long-term investment returns without assuming undue risk , while ensuring the management of assets is in compliance with applicable laws 23 preneed funeral trust fund income earned along with the receipt and recognition of any insurance benefits are deferred until the service is performed . applicable state laws generally require us to deposit a specified amount ( which varies from state to state , generally 50 % to 100 % of selling price ) into a merchandise and service trust fund for preneed cemetery merchandise and service sales . the related trust fund income earned is recognized when the related merchandise and services are delivered . in most states , regulations require a portion ( generally 10 % ) of the sale amount of cemetery property and memorials to be placed in a perpetual care trust . the income from perpetual care trusts provides a portion of the funds necessary to maintain cemetery property and memorials in perpetuity . perpetual care trust fund income is recognized , as earned , in our cemetery revenues . acquisitions our growth strategy includes the execution of our strategic acquisition model . we use six strategic ranking criteria to assess acquisition candidates and to differentiate the price we are willing to pay under a discounted cash flow methodology . those criteria are : size of business ; size of market ; competitive standing ; local market demographics ; strength of brand ; and barriers to entry . in general terms , should a target business be acceptable per the criteria above , we will then determine the value of the target using a discounted cash flow methodology . during 2011 , we acquired six funeral home businesses and no cemetery businesses . the consideration paid for the 2011 acquisitions was $ 18.6 million . during 2012 , we acquired seven funeral home businesses and one cemetery business . the consideration paid for the 2012 acquisitions was $ 42.7 million . overview of critical accounting policies and estimates the preparation of the 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 estimates and judgments , including those related to revenue recognition , realization of accounts receivable , inventories , goodwill , other intangible assets , property and equipment and deferred tax assets . we base our estimates on historical experience , third party data and assumptions that we believe to be reasonable under the circumstances . the results of these considerations form the basis for making judgments about the amount and timing of revenues and expenses , the carrying value of assets and the recorded amounts of liabilities . actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change . historical performance should not be viewed as indicative of future performance , because there can be no assurance the margins , operating income and net earnings as a percentage of revenues will be consistent from year to year . management 's discussion and analysis of financial condition and results of operations ( “ md & a ” ) is based upon our consolidated financial statements presented herewith , which have been prepared in accordance with accounting principles generally accepted in the united states . our significant accounting policies are more fully described in note 1 to our consolidated financial statements . we believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements . funeral and cemetery operations we record the sales of funeral and cemetery merchandise and services when the merchandise is delivered or service is performed . sales of cemetery interment rights are recorded as revenue in accordance with the retail land sales accounting principles . this method generally provides for the recognition of revenue in the period in which the customer 's cumulative payments exceed 10 % of the contract price related to the real estate . costs related to the sales of interment rights , which include property and other costs related to cemetery development activities , are charged to operations using the specific identification method in the period in which the sale of the interment right is recognized as revenue . revenues to be recognized and cash flow from the delivery of merchandise and performance of services related to preneed contracts that were acquired in acquisitions are typically lower than those originated by us . 24 allowances for bad debts and customer cancellations are provided at the date that the sale is recognized as revenue and are based on our historical experience and the current economic environment . we also monitor changes in delinquency rates and provide additional bad debt and cancellation reserves when warranted . when preneed funeral services and merchandise are funded through third-party insurance policies , we earn a commission on the sale of the policies . insurance commissions earned by the company are recognized as revenues when the commission is no longer subject to refund , which is usually one year after the policy is issued . preneed selling costs consist of sales commissions that we pay our sales counselors and other direct related costs of originating preneed sales contracts , and such costs are expensed as incurred . business combinations tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and fair value . we recognize the assets acquired , the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date , measured at the fair value as of that date . goodwill is measured as a residual of the fair values at acquisition date . acquisition related costs are recognized separately from the acquisition and are expensed as incurred . we customarily estimate related transaction costs known at closing .
| the elements of cash flow for 2012 consisted of the following ( in millions ) : cash at beginning of year $ 1.1 cash flow from continuing operations 25.6 cash provided by discontinuing operations 0.7 cash used for business acquisitions ( 42.7 ) borrowings on our credit facility and payments on our long-term debt obligations , net 40.1 cash used for dividends of common stock ( 1.8 ) cash used for repurchase of common stock ( 4.5 ) cash used for loan origination costs and call premium on our senior notes ( 4.9 ) cash used for maintenance capital expenditures ( 5.0 ) cash used for growth capital expenditures – funeral homes ( 5.5 ) cash used for growth capital expenditures – cemeteries ( 2.3 ) other investing and financing activities , net 0.9 cash at end of year $ 1.7 the trends in cash provided by continuing operations have fluctuated over the last two years as we generated $ 25.7 million , $ 31.0 million and $ 25.6 million in 2010 , 2011 and 2012 , respectively . for 2013 , we could potentially see a reduction in cash taxes based upon three applications for accounting method changes that were submitted to the internal revenue service prior to december 31 , 2012. since approval has not yet been received , we can not rely upon the benefit that could result . while there can be no guarantee that the accounting methods will be approved to the full extent applied for , the impact of changing accounting methods would be to reduce cash taxes over the next three years by as much as $ 21 million . annually , we spend approximately $ 10 - $ 15 million on capital expenditures and we plan to acquire funeral and cemetery businesses in 2013 and future years . we spent $ 19.0 million , $ 18.6 million and $ 42.7 million on acquisitions in 2010 , 2011 and 2012 , respectively . our revolving credit facility provides us the flexibility to fund working capital , capital expenditures , acquisitions or capital needs . 37 dividends our board declared four quarterly dividends of $ 0.025 per share , totaling approximately $ 1.8 million , which were paid on march 1 , 2012 , june 1 , 2012 , september 1 , 2012 and december 3 , 2012 respectively , to record holders of our common stock as of february 13 , 2012 , may 15 , 2012 , august 17 , 2012 and november 13 , 2012 respectively . we have a dividend reinvestment program so that stockholders may elect
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the investment recovery mechanism would provide for additional annual rate increases of $ 11 million beginning in october 2020 and another $ 11 million beginning in october 2021 for incremental investments that consumers plans to make in those years , subject to reconciliation . these future investments are intended to help ensure adequate system capacity and deliverability . the mpsc previously approved an investment recovery mechanism in august 2018 ; that mechanism will remain in effect until rates are changed in this proceeding . tax cuts and jobs act : the tcja , which changed existing federal tax law and included numerous provisions that affect businesses , was signed into law in december 2017. in early 2018 , the mpsc ordered consumers to file various proceedings to determine the reduction in its electric and gas revenue requirements as a result of the reduction in the corporate income tax rate , and to implement bill credits to reflect that reduction until customer rates could be adjusted through consumers ' general rate cases . consumers filed , and the mpsc approved , such proceedings throughout 2018 , resulting in credits to customer bills during 2018 to reflect reductions in consumers ' electric and gas revenue requirements . additionally , consumers filed an application to address the december 31 , 2017 remeasurement of its deferred income taxes and other base rate impacts of the tcja on customers . for details on these proceedings , see item 8. financial statements and supplementary data—notes to the consolidated financial statements— note 3 , regulatory matters . looking forward cms energy and consumers will continue to consider the impact on the triple bottom line of people , planet , and profit in their daily operations as well as in their long-term strategic decisions . consumers will continue to seek fair and timely regulatory treatment that will support its customer-driven investment plan , while pursuing cost-control initiatives that will allow it to maintain sustainable customer base rates . the consumers energy way is an important means of realizing cms energy 's and consumers ' purpose of achieving world class performance while delivering hometown service . 59 results of operations cms energy consolidated results of operations replace_table_token_8_th replace_table_token_9_th 60 presented in the following table are specific after-tax changes to net income available to common stockholders for 2018 versus 2017 : replace_table_token_10_th 1 see note 14 , income taxes . 2 gain at segment is eliminated on cms energy 's consolidated statements of income . 61 presented in the following table are specific after-tax changes to net income available to common stockholders for 2016 versus 2017 : replace_table_token_11_th 1 see note 14 , income taxes . 2 gain at segment is eliminated on cms energy 's consolidated statements of income . 62 consumers electric utility results of operations for the year ended december 31 , 2018 , consumers electric utility 's net income available to common stockholders was $ 535 million . this compares with net income available to common stockholders of $ 455 million for the year ended december 31 , 2017 . in 2018 , higher net income was due primarily to a rate increase and higher sales as a result of favorable weather . these increases were offset partially by higher maintenance and other operating expenses and higher depreciation on increased plant in service . consumers incurred higher maintenance and other operating expenses due to the execution of additional work in 2018. lower tax expense in 2018 resulting from the tcja was offset fully by a reduction in revenue to reflect the pass-through of tcja-related benefits to customers . presented in the following table are the detailed changes to the electric utility 's net income available to common stockholders for 2018 versus 2017 : 63 replace_table_token_12_th 1 deliveries to end-use customers were 38.2 billion kwh in 2018 and 37.4 billion kwh in 2017 . 2 see note 3 , regulatory matters . 3 gain at segment is eliminated on cms energy 's consolidated statements of income . 4 see note 14 , income taxes . for the year ended december 31 , 2017 , consumers electric utility 's net income available to common stockholders was $ 455 million . this compares with net income available to common stockholders of $ 458 million for the year ended december 31 , 2016 . in 2017 , rate increases were offset fully by lower 64 sales due primarily to mild weather and higher depreciation on increased plant in service . in addition , reductions in state and other income taxes were offset primarily by the recognition of the impacts of the tcja . presented in the following table are the detailed changes to the electric utility 's net income available to common stockholders for 2017 versus 2016 : in millions year ended december 31 , 2016 $ 458 reasons for the change electric deliveries 1 and rate increases rate increase , including the impacts of the march 2017 order and the october 2017 self-implemented rate increase $ 82 higher energy waste reduction program revenues and financial incentives 23 lower sales and other revenue , due primarily to mild weather in 2017 ( 50 ) $ 55 power supply costs and related revenue 3 maintenance and other operating expenses higher service restoration costs following severe storms ( 15 ) higher energy waste reduction program costs ( 13 ) higher information technology and other operating and maintenance expenses ( 11 ) higher demand response program costs ( 6 ) absence of a 2016 michigan use tax settlement benefit ( 4 ) lower coal-fueled electric generating plant costs due to retirement of plants in 2016 19 lower postretirement benefit costs 10 lower meter reading expense , reflecting the implementation of smart meters 7 absence of a 2016 voluntary separation program 6 ( 7 ) depreciation and amortization increased plant in service , reflecting higher capital spending ( 51 ) general taxes settlement of property tax appeal related to the zeeland plant in 2017 story_separator_special_tag the investment recovery mechanism would provide for additional annual rate increases of $ 11 million beginning in october 2020 and another $ 11 million beginning in october 2021 for incremental investments that consumers plans to make in those years , subject to reconciliation . these future investments are intended to help ensure adequate system capacity and deliverability . the mpsc previously approved an investment recovery mechanism in august 2018 ; that mechanism will remain in effect until rates are changed in this proceeding . tax cuts and jobs act : the tcja , which changed existing federal tax law and included numerous provisions that affect businesses , was signed into law in december 2017. in early 2018 , the mpsc ordered consumers to file various proceedings to determine the reduction in its electric and gas revenue requirements as a result of the reduction in the corporate income tax rate , and to implement bill credits to reflect that reduction until customer rates could be adjusted through consumers ' general rate cases . consumers filed , and the mpsc approved , such proceedings throughout 2018 , resulting in credits to customer bills during 2018 to reflect reductions in consumers ' electric and gas revenue requirements . additionally , consumers filed an application to address the december 31 , 2017 remeasurement of its deferred income taxes and other base rate impacts of the tcja on customers . for details on these proceedings , see item 8. financial statements and supplementary data—notes to the consolidated financial statements— note 3 , regulatory matters . looking forward cms energy and consumers will continue to consider the impact on the triple bottom line of people , planet , and profit in their daily operations as well as in their long-term strategic decisions . consumers will continue to seek fair and timely regulatory treatment that will support its customer-driven investment plan , while pursuing cost-control initiatives that will allow it to maintain sustainable customer base rates . the consumers energy way is an important means of realizing cms energy 's and consumers ' purpose of achieving world class performance while delivering hometown service . 59 results of operations cms energy consolidated results of operations replace_table_token_8_th replace_table_token_9_th 60 presented in the following table are specific after-tax changes to net income available to common stockholders for 2018 versus 2017 : replace_table_token_10_th 1 see note 14 , income taxes . 2 gain at segment is eliminated on cms energy 's consolidated statements of income . 61 presented in the following table are specific after-tax changes to net income available to common stockholders for 2016 versus 2017 : replace_table_token_11_th 1 see note 14 , income taxes . 2 gain at segment is eliminated on cms energy 's consolidated statements of income . 62 consumers electric utility results of operations for the year ended december 31 , 2018 , consumers electric utility 's net income available to common stockholders was $ 535 million . this compares with net income available to common stockholders of $ 455 million for the year ended december 31 , 2017 . in 2018 , higher net income was due primarily to a rate increase and higher sales as a result of favorable weather . these increases were offset partially by higher maintenance and other operating expenses and higher depreciation on increased plant in service . consumers incurred higher maintenance and other operating expenses due to the execution of additional work in 2018. lower tax expense in 2018 resulting from the tcja was offset fully by a reduction in revenue to reflect the pass-through of tcja-related benefits to customers . presented in the following table are the detailed changes to the electric utility 's net income available to common stockholders for 2018 versus 2017 : 63 replace_table_token_12_th 1 deliveries to end-use customers were 38.2 billion kwh in 2018 and 37.4 billion kwh in 2017 . 2 see note 3 , regulatory matters . 3 gain at segment is eliminated on cms energy 's consolidated statements of income . 4 see note 14 , income taxes . for the year ended december 31 , 2017 , consumers electric utility 's net income available to common stockholders was $ 455 million . this compares with net income available to common stockholders of $ 458 million for the year ended december 31 , 2016 . in 2017 , rate increases were offset fully by lower 64 sales due primarily to mild weather and higher depreciation on increased plant in service . in addition , reductions in state and other income taxes were offset primarily by the recognition of the impacts of the tcja . presented in the following table are the detailed changes to the electric utility 's net income available to common stockholders for 2017 versus 2016 : in millions year ended december 31 , 2016 $ 458 reasons for the change electric deliveries 1 and rate increases rate increase , including the impacts of the march 2017 order and the october 2017 self-implemented rate increase $ 82 higher energy waste reduction program revenues and financial incentives 23 lower sales and other revenue , due primarily to mild weather in 2017 ( 50 ) $ 55 power supply costs and related revenue 3 maintenance and other operating expenses higher service restoration costs following severe storms ( 15 ) higher energy waste reduction program costs ( 13 ) higher information technology and other operating and maintenance expenses ( 11 ) higher demand response program costs ( 6 ) absence of a 2016 michigan use tax settlement benefit ( 4 ) lower coal-fueled electric generating plant costs due to retirement of plants in 2016 19 lower postretirement benefit costs 10 lower meter reading expense , reflecting the implementation of smart meters 7 absence of a 2016 voluntary separation program 6 ( 7 ) depreciation and amortization increased plant in service , reflecting higher capital spending ( 51 ) general taxes settlement of property tax appeal related to the zeeland plant in 2017
| in 2017 , higher net income was due primarily to increased sales resulting from higher deliveries and a rate increase . these increases were offset partially by the recognition of the impacts of the tcja and higher depreciation on increased plant in service . presented in the following table are the detailed changes to the gas utility 's net income available to common stockholders for 2017 versus 2016 : replace_table_token_14_th 1 deliveries to end-use customers were 287 bcf in 2017 and 282 bcf in 2016 . 2 gain at segment is eliminated on cms energy 's consolidated statements of income . 3 see note 14 , income taxes . 67 enterprises results of operations presented in the following table are the detailed after-tax changes to the enterprises segment 's net income available to common stockholders for 2018 versus 2017 : in millions year ended december 31 , 2017 $ ( 27 ) reason for the change deferred income tax adjustments due to the tcja , primarily the absence of the 2017 adjustment 1 $ 62 reduction of corporate income tax rate due to the impacts of the tcja 6 higher expenses from legacy obligations , net ( 4 ) lower earnings from operations and equity method investees ( 3 ) year ended december 31 , 2018 $ 34 1 see note 14 , income taxes . presented in the following table are the detailed changes to the enterprises segment 's net income available to common stockholders for 2017 versus 2016 : replace_table_token_15_th 1 see note 14 , income taxes . 68 corporate interest and other results of operations presented in the following table are the detailed after-tax changes to corporate interest and other results for 2018 versus 2017 : in millions year ended december 31 , 2017 < td
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net operating revenues generated directly from the medicare program represented approximately 45 % , 37 % , and 30 % of our consolidated net operating revenues for the years ended december 31 , 2014 , 2015 , and 2016 , respectively . the principal causes of the decrease in medicare net operating revenues as a percentage of our total net operating revenues are the acquisitions of concentra on june 1 , 2015 , and physiotherapy on march 4 , 2016 , which both have a significantly lower relative percentage of medicare net operating revenues as compared to our historical business prior to the acquisitions . since the percentage of net operating revenues generated directly from the medicare program have been historically higher in our specialty hospitals segment as compared to our outpatient rehabilitation and concentra segments , we anticipate that the percentage of net operating revenues generated directly from the medicare program will continue to decrease to the extent growth in our outpatient rehabilitation and concentra segments outpaces growth in our specialty hospitals segment . the medicare program reimburses our ltchs , irfs and outpatient rehabilitation providers using different payment methodologies . those payment methodologies are complex and are described elsewhere in this report under `` businessgovernment regulations . '' the following is a summary of some of the more significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report or are likely to affect our financial performance and financial condition in the future . medicare reimbursement of ltch services there have been significant regulatory changes affecting ltchs that have affected our net operating revenues and , in some cases , caused us to change our operating models and strategies . we have been subject to regulatory changes that occur through the rulemaking procedures of cms . all medicare payments to our ltchs are made in accordance with ltch-pps . proposed rules specifically related to ltchs are generally published in may , finalized in august and effective on october 1st of each year . the following is a summary of significant changes to the medicare prospective payment system for ltchs which have affected our results of operations , as well as the policies and payment rates for fiscal year 2017 that may affect our future results of operations . fiscal year 2015 . on august 22 , 2014 , cms published the final rule updating policies and payment rates for ltch pps for fiscal year 2015 ( affecting discharges and cost reporting periods beginning on or after october 1 , 2014 through september 30 , 2015 ) . the standard federal rate was set at $ 41,044 , an increase from the standard federal rate applicable during fiscal year 2014 of $ 40,607. the update to the 58 standard federal rate for fiscal year 2015 included a market basket increase of 2.9 % , less a productivity adjustment of 0.5 % , less a reduction of 0.2 % mandated by the aca , and less a budget neutrality adjustment of 1.266 % . the fixed loss amount for high cost outlier cases was set at $ 14,972 , an increase from the fixed loss amount in the 2014 fiscal year of $ 13,314. fiscal year 2016 . on august 17 , 2015 , cms published the final rule updating policies and payment rates for the ltch pps for fiscal year 2016 ( affecting discharges and cost reporting periods beginning on or after october 1 , 2015 through september 30 , 2016 ) . the standard federal rate was set at $ 41,763 , an increase from the standard federal rate applicable during fiscal year 2015 of $ 41,044. the update to the standard federal rate for fiscal year 2016 included a market basket increase of 2.4 % , less a productivity adjustment of 0.5 % , and less a reduction of 0.2 % mandated by the aca . the fixed loss amount for high cost outlier cases paid under ltch pps was set at $ 16,423 , an increase from the fixed loss amount in the 2015 fiscal year of $ 14,972. the fixed loss amount for high cost outlier cases paid under the site neutral payment rate described below was set at $ 22,538. fiscal year 2017 . on august 22 , 2016 , cms published the final rule updating policies and payment rates for the ltch-pps for fiscal year 2017 ( affecting discharges and cost reporting periods beginning on or after october 1 , 2016 through september 30 , 2017 ) . the standard federal rate was set at $ 42,476 , an increase from the standard federal rate applicable during fiscal year 2016 of $ 41,763. the update to the standard federal rate for fiscal year 2017 included a market basket increase of 2.8 % , less a productivity adjustment of 0.3 % , and less a reduction of 0.75 % mandated by the aca . the fixed-loss amount for high cost outlier cases paid under ltch-pps was set at $ 21,943 , an increase from the fixed-loss amount in the 2016 fiscal year of $ 16,423. the fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at $ 23,573 , an increase from the fixed-loss amount in the 2016 fiscal year of $ 22,538. patient criteria the bba of 2013 , enacted december 26 , 2013 , establishes a dual-rate ltch-pps for medicare patients discharged from an ltch . story_separator_special_tag specifically , for medicare patients discharged in cost reporting periods beginning on or after october 1 , 2015 , ltchs will be reimbursed at the ltch pps standard federal payment rate only if , immediately preceding the patient 's ltch admission , the patient was discharged from a `` subsection ( d ) hospital '' ( generally , a short-term acute care hospital paid under ipps ) and either the patient 's stay included at least three days in an intensive care unit ( icu ) or coronary care unit ( ccu ) at the subsection ( d ) hospital , or the patient was assigned to an ms ltc drg for cases receiving at least 96 hours of ventilator services in the ltch . in addition , to be paid at the ltch pps standard federal payment rate , the patient 's discharge from the ltch may not include a principal diagnosis relating to psychiatric or rehabilitation services . for any medicare patient who does not meet these criteria , the ltch will be paid a lower `` site neutral '' payment rate , which will be the lower of : ( i ) the ipps comparable per diem payment rate capped at the ms drg payment rate plus any outlier payments ; or ( ii ) 100 percent of the estimated costs for services . the bba of 2013 provides for a transition to the site-neutral payment rate for those patients not paid at the ltch-pps standard federal payment rate . during the transition period ( applicable to hospital cost reporting periods beginning on or after october 1 , 2015 and on or before september 30 , 2017 ) , a blended rate will be paid for medicare patients not meeting the new criteria that is equal to 50 % of the site-neutral payment rate amount and 50 % of the standard federal payment rate amount . thereafter , an ltch will be paid solely based on the site-neutral payment rate for medicare patients not meeting the patient criteria . for discharges in cost reporting periods beginning on or after october 1 , 2017 , only the site-neutral payment rate will apply for medicare patients not meeting the new criteria . in addition , for cost reporting periods beginning on or after october 1 , 2019 , qualifying discharges from an ltch will continue to be paid at the ltch-pps standard federal payment rate , unless the number of discharges for which payment is made under the site-neutral payment rate is greater than 50 % 59 of the total number of discharges from the ltch for that period . if the number of discharges for which payment is made under the site-neutral payment rate is greater than 50 % , then beginning in the next cost reporting period all discharges from the ltch will be reimbursed at the site-neutral payment rate . the bba of 2013 requires cms to establish a process for an ltch subject to only the site-neutral payment rate to be reinstated for payment under the dual-rate ltch-pps . payment adjustments , including the interrupted stay policy and the 25 percent rule ( discussed below ) , apply to ltch discharges regardless of whether the case is paid at the standard federal payment rate or the site-neutral payment rate . however , short stay outlier payment adjustments do not apply to cases paid at the site-neutral payment rate . cms calculates the annual recalibration of the ms-ltc-drg relative payment weighting factors using only data from ltch discharges that meet the criteria for exclusion from the site-neutral payment rate . in addition , cms applies the ipps fixed-loss amount for high cost outliers to site-neutral cases , rather than the ltch-pps fixed-loss amount . cms calculates the ltch-pps fixed-loss amount using only data from cases paid at the ltch-pps payment rate , excluding cases paid at the site-neutral rate . for fiscal year 2017 , the ipps fixed-loss amount is set at $ 23,573 and the ltch-pps fixed-loss amount is $ 21,943. medicare market basket adjustments the aca instituted a market basket payment adjustment to ltchs . in fiscal years 2018 and 2019 , the market basket update will be reduced by 0.75 % . the medicare access and chip reauthorization act of 2015 sets the annual update for fiscal year 2018 at 1 % after taking into account the market basket payment reduction of 0.75 % mandated by the aca . the aca specifically allows these market basket reductions to result in less than a 0 % payment update and payment rates that are less than the prior year . 25 percent rule the `` 25 percent rule '' is a downward payment adjustment that applies if the percentage of medicare patients discharged from ltchs who were admitted from a referring hospital ( regardless of whether the ltch or ltch satellite is co-located with the referring hospital ) exceeds the applicable percentage admissions threshold during a particular cost reporting period . specifically , the payment rate for only medicare patients above the percentage admissions threshold are subject to a downward payment adjustment . for medicare patients above the applicable percentage admissions threshold , the ltch is reimbursed at a rate equivalent to that under general acute care hospital ipps , which is generally lower than ltch-pps rates . cases that reach outlier status in the referring hospital do not count toward the admissions threshold and are paid under ltch-pps .
| the increase in our adjusted ebitda margin is principally due to cost reductions in our concentra segment and the sale of our contract therapy businesses on march 31 , 2016 , which operated at lower adjusted ebitda margins compared to other segments , offset in part by adjusted ebitda losses incurred by our specialty hospitals segment , as mentioned above . net income attributable to holdings was $ 115.4 million for the year ended december 31 , 2016 , compared to $ 130.7 million for the year ended december 31 , 2015. the decrease in holdings ' net income was principally due to increased interest expense as a result of increases in our indebtedness used to finance the acquisitions of concentra and physiotherapy and increases in our interest rates associated with amendments of select 's credit facilities , increased depreciation and amortization expense as a result of the acquisitions of concentra and physiotherapy , and the loss on early retirement of debt related to our prepayment of concentra 's second lien term loan ( as discussed below ) . cash flows provided from operations for holdings increased to $ 346.6 million for the year ended december 31 , 2016 , compared to $ 208.4 million for the year ended december 31 , 2015. year ended december 31 , 2015 for the year ended december 31 , 2015 , our net operating revenues increased 22.1 % to $ 3,742.7 million compared to $ 3,065.0 million for the year ended december 31 , 2014 , principally due to the addition of our concentra segment and increases in net operating revenues in our specialty hospitals segment . we had income from operations for the year ended december 31 , 2015 of $ 274.8 million , compared to $ 284.5 million for the year ended december 31 , 2014. the decrease in our income from operations was principally due to increases in operating expenses at our specialty hospitals as further discussed under `` results of operations . '' net income was $ 136.0 million for the year ended december 31 , 2015 , which includes a pre-tax non-operating gain of $ 29.6 million . net income was $ 128.2 million for the year ended december 31 , 2014. our adjusted ebitda for the year ended december 31 , 2015 was $ 399.2 million , compared to
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ii-4 financing on may 6 , 2008 , the partnership refinanced the mortgage loans associated the plymouth , roseville and clearwater hotels with general electric credit corporation ( ge ) . a separate mortgage loan was issued with respect to each property , each collateralized by a property . an event of default under each mortgage loan constitutes an event of default under the other mortgage loans . the mortgage loans had original principal balances of $ 1,150,000 , $ 2,700,000 and $ 1,150,000 for the plymouth , roseville and clearwater hotels respectively . the mortgage loans each bear interest rates of 6.79 % and require monthly payments of principal and interest in the amounts of $ 8,837 , $ 20,748 and $ 8,837 for the plymouth , roseville and clearwater hotels respectively through june 30 , 2013 at which time the interest rates of the mortgage loans shall be adjusted based upon an index of the then prevailing five ( 5 ) year interest rate swap plus 366 basis points . the monthly principal and interest payments will be adjusted as of july 1 , 2013 to a monthly payment of principal and interest based upon the adjusted interest rate that will amortize the remaining balances over the remaining term of the mortgages . the mortgage loans have a maturity date of january 1 , 2016 , at which time the entire outstanding principal balances are due . on january 6 , 2012 , the clearwater loan and related interest was paid in full at the closing of the sale of the clearwater hotel . on may 6 , 2008 , the partnership closed a loan with remediation capital funding , llc ( remediation capital ) in the amount of $ 2,900,000 , of which $ 500,000 was held by the lender pending resolution of the environmental matter further discussed below . the loan was secured by the university hotel in minnesota . the loan with remediation capital was paid off on december 17 , 2010 and the $ 500,000 environmental escrow held by remediation capital was credited against the payoff on december 17 , 2010. on december 22 , 2010 , the partnership filed an 8-k stating that the partnership had entered into the loan agreement with franklin bank which constituted a material definitive agreement for sec purposes . on december 17 , 2010 , cri hotel of minnesota entered into a mortgage loan with franklin bank for the purpose of refinancing the loan with remediation capital , which was maturing on december 31 , 2011. franklin bank issued a loan secured by the university hotel to cri hotel of minnesota in the principal amount of $ 3,500,000 for a term of three ( 3 ) years with an interest rate of seven percent ( 7 % ) per year . the mortgage loan requires monthly payments of principal and interest in the amount of $ 27,350 through december 31 , 2013 at which time the entire outstanding principal balance is due . the partnership made installments of principal and interest for all mortgage loans aggregating $ 690,040 and $ 779,059 for the years ended december 31 , 2012 and 2011 , respectively . additionally , the $ 1,044,076 promissory note balance related to clearwater was paid at the january 6 , 2012 sale closing . the partnership 's aggregate balance on the loans was $ 6,718,617 and $ 7,967,777 as of december 31 , 2012 and december 31 , 2011 , respectively . the clearwater loan balance at december 31 , 2011 is included in liabilities related to assets held for sale . environmental matters in 2008 a phase i environmental study and subsequent phase ii environmental study of the university hotel required revealed excess levels of certain chemicals in the groundwater on the hotel property that are deemed hazardous . the partnership engaged nova as a consultant with respect to the environmental contamination of the university hotel property and to enroll the university hotel property in the voluntary investigation and cleanup ( “ vic ” ) program of the minnesota pollution control agency ( “ mpca ” ) . the partnership 's ultimate goal is to obtain a no further action letter determination with a covenant not to sue from mpca with respect to this environmental issue which will enable the university hotel to be refinanced at better rates and or ultimately sold without an ongoing environmental problem . nova conducted extensive testing of all aspects of the university hotel property from 2008 through early 2011 to determine the source of the observed contamination . nova has determined that the source of the solvent contamination appears to be on the northeast corner of the university hotel property . nova has recommended active remediation of the northeast corner of the property to mitigate the vapors and the potential for a continued intrusion condition . to facilitate a reduction in contaminant concentrations and the receipt of a subsequent no further action determination , nova prepared a corrective action design ( cad ) plan which was submitted to and approved by the mpca . in december of 2011 the installation of a remediation system which incorporates soil vapor extraction , groundwater sparging and air stripping technologies was completed . the remediation system is monitored and ground water and air samples are tested monthly to determine if risks associated with the contaminants are reduced to an acceptable level . the partnership has been informed by nova that the remediation system continues to operate as designed and that significant contaminants have been removed from the site , however , the effect on the groundwater will need to be monitored over a longer period of time . the remediation system will be operated until groundwater concentrations , sub-slab vapor concentrations , and other contaminants concentrations warrant a system shut-down test . at this time it is unknown as to how long the partnership will be required to continue the operations of the story_separator_special_tag ii-4 financing on may 6 , 2008 , the partnership refinanced the mortgage loans associated the plymouth , roseville and clearwater hotels with general electric credit corporation ( ge ) . a separate mortgage loan was issued with respect to each property , each collateralized by a property . an event of default under each mortgage loan constitutes an event of default under the other mortgage loans . the mortgage loans had original principal balances of $ 1,150,000 , $ 2,700,000 and $ 1,150,000 for the plymouth , roseville and clearwater hotels respectively . the mortgage loans each bear interest rates of 6.79 % and require monthly payments of principal and interest in the amounts of $ 8,837 , $ 20,748 and $ 8,837 for the plymouth , roseville and clearwater hotels respectively through june 30 , 2013 at which time the interest rates of the mortgage loans shall be adjusted based upon an index of the then prevailing five ( 5 ) year interest rate swap plus 366 basis points . the monthly principal and interest payments will be adjusted as of july 1 , 2013 to a monthly payment of principal and interest based upon the adjusted interest rate that will amortize the remaining balances over the remaining term of the mortgages . the mortgage loans have a maturity date of january 1 , 2016 , at which time the entire outstanding principal balances are due . on january 6 , 2012 , the clearwater loan and related interest was paid in full at the closing of the sale of the clearwater hotel . on may 6 , 2008 , the partnership closed a loan with remediation capital funding , llc ( remediation capital ) in the amount of $ 2,900,000 , of which $ 500,000 was held by the lender pending resolution of the environmental matter further discussed below . the loan was secured by the university hotel in minnesota . the loan with remediation capital was paid off on december 17 , 2010 and the $ 500,000 environmental escrow held by remediation capital was credited against the payoff on december 17 , 2010. on december 22 , 2010 , the partnership filed an 8-k stating that the partnership had entered into the loan agreement with franklin bank which constituted a material definitive agreement for sec purposes . on december 17 , 2010 , cri hotel of minnesota entered into a mortgage loan with franklin bank for the purpose of refinancing the loan with remediation capital , which was maturing on december 31 , 2011. franklin bank issued a loan secured by the university hotel to cri hotel of minnesota in the principal amount of $ 3,500,000 for a term of three ( 3 ) years with an interest rate of seven percent ( 7 % ) per year . the mortgage loan requires monthly payments of principal and interest in the amount of $ 27,350 through december 31 , 2013 at which time the entire outstanding principal balance is due . the partnership made installments of principal and interest for all mortgage loans aggregating $ 690,040 and $ 779,059 for the years ended december 31 , 2012 and 2011 , respectively . additionally , the $ 1,044,076 promissory note balance related to clearwater was paid at the january 6 , 2012 sale closing . the partnership 's aggregate balance on the loans was $ 6,718,617 and $ 7,967,777 as of december 31 , 2012 and december 31 , 2011 , respectively . the clearwater loan balance at december 31 , 2011 is included in liabilities related to assets held for sale . environmental matters in 2008 a phase i environmental study and subsequent phase ii environmental study of the university hotel required revealed excess levels of certain chemicals in the groundwater on the hotel property that are deemed hazardous . the partnership engaged nova as a consultant with respect to the environmental contamination of the university hotel property and to enroll the university hotel property in the voluntary investigation and cleanup ( “ vic ” ) program of the minnesota pollution control agency ( “ mpca ” ) . the partnership 's ultimate goal is to obtain a no further action letter determination with a covenant not to sue from mpca with respect to this environmental issue which will enable the university hotel to be refinanced at better rates and or ultimately sold without an ongoing environmental problem . nova conducted extensive testing of all aspects of the university hotel property from 2008 through early 2011 to determine the source of the observed contamination . nova has determined that the source of the solvent contamination appears to be on the northeast corner of the university hotel property . nova has recommended active remediation of the northeast corner of the property to mitigate the vapors and the potential for a continued intrusion condition . to facilitate a reduction in contaminant concentrations and the receipt of a subsequent no further action determination , nova prepared a corrective action design ( cad ) plan which was submitted to and approved by the mpca . in december of 2011 the installation of a remediation system which incorporates soil vapor extraction , groundwater sparging and air stripping technologies was completed . the remediation system is monitored and ground water and air samples are tested monthly to determine if risks associated with the contaminants are reduced to an acceptable level . the partnership has been informed by nova that the remediation system continues to operate as designed and that significant contaminants have been removed from the site , however , the effect on the groundwater will need to be monitored over a longer period of time . the remediation system will be operated until groundwater concentrations , sub-slab vapor concentrations , and other contaminants concentrations warrant a system shut-down test . at this time it is unknown as to how long the partnership will be required to continue the operations of the
| recent accounting pronouncements in september 2011 , the fasb issued accounting standard update ( asu ) no . 2011-04 , `` fair value measurement : amendments to achieve common fair value measurement and disclosure requirements in u.s. gaap and ifrs '' . this update amends the guidance on fair value measurements to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with us gaap and international financial reporting standards ( `` ifrs '' ) . this asu does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting . the partnership adopted this update as of january 1 , 2012 and the adoption did not have a material impact on the partnership 's results of operations , financial position , or cash flows during the year ended december 31 , 2012. ii-1 results of operation - partnership we experienced continued positive business trends in 2012 , with improvement in demand and average daily rate compared to the prior year in most of our hotels . for the year ended december 31 , 2012 , as compared to 2011 , we generally experienced increases in occupancy and average daily rate resulting in increases in operating performance at most of our hotels . for 2013 , we believe that if various economic forecasts projecting continued modest expansion are accurate , this may lead to a gradual and modest increase in lodging demand for both leisure and business travel , although we expect there to be continued pressure on rates , as leisure and business travelers alike continue to focus on cost containment . as such , there can be no assurances that any increases in hotel revenues or earnings at our properties will occur , or be sustained , or that any losses will not increase for these or any other reasons . 2012 versus 2011 the partnership recognized net income for the year ended december 31 ,
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